Friend-shoring and fragmentation: threat or opportunity for developing countries?

IMF 2022 views friend-shoring and fragmentation primarily as a threat to developing countries, causing long-term productivity and GDP losses outweighing any selective opportunities.

The IMF's 2022 analysis treats geoeconomic fragmentation—including friend-shoring and sectoral trade decoupling—as a net threat to developing countries, estimating substantial long-term GDP losses due to reduced specialization, scale economies, and knowledge diffusion; while acknowledging that some EMDEs might benefit from nearshoring or supply chain relocations, the dominant finding is that fragmentation—especially in energy and high-tech sectors—imposes disproportionate costs on emerging market and developing economies, particularly those with high trade exposure, low liquidity, or high debt-to-asset ratios.

IMF 2023 sees friend-shoring as a net threat to developing countries, causing modest or negative GDP impacts and reducing FDI and GVC participation.

The IMF (2023) views geoeconomic fragmentation—including friend-shoring and reshoring—as a net threat to developing countries, particularly in Asia. While acknowledging potential benefits such as enhanced supply chain resilience and technological diversification for some advanced economies, the IMF finds that friend-shoring leads to only marginal long-term GDP gains (around 1%) for non-OECD Asian economies—and that reshoring causes significantly larger losses. Crucially, the IMF estimates that even modest increases in friend-shoring reduce global GDP by 0.25% per percentage point, with developing countries bearing disproportionate costs due to reduced FDI inflows, weakened participation in global value chains, and diminished export opportunities. These negative spillovers outweigh any selective advantages, especially given the strong home bias in sourcing and the risk of heightened macroeconomic vulnerability.

IMF 2024 sees friend-shoring and fragmentation as a net threat to developing countries due to efficiency losses, GVC disruption, and uneven, unsustainable benefits.

The IMF (2024) views geoeconomic fragmentation—including friend-shoring, nearshoring, and supply chain reconfiguration—as a net threat to developing countries, primarily because it reduces trade efficiency, distorts intermediate goods flows, and disproportionately harms economies deeply integrated into global value chains across politically distant blocs; while some developing countries like Vietnam and Mexico have benefited from partial US sourcing shifts away from China, these gains are offset by broader losses in specialization, economies of scale, competition, and productivity—especially for those unable to align with dominant blocs or access critical technologies and finance.

No stance found: IMF 2025 reports excerpted do not address friend-shoring or fragmentation's impact on developing countries.

The provided excerpts from the IMF's 2025 reports do not address the question of whether friend-shoring and geoeconomic fragmentation represent a threat or opportunity for developing countries. None of the cited documents—including the '2025 External Sector Report' or listed working papers—contain substantive analysis, findings, or policy positions on friend-shoring, supply chain reconfiguration, nearshoring, or their implications for developing economies.

The IMF views friend-shoring and fragmentation as a significant threat to developing countries in 2026, worsening investment flows, supply chain stability, and macroeconomic resilience amid geopolitical conflict.

The IMF's 2026 reports frame geoeconomic fragmentation—including friend-shoring, nearshoring, and supply chain decoupling—as a net threat to developing countries, citing reduced foreign direct investment, disrupted supply chains, diminished technological diffusion, and heightened vulnerability to capital flow reversals—especially for those with weak policy frameworks, limited fiscal/external buffers, or high dependence on remittances or commodity imports. These risks are amplified by ongoing geopolitical conflicts, which exacerbate volatility, erode real incomes, threaten food security, and increase the likelihood of balance-of-payments distress and social unrest in vulnerable regions like Sub-Saharan Africa.

Friend-shoring is a conditional opportunity for developing countries — beneficial only with strong industrial policies supporting capabilities, infrastructure, and regional integration.

UNIDO's 2026 position is that geoeconomic fragmentation — including friend-shoring and supply chain reconfiguration — presents both significant risks and tangible opportunities for developing countries, but the net outcome depends critically on proactive industrial policy. Risks include premature deindustrialization due to reshoring in advanced economies, reduced market access, and friendshoring locking developing countries into low-value-added segments without upgrading pathways. However, opportunities exist — particularly for middle- and low-income industrializing countries — to capture new export markets (e.g., Vietnam, Mexico, India, Bangladesh) and even leapfrog into higher-tech manufacturing, provided they invest strategically in production capabilities, logistics and digital infrastructure, regional integration, and science, technology and innovation systems.

EBRD 2022 sees friend-shoring and fragmentation as welfare-reducing threats for developing countries, eroding comparative advantage gains and undermining shock resilience, not opportunities.

The EBRD's 2022 Transition Report views friend-shoring and geoeconomic fragmentation as net threats for developing countries, not opportunities. It argues that prioritising trade with 'friends'—countries with similar income levels and institutions—eliminates gains from comparative advantage and leads to welfare losses, particularly harming developing economies that rely on exporting to higher- and lower-income partners. While nearshoring or friendshoring may mitigate some supply chain risks (e.g., geopolitical shocks), they simultaneously reduce resilience to local shocks (e.g., climate events or labour disruptions) by limiting trade-based risk diversification. The report stresses that such policies must be weighed carefully against these costs and urges integrating environmental considerations—including climate resilience—into supply chain strategy.