IMF Working Papers

Supply Chain Diversification and Resilience

By JaeBin Ahn, Brandon Tan

May 23, 2025

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Format: Chicago

JaeBin Ahn, and Brandon Tan. "Supply Chain Diversification and Resilience", IMF Working Papers 2025, 102 (2025), accessed June 22, 2025, https://doi.org/10.5089/9798229011419.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper develops a new multi-country and multi-sector general equilibrium trade model to analyze extent to which the diversification of sources of imports mitigates the impact of adverse trade shocks. The model incorporates trade network rigidities arising from frictions in goods, labor, and local factor markets. Because countries cannot immediately reconfigure supply chains in response to shocks, supply chain diversification can potentially improve resilience, at the cost of efficiency. Quantifying the resilience-efficiency trade-off suggests that diversifying the sources of targeted imports—those more exposed to shocks, positioned upstream in the supply chain, and subject to greater rigidities—can enhance expected welfare when the probability of a large trade shock is sufficiently high.

Subject: Economic theory, Imports, International trade, Labor, Labor mobility, Supply shocks, Tariffs, Taxes

Keywords: Caribbean, Diversification, Diversification of source, Equilibrium trade model, Global, Imports, Labor mobility, Resilience-efficiency trade-off, Supply chain diversification, Supply Chains, Supply shocks, Tariffs, Trade, Trade network rigidity

Publication Details

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