Chapter 2: Examining the Role of Global Value Chains in Sustainable Development: Income Inequality, Decent Work, and Vanishing Sector

This chapter examines the influence of participation in global value chains (GVCs) on three critical aspects of sustainable development: decent work (sustainable development goals (SDG) 8), industry and infrastructure (SDG 9), and income inequality (SDG 10) in a distortion-ridden developing economy. The analysis differentiates between forward and backward GVC linkages to determine their respective impacts on sustainable development. A 3 × 3 general equilibrium model is constructed, incorporating a non-traded informal sector, heterogeneous labor based on skill levels, and perfectly mobile capital across sectors. The findings reveal that the factor intensity of forward and backward GVC sectors plays a crucial role in shaping wage inequality, employment quality, and the structural transformation of the economy. Interestingly, the study uncovers scenarios where GVC sectors may vanish or the non-traded sector may shrink, contingent upon the specific determination of factor prices from the GVC sectors. The results are numerically simulated to determine the robustness of the model. This nuanced examination highlights the complex interplay between GVC integration and sustainable development outcomes, providing valuable insights for policy formulation in developing economies.