Modelling economic and social dimensions of global supply chains

Led by Holger Görg and Horst Raff

What exactly constitutes “fair” or “unfair” production, and what are the consequences of choosing one or the other? – these are two major questions that this research project aims to investigate.

Given increasing size and complexity of global supply chains leads to market outcomes, answering these questions is, however, not straightforward but rather requires careful economic modelling of supply chains and rigorous empirical analysis. This is exactly what will be done in this project.

More concretely, we focus on two potential concerns that may arise when trade is organized along global supply chains and that consumers or firms may view as leading to “unfair” production. The first concern is that supply chains may transmit economic shocks across countries and thereby increase income and employment risks. In fact, there is some evidence suggesting that supply chains may shift such risks from rich to poor countries that are much less able to protect their citizens.

The second concern arises from the fact that many global supply chains are dominated by powerful buyers, often large multinational enterprises. It is feared that this imbalance in bargaining power may reduce incentives to invest in innovation or clean technology especially for suppliers located in developing countries. If so, what does this imply for the ability of developing countries to move up the value chain by moving into higher value-added production stages, and ultimately for the wages earned by workers?