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The smile curve: Evolving sources of value added in manufacturing

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  • Richard Baldwin
  • Tadashi Ito

Abstract

A dramatic disordering of global manufacturing has been seen in recent years. Production processes have fragmented, and many production stages have been offshored to developing nations. Organization of this new global supply chain has evolved into what are often called global value chains (GVCs). Less studied, but no less important, is the shift in the sectoral source of value added in manufactured exports. This phenomenon, often called the “smile curve,” involves a swing in the share of value added in manufactured exports that is generated in the manufacturing sector itself instead of, for example, in the pre‐ and post‐fabrication stages. Our paper presents new evidence quantifying the magnitude of the smile curve notion. Using international input–output databases, we find evidence supporting the smile curve at the aggregate level. Specifically, for almost all exporting sectors and nations, we find that the value added to exports has shifted decisively from the manufacturing sector to service sectors. We also find that developing countries reduced their own‐sourcing service value‐added share, while developed countries maintained their relatively high levels of own‐sourcing service value‐added share. Courbe du sourire : évolution des sources de valeur ajoutée dans le secteur manufacturier. Depuis quelques années, nous observons une réorganisation importante de l'outil industriel mondial. Les processus de production se sont fragmentés, et de nombreuses étapes ont été délocalisées vers des nations en voie de développement. L'organisation de cette nouvelle chaîne logistique mondiale s'est transformée en ce que l'on appelle fréquemment des « chaînes de valeur mondiale ». Un phénomène moins étudié, mais tout aussi important, réside dans la mutation de l'origine sectorielle de la valeur ajoutée des exportations de produits manufacturés. Ce phénomène, souvent appelé « courbe du sourire », résulte d'un glissement de la part de la valeur ajoutée des exportations de produits manufacturés, engendrée par le secteur manufacturier lui‐même, vers les étapes en amont et en aval du processus de production. Notre article présente de nouveaux éléments pour mesurer l'ampleur de cette « courbe du sourire ». D'un point de vue global, et en nous appuyant sur des bases de données entrées‐sorties internationales, nous avons découvert des éléments corroborant la théorie de la courbe du sourire. D'un point de vue plus spécifique, et pour presque tous les secteurs d'exportations de toutes les nations confondues, nous constatons que la valeur ajoutée des exportations s'est très nettement déplacée du secteur manufacturier vers le secteur des services. Nous constatons également qu'en matière de fourniture nationale de services, les pays en voie de développement ont réduit leur part de valeur ajoutée, tandis que les pays développés ont maintenu des niveaux de valeur ajoutée assez élevés.

Suggested Citation

  • Richard Baldwin & Tadashi Ito, 2021. "The smile curve: Evolving sources of value added in manufacturing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(4), pages 1842-1880, November.
    • Handle: RePEc:wly:canjec:v:54:y:2021:i:4:p:1842-1880
    DOI: 10.1111/caje.12555
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    2. Keil, Sascha, 2024. "Competing for manufacturing value added: How strong is competitive cost pressure on sectoral level?," Structural Change and Economic Dynamics, Elsevier, vol. 69(C), pages 197-212.
    3. Li, Qiuping & Wu, Sanmang & Liu, Quanwen & Li, Shantong, 2024. "Role of global value chains in embodied domestic CO2 emissions of China's manufacturing exports: Normal and processing trade heterogeneity," Energy Economics, Elsevier, vol. 132(C).
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    6. Sandor Juhasz & Zoltan Elekes & Virag Ilyes & Frank Neffke, 2024. "Colocation of skill related suppliers – Revisiting coagglomeration using firm-to-firm network data," Papers in Evolutionary Economic Geography (PEEG) 2416, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised May 2024.
    7. Lorenzo Cresti & Giovanni Dosi & Federico Riccio & Maria Enrica Virgillito, 2023. "Italy and the Trap of GVC Downgrading: Labour Dependence in the European Geography of Production," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(3), pages 869-906, November.
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    9. Roberta Capello & Roberto Dellisanti & Giovanni Perucca, 2024. "At the territorial roots of global processes: Heterogeneous modes of regional involvement in Global Value Chains," Environment and Planning A, , vol. 56(3), pages 833-848, May.
    10. Kossi Messanh Agbekponou & Angela Cheptea & Karine Latouche, 2023. "Quality upgrading and position in global value chains: Firm-level evidence from the French agri-food industry," Post-Print hal-04321480, HAL.
    11. Antrà s, Pol & Chor, Davin, 2021. "Global Value Chains," CEPR Discussion Papers 15908, C.E.P.R. Discussion Papers.
    12. Yuning Gao & Bo Meng & Gabriele Suder & Jiabai Ye & Yongping Sun, . "Making global value chains visible: Transnational corporations versus domestically owned firms," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
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    15. Kossi Messanh Agbekponou & Angela Cheptea & Karine Latouche, 2023. "Quality upgrading and position in global value chains: Firm-level evidence from the French agri-food industry," Post-Print hal-04321554, HAL.
    16. Andrea Coveri & Elena Paglialunga & Antonello Zanfei, 2023. "Global value chains, functional diversification and within-country inequality: an empirical assessment," Working Papers 2302, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2023.
    17. Lorenzo Cresti & Maria Enrica Virgillito, 2022. "Strategic sectors and essential jobs: a new taxonomy based on employment multipliers," LEM Papers Series 2022/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    18. Kossi Messanh Agbekponou & Ilaria Fusacchia, 2023. "Global value chains' position and value capture: Firm evidence in agri-food industry," Post-Print hal-04321612, HAL.
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    20. Hempfing, Alexander & Mundt, Philipp, 2022. "Tie formation in global production chains," BERG Working Paper Series 181, Bamberg University, Bamberg Economic Research Group.
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