Globalization, productivity growth, and labor compensation

Christian Dreger, Marius Fourné and Oliver Holtemöller

No 7/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: Since the onset of globalization, production activities have become increasingly fragmented and organized in global value chains, facilitating the trade of intermediaries across industries and countries. In this paper, we analyze the dynamic effect of increasing participation in global value chains on both productivity growth and the functional income distribution. To account for potential endogeneity, we construct a granular instrumental variable for international trade integration using detailed international input-output tables. Our findings show on the country-industry level, that both trade in intermediate inputs and trade in value-added significantly raise productivity in advanced countries, at the expense of the labor share of income. Moreover, labor shares decline more sharply in both manufacturing and services sectors, as well as in industries positioned closer to the final stages of the global value chain. Finally, our results show that a decline in international trade integration would have substantial negative effects on long-term productivity growth.

Keywords: global value chains; globalization; income distribution; labor share; productivity (search for similar items in EconPapers)
JEL-codes: F4 F6 J3 (search for similar items in EconPapers)
Date: 2025, Revised 2025
New Economics Papers: this item is included in nep-eff, nep-int, nep-opm and nep-tid
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Related works:
Working Paper: Globalization, Productivity Growth, and Labor Compensation (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwhdps:72022

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