Risks and Global Supply Chains: What We Know and What We Need to Know

Abstract

Recent supply disruptions catapulted the issue of risk in global supply chains (GSCs) to the top of policy agendas and created the impression that shortages would have been less severe if GSCs had been either shorter and more domestic or more diversified. But is this right? We start our answer by reviewing studies that look at risks to and from GSCs and at how GSCs have recovered from past shocks. We then look at whether GSCs are too risky, starting with business research on how firms approach the cost-resilience trade-off. We propose the risk-versus-reward framework from portfolio theory as a good way to evaluate whether anti-risk policy is justified. We then discuss how exposures to foreign shocks are measured and argue that exposure is higher than direct indicators imply. Finally, we consider the future of GSCs in light of current policy proposals and advancing technology before pointing to the rich menu of topics for future research on the risk-GSC nexus. Expected final online publication date for the Annual Review of Economics, Volume 14 is August 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.