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Reshoring and plant closures in covid-19 times : evidence from Italian MNEs
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1028-3625
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EUI RSC; 2021/94; Global Governance Programme-458; [Global Economics]
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DI STEFANO, Enrica, GIOVANNETTI, Giorgia, MANCINI, Michele, MARVASI, Enrico, VANNELLI, Giulio, Reshoring and plant closures in covid-19 times : evidence from Italian MNEs, EUI RSC, 2021/94, Global Governance Programme-458, [Global Economics] - https://hdl.handle.net/1814/73468
Abstract
This paper provides new evidence on reshoring and plant closures ex-ploiting a novel dataset of Italian multinational firms surveyed throughout 2020 and 2021, the years of the Covid-19 pandemic. We find that Covid-19 did not spur large waves of reshoring nor plant closures. Even though the pandemic has caused severe losses to firms, including multinationals, most did not stop foreign production nor are willing to do so in the near future. Furthermore, they maintained existing suppliers. Tariffs and trade policy uncertainty, on the other hand, are more likely to induce reshoring and plant closures. This evidence is consistent with a simple multi-period model, illustrating how offshoring, on the one side, and reshoring or plant closures, on the other side, are asymmetric in important ways. In the presence of sunk costs, reshoring and plant closures require sufficiently large and permanent shocks to demand, trade and foreign production costs to induce behavioural changes. Covid-19 was a major shock, but it was mostly perceived as temporary, while persistent trade policy un-certainty, especially if combined with other shocks, might induce firms to revise their internationalization strategies.