Measuring Smile Curves in Global Value Chains

Abstract

The logic of the ‘smile curve’ in the context of global value chains (GVCs) has been widely used in case studies of individual firms, but rarely identified at the country‐industry level by using real data. This paper puts forward a proposal, based on an inter‐country input–output model, to consistently measure both the gain of value added and the position of countries and industries when they join GVCs. This allows for better identification and mapping of economy‐wide smile curves in a given conceptual value chain. Using the World Input‐Output Tables, we identify the Information and Communications Technology exports‐related smile curves for China and the United States (US), which provide an intuitive and visual representation of who gains value added and jobs through joining GVCs, and to what extent. Further insight into the distributional implications of GVC expansion, based on our analysis of labour markets for China and the US, provides a strong support for the so‐called ‘Paradoxical Pair of Concerns’ between developed and developing countries. Our empirical results show that gains through joining GVCs may vary greatly across different skill levels of labour domestically, a fact that has, at least in part, been a driver of the backlash against globalization and the rise of trade protectionism.

Global value chains and labour markets – simultaneous analysis of wages and employment

“…Hence, improving the country's position in the value chain is beneficial for not only wages but also labour demand. Such an improvement could be achieved via successful innovation (Meng et al, 2020).…”

New patterns in the position of CEE countries in global value chains: functional specialisation approach

“…1-126), the founder of Acer, who observed that both ends of the value chain (pre-and post-production service activities) generate higher values added to the product than the middle of the value chain (fabrication activities). The smile curve logic has been widely used in the context of GVCs (Meng & Wei, 2020, pp. 988-1016.…”

Employment effects of joining global production networks: Does domestic value-added matter?

“…This policy emphasis is based on the premise that a country can reap gains by joining global value chains on the basis of existing comparative advantages (for example, through the export of labour-intensive products) and then moving towards more sophisticated production processes. This concept is known as the smiling curve (Meng et al 2020;Mudambi 2008). Current import substitution proponents also promote high domestic value-added by upgrading towards high-value segments of the value chain.…”