Does the rise of global value chain position increase or reduce domestic income inequality?

Abstract

ABSTRACT Most studies investigate the relationship between global value chain position (GVC position) and income inequality through labour’s wage aspect. And they attribute the increasing domestic income inequality to the rise of the country’s GVC position, which may widen the wage gap between heterogeneous labour. However, wage income distribution is just part of the domestic residents’ income distribution and factor income distribution also matters. In view of this, we add labour share as well as labour’s wage gap into one system, and use united theoretical and empirical analyses to explore the impact of GVC position on domestic income inequality. Research findings show that: (1) The rise of GVC position will reduce domestic income inequality. (2) The channels by which GVC position affects domestic income inequality are labour share and wage gap. Although the rising GVC position will improve domestic income inequality by increasing wage gap, it will decrease domestic income inequality more by increasing labour share. And the overall impact of both effects would reduce domestic income inequality.