![](https://i.imgur.com/CLvY2jA.png")
11-04-2023, 07:33 AM
Friend-shoring: what is it, and why could it be harmful?
#Econgram_World
Facts:
1) In 2021, 51.7% of the states’ foreign direct investment* was focused on their geopolitical allies. In contrast, only 38.7% was invested in geographically close countries.
2) Friend-shoring is a trade practice where countries shift their investment and supply chains to their political allies. The IMF estimates that friend-shoring could cut the global GDP by 2% in the long run.
Analysis:
1) Developed countries often practice friend-shoring to enhance national security and maintain a technological advantage over geopolitical rivals. For example, the U.S. is discouraging its firms from investing in China.
2) However, friend-shoring harms both developed and developing countries.
- For companies in advanced economies, it reduces supplier diversification. Because firms rely on fewer suppliers, they become vulnerable to economic shocks in suppliers’ countries.
- Developing countries lose investment from advanced economies because of friend-shoring. Lack of foreign investment suppresses aggregate demand, leading to a decrease in economic output. Besides, companies in developing countries lose a chance to import technologies and knowledge from leading firms in developed economies.
https://www.imf.org/en/Blogs/Articles/20...es-hardest
#Econgram_World
Facts:
1) In 2021, 51.7% of the states’ foreign direct investment* was focused on their geopolitical allies. In contrast, only 38.7% was invested in geographically close countries.
2) Friend-shoring is a trade practice where countries shift their investment and supply chains to their political allies. The IMF estimates that friend-shoring could cut the global GDP by 2% in the long run.
Analysis:
1) Developed countries often practice friend-shoring to enhance national security and maintain a technological advantage over geopolitical rivals. For example, the U.S. is discouraging its firms from investing in China.
2) However, friend-shoring harms both developed and developing countries.
- For companies in advanced economies, it reduces supplier diversification. Because firms rely on fewer suppliers, they become vulnerable to economic shocks in suppliers’ countries.
- Developing countries lose investment from advanced economies because of friend-shoring. Lack of foreign investment suppresses aggregate demand, leading to a decrease in economic output. Besides, companies in developing countries lose a chance to import technologies and knowledge from leading firms in developed economies.
https://www.imf.org/en/Blogs/Articles/20...es-hardest
![[+]](https://sgtalk.net/images/bootbb/collapse_collapsed.png)
