Effect of a Full Internalization of External Costs of Global Supply Chains on Production, Trade and Transport

A major obstacle for internalization of external costs is the uncertainty about the economic impacts for different economic sectors and regions of the world. The paper reports about a recent study into the effects of a full internalization of external effects of supply chains worldwide. Besides redistribution of production and trade, the authors also calculate changes in global transport flow patterns. The method rests on a two-stage model for global impact assessment: a spatial computable general equilibrium (SCGE) model and a global multimodal routing model for transport flows. The main finding is that, although the effects for specific sectors can be significant, the overall impacts on the economy, on trade and on transport are small.