Global value chains, functional diversification and within-country inequality: an empirical assessment

A growing literature has stressed that the geographical dispersion of production and the subsequent rise of global value chains (GVCs) are associated with important social and economic disparities across countries. However, systemic empirical evidence on the distributional consequences of GVCs within countries has so far been rather limited. In this work, we take a step forward in the direction of filling this gap by providing a comprehensive empirical assessment of the GVC-inequality nexus on a sample including more than 100 countries over the period 2003-2015. Our results show that (i) the association between trade in GVC and income inequality is conditioned by the GVC positioning of countries; (ii) greater shares of FDIs in the upstream (i.e., knowledgeintensive activities such as R&D, design and training) and downstream (i.e., logistics, marketing and post-sales services) segments of the value chain are associated with lower income inequality; (iii) greater functional diversification in FDI is associated with lower levels of income disparities within countries, consistent with the hypothesis that a larger mix of value-adding activities an economy carries out expands learning opportunities and occupational choices for its workers and is conducive to a more inclusive development.