Rising Risks to Global Value Chains

The expansion of global value chains (GVCs) has plateaued since the global financial crisis of 2008–2009 due to the slowdown in hyperglobalization (Chapter 1; Antràs 2020a; World Bank 2020). Old and new risks to GVCs, as well as shocks, threaten the continued viability of these chains. The risks and shocks include extreme weather events, trade and technology wars, increased protectionism, geopolitical tensions, and COVID-19. IMF (2021a) defines risk as the effect of uncertainty on objectives—and by inducing uncertainty, shocks constitute an underlying source of risks, along with limited information and an imprecise understanding of the sources and mechanisms triggering shocks, which contributes to uncertainty. Given all this, the first three sections of this chapter are taken up by an overview of the sources, mechanisms, and effects of the three main types of meta-risks: geopolitical, environmental, and those stemming from the COVID-19 pandemic.1 While addressing primarily the implications of the three risks for GVCs, these sections also take note of reverse causal effects, where GVCs exacerbate those risks.2 The chapter then examines the relative resilience of GVCs to shocks depending on the nature and magnitude of the shock as well as on GVC features, industry and firm topographies, availability of substitutions, degree of transactional stickiness, and type of shock (geopolitical, environmental, COVID-19). The subsequent section examines mutual interactions across all three risks and their compounded effects. The chapter concludes with policy recommendations and a discussion on future directions in the burgeoning analysis of risks to GVCs.