The smile curve at the firm level: Where value is added along supply chains

In this paper, we investigate at the firm-level where value is added along supply chains on a sample of about 2 million firms in the European Union. In line with the hypothesis of a 'smile curve’, we detect a non-linear U-shaped relationship between the value added content of a firm and its distance from final consumption. Tasks at the early and late stages of the supply chains generate higher value added, possibly due to a higher knowledge-intensity, after controlling for firm heterogeneity. Importantly, our work shows that it is possible to exploit firm-level databases for an empirical microfoundation of value generation, which is useful for understanding the possibly unequal benefits of participating in global value chains.