Unveiling the asymmetric effects: global value chain participation and income inequality

This study employs a panel nonlinear ARDL model to analyse the asymmetric effects of global value chain participation and its components (forward and backward participation) on income inequality across 29 economies spanning from 2004 to 2018. The findings reveal that global value chain participation is negatively associated with income inequality in the long run, as it stimulates employment opportunities, economic growth, and access to markets. Concomitantly, our study sheds light on whether the effects of global value chain participation vary across its components within the selected economies. Both positive and negative changes in backward participation have positive and significant effects on income inequality in the long run. Simultaneously, adverse changes in forward participation contribute to an upward trajectory in income inequality over the same period. The comprehensive analysis highlights the multi-faceted dynamics between a country’s involvement in global value chains and income disparities within that nation. Given the findings, policymakers need to make it a top priority to boost their economies’ participation in global value chains. This can be accomplished through a multi-pronged strategy that includes trade liberalization policies, measures to attract foreign direct investment, and robust infrastructure development initiatives.