Low-wage manufacturing and global commodity chains: a model in the unequal exchange tradition

James Heintz

Cambridge Journal of Economics, 2006, vol. 30, issue 4, 507-520

Abstract: The institutional setting of subcontracted manufacturing has a profound impact on how the benefits of trade are distributed. This paper develops a model that combines insights from unequal exchange theorists and global commodity chain analysis to clarify the distributive dynamics of production networks in which subcontracting and branding are defining features. In this framework, the ability of productivity growth to increase income from exports is constrained and depends on how the benefits of productivity improvements are captured--as lower consumer prices or higher rents for brand-name multinationals. Increasing consumption in affluent consumer markets raises export earnings. However, developing countries, acting alone, are constrained in their ability to affect the demand side of global commodity chains. Instead, supply-side policies to support industrial upgrading represent a more viable option for raising incomes. Copyright 2006, Oxford University Press.

Date: 2006
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