Reshoring and plant closures in Covid-19 times: Evidence from Italian MNEs

Abstract

This paper provides new evidence on the reorganization of global production exploiting a novel dataset of Italian multinational firms surveyed throughout 2020 and 2021 as well as consolidated data sources. We find that Covid-19 did not spur large waves of reshoring nor plant closures. Even though the pandemic caused severe losses to firms, including multinationals, most did not stop foreign production nor are willing to do so in the near future. Trade policy uncertainty, conversely, is 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, on the other side, are asymmetric in important ways. In the presence of sunk costs, reshoring requires sufficiently large and permanent shocks to demand, trade and foreign production costs to induce behavioral changes. Covid-19 was a major shock, but it was mostly perceived as temporary, while persistent trade policy uncertainty, especially if combined with other shocks, is more likely to induce firms to revise their internationalization strategies.