Global value chains have been on the rise. Roughly one-third of international trade is “traditional” trade, in which all of production happens in one country and all of consumption happens in another. About two-thirds is either a “simple” global value chain, in which “value added crosses national borders only once during the production process, with no indirect exports via third countries or re-exports or re-imports” or a “complex” global value chain, in which the value-added crosses national borders at least twice. The Global Value Chain Development Report 2017, which has the theme of “Measuring and Analyzing the Impact of GVCs on Economic Development,” explores these issues and others. The report is published a stew of groups, with participants from the World Bank Group, the Institute of Developing Economies, the Organisation for Economic Co-operation and Development, the Research Center of Global Value Chains headquartered at the University of International Business and Economics, and the World Trade Organization. It consists of an “Executive Summary” by David Dollar followed by eight chapters written by various contributors.

Here, I want to focus on some discussion from the report about how the benefits of global value chains are distributed, and the idea of the “smile curve.” Consider a value-added chain which starts off with the production of new technology and high-tech components. These parts are then combined with other lower-tech inputs, like pieces of molded plastic and small flashing lights, during a manufacturing process. Finally, the finished product is marketed and sold to consumers, together with certain kinds of after-sales servicing. The “smile curve argument is that as most of the economic gain from this global supply curve is collected at the front end (new technology and high-tech components) and at the back end (marketing and sales), with less of the economic gain collected in the middle stages (lower-tech components and manufacturing).