Supply Chain Disruptions, the Structure of Production Networks, and the Impact of Globalization

2025-11-05

Social Science Research Network

AI Summary

This paper investigates how supply chain disruptions propagate across goods and final consumers in multi-sector international production networks, focusing on how node positions and network structural features shape systemic vulnerability. We develop a parsimonious model integrating production network theory with multi-sector general equilibrium, employing analytical derivation and comparative statics. Our results show: (1) Disruption shocks exhibit a “sharp short-term, decaying long-term” dynamic; (2) Node centrality and network complexity significantly amplify global welfare losses from localized disruptions; (3) Declining transport costs reduce disruption frequency but reinforce specialization, thereby exacerbating negative spillovers from single-node failures; (4) Countries can acquire asymmetric economic influence through control over production and strategic trade quotas. The study provides a structured theoretical benchmark for assessing globalization-related risks and designing supply chain resilience policies.

Technology Category

• Planning, Routing, and Scheduling: Optimization of Spatio-temporal Systems
• Game Theory and Economic Paradigms: Coordination and Collaboration
• Constraint Satisfaction and Optimization: Distributed CSP/Optimization

Application Category

• Social Networks and Social Media: Social media analysis through the lenses of networks
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs

Abstract

We introduce a parsimonious multi-sector model of international production and use it to study the impact of a disruption in the production of some goods propagates to other goods and consumers, and how that impact depends on the goods'positions in, and overall structure of, the production network. We show that the short-run impact of a disruption can be dramatically larger than the long-run impact. The short-run disruption depends on the value of all of the final goods whose supply chains involve a disrupted good, while by contrast the long-run disruption depends only on the cost of the disrupted goods. We use the model to show how increased complexity of supply chains leads to increased fragility in terms of the probability and expected short-run size of a disruption. We also show how decreased transportation costs can lead to increased specialization in production, lowering the chances for disruption but increasing the impact conditional upon disruption. We use the model to characterize the power that a country has over others via diversions of its production as well as quotas on imports and exports.

Problem

• Modeling how supply chain disruptions propagate through global production networks
• Analyzing how supply chain complexity increases economic fragility
• Examining how globalization affects disruption impacts via specialization patterns

Innovation

• Multi-sector model analyzes production network disruptions
• Short-run impacts exceed long-run in supply chains
• Model assesses globalization effects on economic resilience