Question

What is the relationship between middle-income trap and value chain orchestration (smiley curve). Draw and explain.

Answer 1

The concept of smile curve firstly proposed by Stan Shih in 1992.Shih highlighted that in the personal computer industry,both ends of the value chain command higher value added to the product in comparison to the middle part of the value chain.The smiley curve logic has been widely used in the context of Global value chains.Main factors behind globakl value chains are Cost efficiency,Market access and low International Trade costs. Middle income trap is the situation which Low income counrtris with cheap labour access to ready made technology grow fast and start becoming welthier.When they reaches middle income status,They tend to slow and they lose some of their advantages.Low productivity and inequality were the major features in this situation.

Expanding and strengthening a countries global value chains participation increases the probability of transitioning to a higher income class. Growth in output percapita is higher for lower income groups.