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

51 Pages Posted: 19 Oct 2024

See all articles by Jim Huangnan Shen

Jim Huangnan Shen

School of Management, Fudan University ; The Growth Lab, Center for International Development, Harvard Kennedy School, Harvard University; Core China Research Center, School of Economics and Business, University of Navarra

Mingzhi Xu

INSE at Peking University

Zheming Liang

affiliation not provided to SSRN

Abstract

This paper examines the mechanisms underlying the division of gains in high-tech global supply chains using a partial equilibrium version of the hierarchy-assignment modeling approach. Motivated by the widely discussed empirical observation known as the “smile curve” in international business literature, this study demonstrates through a theoretical model that the validity of the U-shaped profit-sharing pattern along high-tech supply chains hinges on the interplay between two competing effects. The first effect is termed the market power gap effect, while the second is the entry cost gap effect. The paper illustrates that if both two effects for upstream and downstream firms dominate those for midstream firms, the U-shaped division of gains in high-tech supply chains holds true. To test our theoretical predictions, we utilize theWorld Input-Output Database (WIOD) at the industry level and find that the empirical results align broadly with the proposed theories. Additionally, our findings remain robust when applying firm-level data from the US to further validate our theoretical predictions. The theoretical insights presented have significant implications for industrial development, particularly in discussions surrounding capability upgrading and innovation in high -tech industries along global value chains.

Keywords: High-tech global supply chains, Smile curve, Market power gap effect, Entry cost gap effect.

Suggested Citation

Shen, Jim Huangnan and Xu, Mingzhi and Liang, Zheming, An Inquiry into the Division of Gains in Global High-Tech Supply Chains: Theory and Evidence. Available at SSRN: https://ssrn.com/abstract=4992549 or http://dx.doi.org/10.2139/ssrn.4992549

Jim Huangnan Shen (Contact Author)

School of Management, Fudan University ( email )

Shanghai
China

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

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

Core China Research Center, School of Economics and Business, University of Navarra ( email )

Campus Universitario
Pamplona, Navarra 31009
Spain

Mingzhi Xu

INSE at Peking University ( email )

Peking University
China
Beijing, Beijing 100871
China

Zheming Liang

affiliation not provided to SSRN ( email )

No Address Available

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