Measuring Smile Curves in Global Value Chains
Published date | 01 October 2020 |
Date | 01 October 2020 |
Author | Ming Ye,Shang‐Jin Wei,Bo Meng |
DOI | http://doi.org/10.1111/obes.12364 |
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©2020 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd.
OXFORD BULLETIN OF ECONOMICSAND STATISTICS, 82, 5 (2020) 0305–9049
doi: 10.1111/obes.12364
Measuring Smile Curves in Global Value Chains*
Bo Meng†,‡, Ming Ye§,¶ and Shang-Jin Wei††, ‡‡, §§, ¶¶
†Institute of Developing Economies – JETRO, Chiba, Japan
‡Tokyo Foundation for Policy Research, Tokyo, Japan
§Yangtze River Industrial Economic Research Institute, Nanjing University, China
¶OECD, Paris, France (e-mail: ymblake@163.com)
††Columbia Business School, Columbia University, New York, USA
‡‡College of Business and Economics, Australian National University, Canberra ACT,
Australia
§§Fanhai International School of Finance, Fudan University, Shanghai, China
¶¶National Bureau of Economic Research, Cambridge, USA
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.
I. Introduction
The increasing presence of global value chains (GVCs) has been considered one of the most
important phenomena of 21st century trade (Baldwin, 2011). Although the
JEL Classification numbers: F6, F13, F15, D57.
*Wethank Prof. Zhi Wang(George Mason University), Dr.David Dollar (Brookings Institution), Dr. Nadim Ahmad
(OECD), Dr.Deborah Winkler (WorldBank Group), Prof. Jinjun Xue (Nagoya University), Dr.YuningGao (Tsinghua
University), Prof. Long Ke(TFPR: the Tokyo Foundationfor Policy Research) and the anonymous reviewers for their
helpful comments. This paper is partly supported by the IDE/JETRO-WTO-World Bank Group-OECD-RCGVC-
CDRF international joint research projects (2016–20) and the TFPR’s research project ‘Global Supply Chain and
Japan’sBusiness Strategy’ (2019–20).
Measuring smile curves in global value chains 989
international trade literature has described phenomena relating to the rise of GVCs from
different perspectives in different terms1, they all point to the same fact: value chains
have been divided and dispersed globally and rapidly across countries and firms, so that
goods are produced ‘in a number of stages in a number of locations, adding a little bit of
value at each stage’ (Krugman, 1995). Nowadays, the typical ‘Made in’ labels in manu-
factured goods have become archaic symbols of a bygone era, since most manufactured
trading goods are ‘Made in the World’ (WTO-IDE, 2011). According to a recent report
(UNCTAD, 2013), ‘80% of trade takes place in “value chains” linked to transnational cor-
porations’. Furthermore, Li, Meng and Wang(2019) show that, in 2017, about 12.9% of the
world GDP was generated through GVCs production activities, while the corresponding
percentage in 1995 was about 9.6%.
The GVC phenomenon, alongside the great economic efficiency gains of global firms
(Jones and Kierzkowski, 1990; Gereffi and Fernandez-Stark, 2011), has significantly
changed the nature and structure of international trade (Dollar et al., 2019). Meanwhile,
the increasing complexity and sophistication of GVCs has also created considerable dif-
ficulties in understanding ‘who produces what for whom’and in for mulating policies that
enable countries to clearly identify their gains (e.g. value added and job opportunities) and
risks along GVCs.
Regarding the issue of gains from GVCs, from the perspective of development
economics there exist several positive aspects. First, firms, especially in developing
economies, do not need to build an entire course of production capacity. Instead, they
can use their comparative advantages to concentrate on a specific production process or
task, which enables them to integrate into the global economy(Cheng et al., 2015; Kowalski
et al., 2015).Therefore, GVCs, orchestrated for the most par t bytransnational cor porations,
offer opportunities for poor countries to gain access to international markets (UNCTAD,
2013). For example, jobs are created in developing countries through iPhone assembly
in China, call centre operations in the Philippines and India, Nike shoes production in
Vietnam, and automobile and auto parts production in Mexico and Thailand. In addition,
GVCs provide opportunities for technology transfer or spillover to developing countries
through local learning (Pietrobelli and Rabellotti, 2010; Kawakami and Sturgeon, 2012).
However, as mentioned in the OECD–WTO–World Bank Group repor t (2014), ‘Gains
from GVC participation are not automatic. Benefits of GVCs can also vary considerably
depending on whether a country operates at the high or at the low end of the value chain’.
Regarding the costs and risks of joining GVCs, a ‘Paradoxical Pair of Concerns’ between
developed and developing countries may exist (Baldwin, Ito and Sato, 2014). That is,
owing to the differencesin comparative advantages across countries participating in GVCs,
rich countries may tend to engage in high-end and intangible production activities, such
as R&D, design and brand building in the upstream stages and after-sales services and,
marketing in the downstream stages. Consequently, rich countries may wor ry about the
hollowing out of their economies as manufacturing jobs are offshored to low-technology,
1Such as fragmentation production (Jones and Kierzkowski, 1990), offshore sourcing (Arndt, 1997), external
orientation (Campa and Goldberg, 1997), disintegration of production (Feenstra, 1998), global production sharing
(Yeats, 2001), vertical specialization (Hummels, Ishii andYi, 2001; Yi, 2003), outsourcing (Grossman and Helpman,
2002a, b), vertical production networks (Hanson, Mataloni and Slaughter, 2003) and trade in tasks (Grossman and
Rossi-Hansberg, 2008).
©2020 The Department of Economics, University of Oxford and JohnWiley & Sons Ltd
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