Increasing and decreasing returns: the electricity industry in the global value chain

Abstract

This paper analyzes the mechanism of productivity in the electrical and optical industry in major economies, regarding the hypothesis that the position of the industry in the global value chain restricts the generation of added value. The ability to innovate and raise productivity is limited by the level of demand for products, and technological innovations introduce the possibility of getting additional demand. Demand for intermediate and final goods produced in emerging economies, is expressed in the outcome of intra-industry trade in the global chain. So the integration of industry in the global value chain causes a fragmentation of the industrial process in the pattern of increasing returns (USA) and diminishing (East Asia).

The article addresses the following: 1) The evolution of exports of intermediate goods that helps explain the possibility of generating value added and the evolution of productivity; 2) In the electrical and optical industry in Mexico diminishing returns are recorded through the use of intermediate goods of  standard technology; and 3) The concentration of exports of Mexico to the United States (U.S.) and the category of capital goods induce the pattern of diminishing returns.