Finance, Trade, and Income Distribution in Global Value Chains: Implications for Developing Economies and Latin America

Global Values Chains (GCVs) led by transnational corporations (TNCs) have reshaped the world division of labor over the past two decades. GVCs are pervasive in low technology manufacturing such as textile and apparel as well as in more advanced industries like automobiles, electronics, and machines. This hierarchical division of labor generates wild competition at the lower value-added stages of production, where low wages and low profit margins prevail for workers and contract manufacturers in developing countries.

At the top of the hierarchy another kind of competition prevails, centered on the ability to monitor and control intellectual property rights related to innovation, finance, and marketing. In Latin America and elsewhere, the legislative and institutional changes associated with globalized trade and finance have enhanced corporate mobility, making it easier for firms to reduce wage costs and shift accounting profits to low-tax jurisdictions. This increased mobility has increased rents for large firms and helped redistribute income along the value chain from productive workers to shareholders and salaried executives.

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