Climate-Proofing the Global Supply Chain

• In Event: Climate and Geopolitics in Global Value Chains

Abstract

Efforts to enhance the security and resilience of global supply chains have focused primarily on the risks stemming from geopolitical conflict and less on the looming impacts of climate change. In this project we study the interaction of these two forces in the choice of climate adaptation strategies: on the one hand, the desire of governments to limit the economic leverage that embedded supply chains can offer a rival, on the other, ensuring that supply chains can be adapted to a changing climate. We take as a starting point the analysis of the divergence between private and social incentives to investing in climate resilient locations by analogy to the decision to invest in COVID-19 vaccines prior to their approval (Athey et. al. 2022, Bown, Snyder, Staiger 2022). Unlike shocks caused by pandemics, climate shocks have differential affects across firms: evidence from the US Census of Manufactures suggests that the economic effects of temperature shocks increase energy costs of smaller manufacturing facilities in particular and promoting the reallocation of labor from small to large manufacturing plants. MoreoverIn the global economy, such firms will be differentially embedded in supply chains. As a result, reliance on a specialized node in the supply chain raises the risk that any given facility along the chain would be disrupted by a climate shock. To understand these tradeoffs, we model the relationship between geography, endogenous global production networks, and climate shocks to examine whether deepening global supply chains will enable the creation of more robust facilities or instead weaken adaptation by encouraging firms to shift to less regulated markets.

Athey, Susan, Juan Camilo Castillo, Esha Chaudhuri, Michael Kremer, Alexandre Simoes Gomes, Christopher M. Snyder. 2022. “Expanding Capacity for Vaccines Against Covid-19 and Future Pandemics: A Review of Economic Issues,” mimeo, January.
Bown, Chad P., Christopher M. Snyder, Robert W. Staiger. 2022. “Vaccine Supply Chain Resiliance and International Cooperation”

Authors

• Robert Gulotty, University of Chicago

• Zikai Li, University of Chicago