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The Nature and Growth of Vertical Specialization in World Trade
| Venue: | Journal of International Economics |
| Citations: | 480 - 20 self |
BibTeX
@ARTICLE{Hummels_thenature,
author = {David Hummels},
title = {The Nature and Growth of Vertical Specialization in World Trade},
journal = {Journal of International Economics},
year = {},
pages = {75--96}
}
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Abstract
Abstract: Dramatic changes are occurring in the nature of international trade. Production processes increasingly involve a sequential, vertical trading chain stretching across many countries, with each country specializing in particular stages of a good’s production sequence. We document a key aspect of these vertical linkages – the use of imported inputs in producing goods that are exported – which we call vertical specialization. Using input-output tables from the OECD and emerging market countries we estimate that vertical specialization accounts for up to 30 % of world exports, and has grown as much as 40 % in the last twenty-five years. The key insight about why vertical specialization has grown so much lies with the fact that trade barriers (tariffs and transportation costs) are incurred repeatedly as goods-in-process cross multiple borders. Hence, even small reductions in tariffs and transport costs can lead to extensive vertical specialization, large trade growth, and large gains from trade. We formally illustrate these points by developing an extension of the Dornbusch-Fischer-Samuelson Ricardian trade model.
Keyphrases
vertical specialization world trade dramatic change trade barrier good production sequence large gain key aspect extensive vertical specialization last twenty-five year vertical specialization account vertical trading chain transportation cost goods-in-process cross multiple border dornbusch-fischer-samuelson ricardian trade model many country transport cost large trade growth vertical linkage key insight input-output table much lie world export international trade market country small reduction particular stage
