An Inquiry into the Division of the Gains in High-Tech Global Supply Chains - Theory and Evidence

26 Pages Posted: 24 Mar 2018 Last revised: 5 Jun 2019

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

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

Sarah Tang

Department of Economics, Suffolk University

Peter Chow

City University of New York

Date Written: March 17, 2018

Abstract

This paper studies the mechanism of the division of the gains in high-tech global supply chains. Motivated by the empirical observation which is widely discussed in international business literature so called “smile curve”, this paper demonstrates in a theoretical model that whether or not the U-shaped pattern (smile curve) of profit sharing along the high-tech supply chains is valid or not depends on the competing forces between two effects. The first effect is called market power gap effect and the other one is called entry cost gap effect. It is shown in this paper that if both effects for upstream (downstream) firms dominate the counterpart effects for midstream firms, then the U-shaped division of the gains in high-tech supply chains is valid. We employ the WIOD data industry level to test our theoretical predictions and we found that the empirical results are broadly consistent with the theories proposed in the paper. The empirical results in the end are also robust when we apply to US-firm level data.

Keywords: smile curve, high-tech supply chains, market power gap effect, entry cost gap effect

JEL Classification: F12, F23, F60, L14

Suggested Citation

Shen, Jim Huangnan and Tang, Sarah and Chow, Peter, An Inquiry into the Division of the Gains in High-Tech Global Supply Chains - Theory and Evidence (March 17, 2018). Available at SSRN: https://ssrn.com/abstract=3142938 or http://dx.doi.org/10.2139/ssrn.3142938

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

Sarah Tang

Department of Economics, Suffolk University ( email )

Boston, MA 02108
United States

HOME PAGE: http://https://sites.google.com/site/sarahletang0610/

Peter Chow

City University of New York

695 Park Avenue
New York, NY 10021
United States

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