Factor Incomes in Global Value Chains: The Role of Intangibles

37 Pages Posted: 12 Nov 2018 Last revised: 22 Dec 2021

See all articles by Wen Chen

Wen Chen

University of Groningen

Bart Los

University of Groningen - Faculty of Economics

Marcel P. Timmer

University of Gronigen - Faculty of Economics

Date Written: November 2018

Abstract

Recent studies document a decline in the share of labour and a simultaneous increase in the share of residual (‘factorless’) income in national GDP. We argue the need for study of factor incomes in cross-border production to complement country studies. We define a GVC production function that tracks the value added in each stage of production in any country-industry. We define a new residual as the difference between the value of the final good and the payments to all tangibles (capital and labour) in any stage. We focus on GVCs of manufactured goods and find the residual to be large. We interpret it as income for intangibles that are (mostly) not covered in current national accounts statistics. We document decreasing labour and increasing capital income shares over the period 2000-14. This is mainly due to increasing income for intangible assets, in particular in GVCs of durable goods. We provide evidence that suggests that the 2000s should be seen as an exceptional period in the global economy during which multinational firms benefitted from reduced labour costs through offshoring, while capitalising on existing firm-specific intangibles, such as brand names, at little marginal cost.

Suggested Citation

Chen, Wen and Los, Bart and Timmer, Marcel P., Factor Incomes in Global Value Chains: The Role of Intangibles (November 2018). NBER Working Paper No. w25242, Available at SSRN: https://ssrn.com/abstract=3282906

Wen Chen (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Bart Los

University of Groningen - Faculty of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands
+31 (0)50 3637317 (Phone)

Marcel P. Timmer

University of Gronigen - Faculty of Economics ( email )

Postbus 72
9700 AB Groningen
Netherlands

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