Profit Sharing, Industrial Upgrading and Global Supply Chains: Theory and Evidence

44 Pages Posted: 7 Nov 2016 Last revised: 8 May 2020

See all articles by Xiaojie Liu

Xiaojie Liu

Institut d'Etudes Politiques de Paris (Sciences Po), Department of Economics, Students; Fudan University - Department of Electronic Engineering

Haiyue Liu

Sichuan University-Business School

Shiyi Liu

Sichuan University, Business School, Students

Jim Huangnan Shen

University of London, School of Oriental and African Studies (SOAS), Economics; Center for International Development, Harvard Kennedy School, Harvard University

Chien-Chiang Lee

Nanchang University

Date Written: November 5, 2016

Abstract

This paper constructed a simple model to illustrate the global supply chain profit sharing and industrial upgrading mechanism, from which it was found that the average profitability distribution in the different supply chain stages was determined by two main factors: (1) the average product of the labor in the firms at each production stage; and (2) the ratio of the output elasticity of capital to the output elasticity of labor in each stage. This paper also proposed a new industrial upgrading mechanism, the ‘inter-supply chain upgrading’, for supply chain firms. Rises in production complexity and increased factor intensity in each production stage were found to be the two essential conditions for the inter-supply chain upgrading. The empirical study results were found to be broadly consistent with the proposed theories.

Keywords: global supply chain; smile curve; profit sharing mechanism; upgrading mechanism; average product of labour; inter-supply chain upgrading; factor intensity.

JEL Classification: F1, D2, D4

Suggested Citation

Liu, Xiaojie and Liu, Haiyue and Liu, Shiyi and Shen, Jim Huangnan and Lee, Chien-Chiang, Profit Sharing, Industrial Upgrading and Global Supply Chains: Theory and Evidence (November 5, 2016). Available at SSRN: https://ssrn.com/abstract=2864895 or http://dx.doi.org/10.2139/ssrn.2864895

Xiaojie Liu

Institut d'Etudes Politiques de Paris (Sciences Po), Department of Economics, Students ( email )

28 rue des Saints Pères
Paris, 75007
France

Fudan University - Department of Electronic Engineering ( email )

220 Handan Rd
Shanghai Shi, 200433
China

Haiyue Liu

Sichuan University-Business School ( email )

China

Shiyi Liu

Sichuan University, Business School, Students ( email )

China

Jim Huangnan Shen (Contact Author)

University of London, School of Oriental and African Studies (SOAS), Economics ( email )

London, WC1E 7HU
United Kingdom

Center for International Development, Harvard Kennedy School, Harvard University ( email )

One Eliot Street Building
79 JFK Street
Cambridge, MA 02138
United States

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

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