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This paper aims to provide theoretical and empirical evidence to explain the middle-income trap from the perspective of Global value chains (GVCs). GVCs improve vertical specialization in two possible ways: (i) “economies of specialization”, induced by market expansion among developed countries; and (ii) the inequity of factor prices between emerging markets and developed ones (comparative advantages). This paper clarifies the differences between the two channels with a model considering two kinds of labor – technological labor and regular labor – and shows how vertical specialization plays an important role in the socalled “middle-income trap”. We argue that GVCs accelerate global market integration, which makes the labor wage in emerging markets to approach the middle-income level. Through vertical specialization, emerging markets lose their advantage of low labor costs, while the disadvantage in terms of technological production increases. We also explore the differences between vertical specialization patterns in empirical part to check whether the data can verify what we find in the theoretical part. We find that middle-income countries are at a more disadvantaged position than other countries in vertical specialization (they are locked in an unfavorable situation of international division of labor), which provides evidence for what are derived from the theoretical model. First published online 3 April 2026
Yu et al. (Fri,) studied this question.