The COVID‐19 pandemic and internationalisation of production – A review of literature

Kersan‐Škabić, Ines

MOTIVATION: The COVID‐19 pandemic has substantially altered the context for cross‐border business. This is reflected in trade flows but also affects the conditions for conducting dispersed production functions across countries. This “new normal” period presents the need to examine the main problems/challenges in international trade and business. PURPOSE: The article aims to establish the scope, aspects and implications of the COVID‐19 pandemic on international trade and on international production by reviewing recent articles which deal with international trade and global value chain (GVC) issues, changes that were already taking place and the challenges that began in 2020. METHODS AND APPROACH: The findings of recent articles on trade flows and changes in GVCs (mainly the period 2019–2021) are described in theoretical terms, compared and systematically reviewed. Special focus is given to the impact of the pandemic on GVCs, re‐nationalization and GVCs and the impact of the pandemic on GVC governance, and GVCs in the production of vaccines for the COVID‐19 virus. FINDINGS: Trade recorded a drop in 2020, accompanied with the introduction of protective trade policy measures. Reduced GVC activities had a negative impact on welfare and the “re‐nationalization” of GVC‐related activities is not a real solution. For the development of GVCs it is important to find a trade‐off between efficiency and resilience, starting with re‐organization (re‐engineering) of GVCs, and probably focusing on regional frameworks. Liberal trade policies are essential to ensure the involvement of GVCs in producing the COVID‐19 vaccines since the various inputs are produced in different countries. POLICY IMPLICATIONS: The possible directions for the future development of GVCs are elaborated: re‐shoring, resilience in supply chains, adjustments in governance, diversification and development of risk‐management strategies. The process of internationalization is not in question, but presents challenges which create the need for adjustments in its future development. Current problems with vaccine production arise in part from imposed trade barriers and rising nationalism. There is a need for greater cross‐country co‐operation to avoid placing national short‐term interests before long‐term and broader objectives.