Automation, Reshoring and Diversification in a World of Uncertainty

• Applicant: Professorin Dr. Dalia Marin
• Subject Area: Economic Policy, Applied Economics ; Economic Theory
• Term: since 2024
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 536617744

The proposed project aims to explain the declining trend in global supply chains and the slowdown in world trade since the financial crisis. We plan to examine global uncertainty shocks as a driving force behind the decline in supply chains. To guide the empirical strategy the proposed project will develop a theoretical framework to study the forces that jointly determine firms’ decision to source inputs from one or more countries (diversification) or to reshore the input to the domestic market when faced with the risk of supply chain disruptions. Firms may avoid the higher costs of domestic production if they can replace the foreign input task by a domestic robot. Exploiting plausible exogenous variation in the exposure to uncertainty in the developing world, we plan to show that uncertainty will lead to reshoring but likely only if automation makes this economically feasible. We also plan to explore the role of diversification and nearshoring as coping mechanisms against uncertainty shocks. We plan to address concerns about identification with our uncertainty shift-share instrument by performing a placebo test for pre-trends, by examining whether realized uncertainty shocks are as good as randomly assigned, and by exploring whether alternative ways of calculating standard errors yield similar results.

• DFG Programme: Research Grants