Technological Changes and Global Value Chains

This paper focuses on the pattern of task and income distribution within a Global Value Chain. Using the recently developed WIOD database, collecting data on the trade in value added within a world Input/Output matrix, we reveal a high heterogeneity of countries in terms of their trends of skill premia. The latter is a stylized fact at odds with the assumption of a recent theoretical model of Global Value Chains (Costinot et al. [2013]), which we extend by allowing for different types of labor and different types of production stages. The model generates a pattern of vertical specialization in which the position of each country in the chain is a function of two factors: its productivity and skill intensity of its labor endowments. Moreover, the wage of each labor type depends on the position of the country, its skill intensity and productivity of skilled workers. As a result, depending on the model parameters and labor endowments, technological innovations will induce various trends in the relative position of countries, prices, wages and exports, in line with the stylized fact. The model thus represents a suitable candidate for addressing the heterogeneity of countries in terms of skill premia.