Functional positioning in Global Value Chains and inequality across and within countries

This chapter explores how the functional position of economies along global value chains (GVCs) affects inequality both across and within countries. In particular, we account for extant studies on the GVC-inequality nexus and rely on recent empirical contributions on ‘functional specialization in FDI’ to show that the most intangible-intensive activities are persistently concentrated in core capitalist economies, while production operations at the lower end of the value chain are mainly the prerogative of low- and middle-income countries. Consistent with the ‘intellectual monopoly’ perspective, we show that this functional division of labour is associated with uneven value capture opportunities in GVCs, contributing to cross-country inequality. We also show that a greater involvement in pre- and post-production stages is associated with lower within-country income disparities, while a larger engagement in production operations goes together with higher inequality. By combining these two sets of empirical findings, we conclude that persistent global hierarchies in GVCs risk exacerbating income inequality within lower-income economies. In fact, the attraction of FDIs in intangible-intensive functions provides opportunities to reduce personal income disparities within countries, but the involvement of low- and middle-income countries in these activities is on average far too small to determine substantial re-distributive effects in these economies.