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Industry Returns in Global Value Chains: The Role of Upstreamness and Downstreamness

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Document pages: 49 pages

Abstract: This paper studies how upstreamness and downstreamness affect industry returns in global value chains. Up- and downstreamness measure the average distance from final consumption and primary inputs, respectively, and are computed from world input-output tables. We show that downstreamness is a key driver of expected returns around the globe, whereas upstreamness is not. Industries that are farthest away from primary inputs earn approximately 5 higher returns per year than industries that are closest. The effect is found within countries and business sectors and suggests that investors perceive supplier-dependence in global value chains as an important source of risk.

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