Global Supply Chains: Why They Emerged, Why They Matter, and Where They are Going

37 Pages Posted: 28 Sep 2012

See all articles by Richard E. Baldwin

Richard E. Baldwin

University of Geneva - Graduate Institute of International Studies (HEI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: August 2012

Abstract

Global supply chains (GSCs) are transforming the world. This paper explores why they emerged, why they are significant and future directions they are likely to take along with some implications for policy. After putting global supply chains into an historical perspective, the paper presents an economic framework for understanding the functional and geographical unbundling of production. The fundamental trade off in supply chain fractionalisation is between specialisation gains and coordination costs. The key trade-off in supply chain dispersion is between dispersion and agglomeration forces. Supply-chain trade should be not viewed as standard trade in parts and components rather than final goods. Production sharing has linked cross-border flows of goods, investment, services, know-how and people in novel ways. The paper suggest that future of global supply chains will be influenced by: 1) improvements in coordination technology that lowers the cost of functional and geographical unbundling, 2) improvements in computer integrated manufacturing that lowers the benefits of specialisation and shifts stages toward greater skill-, capital, and technology-intensity, 3) narrowing of wage gaps that reduces the benefit of North-South offshoring to nations like China, and 4) the price of oil that raises the cost of unbundling.

Keywords: global supply chains, globalisation, second unbundling

JEL Classification: F1, F2, F21, F23, F43

Suggested Citation

Baldwin, Richard E., Global Supply Chains: Why They Emerged, Why They Matter, and Where They are Going (August 2012). CEPR Discussion Paper No. DP9103. Available at SSRN: https://ssrn.com/abstract=2153484

Richard E. Baldwin (Contact Author)

University of Geneva - Graduate Institute of International Studies (HEI) ( email )

PO Box 136
Geneva, CH-1211
Switzerland
+41 22 908 5933 (Phone)
+41 22 733 3049 (Fax)

HOME PAGE: http://www.hei.unige.ch/~baldwin/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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