Working Paper

Nearshoring, global value chains structure and volatility

Bontadini, F., Meliciani, V.,Savona, M., Wirkierman, A. (2023) Nearshoring, global value chains’ structure and volatility. Working Paper 8/2023, Luiss Institute for European Policy and Analysis

Published 25 September 2023

The notion of nearshoring has drawn significant attention in the policy debate to the future of global value chains (GVCs). In the current, more turbulent, economic context it has become relevant to consider what changes GVCs should undergo in order to ensure economic production. However, there is currently no systematic quantitative evidence exploring how different GVC structural features and production are related to each other. We set out to remedy this not only by studying the association between GVC final output growth and their structure, but also by focusing on the propagation of supply shocks. We ask, specifically, two interrelated key questions. First, we assess whether GVC participation increases exposure to shocks, hampering GVC output. Second, we study whether GVC structural features, such as nearshoring, length and concentration, mediate supply shocks and their relationship with GVC output growth. Our results suggest that GVCs that are more domestic, i.e. production processes sourcing little value added from abroad, see slower real output growth and have a stronger negative association with supply shocks. Among the structural features of GVCs we find more heterogenous results. The length, i.e. the degree of fragmentation of production, is associated with slower growth in GVC’s real output but at the same time seems to attenuate the negative relationship between supply shocks and real GVC output growth. These results offer novel evidence and contribute to a nuanced understanding of how GVC integration and its structure relates to output growth and the propagation of shocks.

Author Profiles

Filippo Bontadini

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Valentina Meliciani

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Headshot of Maria Savona

Maria Savona

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Ariel Wirkierman

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