Smile Curves in Global Value Chains: Multinationals vs Domestic Firms; the U.S. vs China

Discussion Papers

No.802

by Bo Meng and Ming Ye

December 2020

ABSTRACT

This paper uses the "smile curve" mapping tool with a Y-axis for value-added ratio and an X-axis for production stages to identify value-added gains, positions, and interdependencies of multinationals and domestic firms along global value chains (GVCs). Taking the U.S. and China’s ICT firms’ exporting activities as a target, we find that China’s domestic ICT firms’ value chain appears as a smile curve differing from the U.S. domestic ICT firms’ inverted-U curve, which reflects the considerable difference in their technical specialization in joining GVCs; multinationals are good at utilizing each country’s comparative advantages and can thus arrange value chains as smile curves regardless of whether they are located in the U.S. or in China; China’s domestic firms have increasingly plugged into most ICT value chains. All findings reflect how “sticky” the interdependency among countries along GVCs is and can thus help understanding the impact of the U.S.–China trade war.

Keywords: smile curve, multinationals, global value chain, trade in value-added, industrial upgrading, ICT

JEL classification: F6, F13, F15, D57

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