Unequal Chains: Global Value Chains and Income Disparity

As countries deepen their integration into global value chains (GVCs) to pursue industrial growth and economic advancement, a critical question remains unresolved: Who truly benefits from this participation? This study examines the effects of GVC participation on income disparities within the manufacturing sector. Three measures of income inequality are employed – value-added distribution, wage distribution, and labour income share – based on the World Bank Economic Enterprise Survey data for 44 countries and 16 manufacturing industries between 2006 and 2016. The results reveal that the choice of inequality measure is crucial. GVC participation reduces income inequality in value-added and wage distribution but increases inequality in labour income share. At the country level, backward and forward linkages reduce income inequality in lower-income economies, while effects are not significant in upper-middle- and high-income countries. Regionally, Asia shows more equitable value-added through backward linkages and equitable wages through overall GVC and forward linkages. However, overall GVC participation and forward linkages are also associated with a decline in labour income share, suggesting that while GVC integration may improve wage equality, the proportion of value-added accruing to labour tends to shrink.