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Supply Chain Economics

Paper Session

Sunday, Jan. 5, 2025 8:00 AM - 10:00 AM (PST)

Parc 55, Cyril Magnin 3
Hosted By: American Economic Association
  • Chair: James Poterba, Massachusetts Institute of Technology and NBER

Supply Chain Disruptions, the Structure of Production Networks, and the Impact of Globalization

Matthew Elliott
,
University of Cambridge
Matthew Jackson
,
Stanford University

Abstract

We introduce a parsimonious multi-sector model of international production and use it to study how a disruption in the production of intermediate goods propagates through to final goods, and how that impact depends on the goods' positions in, and overall structure of, the production network. We show that the short-run disruption can be dramatically larger than the long-run disruption. The short-run disruption depends on the value of all of the final goods whose supply chains involve a disrupted good, while by contrast the long-run disruption depends only on the cost of the disrupted goods. We use the model to show how increased complexity of supply chains leads to increased fragility in terms of probability and expected short-run size of a disruption. We also show how decreased transportation costs can lead to increased specialization in production, with lower chances for disruption but larger impacts conditional upon disruption.

Hidden Exposure: Measuring U.S. Supply Chain Reliance

Richard Baldwin
,
International Institute for Management Development
Rebecca Freeman
,
Bank of England
Angelos Theodorakopoulos
,
Bank of England and Aston Business School

Abstract

Supply chain problems, previously relegated to specialized journals, now appear in G7 Leaders’ Communiqués. Our paper looks at three core elements of the problems: measurement of the links that expose supply chains to disruptions, the nature of the shocks that cause the disruptions, and the criteria for policy to mitigate the impact of disruptions. Utilizing global input-output data, we show that US exposure to foreign suppliers, and particularly to China, is ‘hidden’ in the sense that it is much larger than what conventional trade data suggest. However, at the macro level, exposure remains relatively modest, given that over 80% of US industrial inputs are sourced domestically. We argue that many recent shocks to supply chains have been systemic rather than idiosyncratic. Moreover, systemic shocks are likely to arise from climate change, geoeconomic tensions, and digital disruptions. Our principal conclusion is that concerns regarding supply chain disruptions, and policies to address them, should focus on individual products, rather than the whole manufacturing sector.

Economies of Scope and Relational Contracts: Exploring Global Value Chains in the Automotive Industry

Abdul Munasib
,
U.S. Bureau of Economic Analysis
Susan Helper
,
Case Western Reserve University
Jessica McCloskey
,
Bureau of Economic Analysis

Abstract

Most economic theories of value-chain governance examine one transaction
at a time and focus on transaction type as the key determinant of
governance. We instead consider several transactions jointly, suggesting that
lead firms experience economies of scope in developing relational contracts
with suppliers. A key determinant of governance is thus organization strategy
(e.g., Toyota collaborates with all suppliers, including commodity-suppliers).
Using U.S. Customs data on every component imported by vehicle
manufacturers, we find that Japanese vehicle manufacturers have half as
many suppliers per part as U.S. vehicle manufacturers and 70 percent longer
relationships, even after controlling for product attributes.

The Causal Effects of Global Supply Chain Disruptions on Macroeconomic Outcomes: Evidence and Theory

Xiwen Bai
,
Tsinghua University
Jesus Fernandez-Villaverde
,
University of Pennsylvania
Yiliang Li
,
University of International Business and Economics
Francesco Zanetti
,
University of Oxford

Abstract

We study the causal effects and policy implications of global supply chain disruptions. We construct a new index of supply chain disruptions from the mandatory automatic identification system data of container ships, developing a novel spatial clustering algorithm that determines real-time congestion from the position, speed, and heading of container ships in major ports around the globe. We develop a model with search frictions between producers and retailers that links spare productive capacity with congestion in the goods market and the responses of output and prices to supply chain shocks. The co-movements of output, prices, and spare capacity yield unique identifying restrictions for supply chain disturbances that allow us to study the causal effects of such disruptions. We document how supply chain shocks drove inflation during 2021 but that, in 2022, traditional demand and supply shocks also played an important role in explaining inflation. Finally, we show how monetary policy is more effective in taming inflation after a global supply chain shock than in regular circumstances.

Discussant(s)
Pol Antràs
,
Harvard University
Laura Alfaro
,
Harvard Business School
Silke Forbes
,
Tufts University
Woan Foong Wong
,
University of Oregon
JEL Classifications
  • F6 - Economic Impacts of Globalization
  • L1 - Market Structure, Firm Strategy, and Market Performance