Shifting Production, Shifting Returns: Nearshoring and Functional Income Redistribution

Nearshoring, identified at an aggregate level as a situation in which an economic system uses a greater proportion of inputs produced by nearby areas compared to those produced in faraway areas, risks becoming an important source of functional income redistribution. Such an issue has never been tackled in the literature at regional level, neither conceptually nor empirically. This paper fills such a gap. It elaborates on the effects of nearshoring on the remunerations of production factors and provides empirical evidence testing the expectations on the European regions. Results witness that functional income redistribution in favour of capital owners is higher in regions where capital is concentrated, strongly affecting intra-regional functional income inequalities. Within such regions, core areas, where financial capital is concentrated, register the highest increase in income disparities, witnessing that nearshoring can become a source of regional disparities. If this is the case, regional structural policies mitigating the worsening of income disparities are necessary if nearshoring further develops in Europe through the new trade policy as advocated by the EU “Economic Security” strategy.