Global value chains and top income inequality: evidence from European regions

Abstract This paper analyses the link between global value chain participation and intra-regional income inequality across European regions from 2003 to 2010. It combines regional input–output data to construct different indicators of global value chain participation and income data for regions at NUTS-2 level. Using fixed effects and instrumental variable estimations, we show that it matters how regions participate in global value chains: forward participation is on average linked to higher inequality at the top of the income distribution, while backward participation, in contrast, is not significantly associated with inequality. This relationship varies across industries: sectors such as manufacturing, transport and communication, and business activities are among the main drivers of this relationship. Moreover, the effect of forward participation on top income inequality varies by development level and institutional quality, showing that it is more pronounced for less developed regions and regions with lower institutional quality. These findings offer a new perspective on the link between regional global value chain integration and increased top income inequality.