Global Value Chains and Relative Labour Demand: A Geometric Synthesis of Neoclassical Trade Models

25 Pages Posted: 28 May 2020

Date Written: September 2019

Abstract

Technological advancements and reductions in trade tariffs have made it increasingly profitable for firms to separate their production into individual tasks, creating global value chains (GVCs). The theoretical literature on the distributional effects of GVCs is large, but ambiguous. Since the early conception of Jones' general equilibrium model in 1965, there seems to have been a tendency to repackage (part of) this model, generating apparent conflicts and implicit overlaps. This paper goes back to the basics by using the dual nature of the production model in Jones to provide a geometric exposition of the main channels by which GVCs can affect the relative demand for skilled labour. The explanatory power of this figure is vast. First, it can synthesize the ambiguous literature in a coherent and intuitive framework and show how subtle modelling differences can have widespread effects on key predictions. Second, it can serve as a conceptual framework and as a guide to empirical analysis. Third, it can be used as an illustration of key models explaining global value chains. Ultimately, the proposed figure can be used as a pedagogical tool for policy makers and (under)graduate students alike, without the need to understand complex algebra.

Keywords: Factor income distribution, Fragmentation, Global value chains, Globalization

Suggested Citation

Franssen, Loe, Global Value Chains and Relative Labour Demand: A Geometric Synthesis of Neoclassical Trade Models (September 2019). Journal of Economic Surveys, Vol. 33, Issue 4, pp. 1232-1256, 2019, Available at SSRN: https://ssrn.com/abstract=3608924 or http://dx.doi.org/10.1111/joes.12320

Loe Franssen (Contact Author)

Statistics Netherlands

CBS Weg 11
Heerlen, 6412 EX
Netherlands

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