The nature and growth of vertical specialization in world trade
AbstractDramatic 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 percent of world exports, and has grown as much as 40 percent 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 54 (2001)
Issue (Month): 1 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505552
Other versions of this item:
- David Hummels & Jun Ishii & Kei-Mu Yi, 1999. "The nature and growth of vertical specialization in world trade," Staff Reports 72, Federal Reserve Bank of New York.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Barry, Frank & Bradley, John, 1997.
"FDI and Trade: The Irish Host-Country Experience,"
Royal Economic Society, vol. 107(445), pages 1798-1811, November.
- Barry, F & Bradley, J, 1997. ""FDI and Trade : The Irish Host-Country Experience"," Papers 97/13, College Dublin, Department of Political Economy-.
- Grossman, G.M. & Helpman, E., 1993.
"The Politics of Free Trade Agreements,"
166, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Elhanan Helpman, 1993. "The Politics of Free Trade Agreements," NBER Working Papers 4597, National Bureau of Economic Research, Inc.
- Grossman, Gene & Helpman, Elhanan, 1994. "The Politics of Free Trade Agreements," CEPR Discussion Papers 908, C.E.P.R. Discussion Papers.
- Grossman, G.M. & Helpman, E., 1993. "The Politics of Free Trade Agreements," Papers 14-93, Tel Aviv.
- Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
- Paul Krugman, 1995. "Growing World Trade: Causes and Consequences," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 327-377.
- Robert C. Feenstra & Gordon H. Hanson, 1995.
"Foreign Investment, Outsourcing and Relative Wages,"
NBER Working Papers
5121, National Bureau of Economic Research, Inc.
- Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Department of Economics 95-14, California Davis - Department of Economics.
- Feenstra, R.C. & Hanson, G.H., 1995. "Foreign Investment, Outsourcing and Relative Wages," Papers 95-14, California Davis - Institute of Governmental Affairs.
- Feenstra, Robert C. & Hanson, Gordon H., 1997.
"Foreign direct investment and relative wages: Evidence from Mexico's maquiladoras,"
Journal of International Economics,
Elsevier, vol. 42(3-4), pages 371-393, May.
- Robert C. Feenstra & Gordon H. Hanson, 1995. "Foreign Direct Investment and Relative Wages: Evidence from Mexico's Maquiladoras," NBER Working Papers 5122, National Bureau of Economic Research, Inc.
- Deardorff, A.V., 1998.
"Fragmentation in Simple Trade Models,"
98-11, Michigan - Center for Research on Economic & Social Theory.
- Deardorff, Alan V., 2001. "Fragmentation in simple trade models," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 121-137, July.
- Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
- Robert Feenstra, 2003.
"Integration Of Trade And Disintegration Of Production In The Global Economy,"
986, University of California, Davis, Department of Economics.
- Robert C. Feenstra, 1998. "Integration of Trade and Disintegration of Production in the Global Economy," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 31-50, Fall.
- Robert C. Feenstra, . "Integration Of Trade And Disintegration Of Production In The Global Economy," Department of Economics 98-06, California Davis - Department of Economics.
- James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
- Matthew J. Slaughter, 1995. "Multinational Corporations, Outsourcing, and American Wage Divergence," NBER Working Papers 5253, National Bureau of Economic Research, Inc.
- Andrew K. Rose, 1991.
"Why Has Trade Grown Faster than Income?,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 24(2), pages 417-27, May.
- Yeats, Alexander J., 1998. "Just how big is global production sharing?," Policy Research Working Paper Series 1871, The World Bank.
- Anderson, James E., 1998. "Effective protection redux1," Journal of International Economics, Elsevier, vol. 44(1), pages 21-44, February.
- Dixit, Avinash K & Grossman, Gene M, 1982.
"Trade and Protection with Multistage Production,"
Review of Economic Studies,
Wiley Blackwell, vol. 49(4), pages 583-94, October.
- Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977.
"Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods,"
American Economic Review,
American Economic Association, vol. 67(5), pages 823-39, December.
- R. Dornbusch & S. Fischer & P. A. Samuelson, 1976. "Comparative Advantage, Trade and Payments in a Ricardian Model With a Continuum of Goods," Working papers 178, Massachusetts Institute of Technology (MIT), Department of Economics.
- Deardorff, Alan V., 1979. "Weak links in the chain of comparative advantage," Journal of International Economics, Elsevier, vol. 9(2), pages 197-209, May.
- Robert Z Lawrence, 1994. "Trade, Multinationals and Labour," RBA Annual Conference Volume, in: Philip Lowe & Jacqueline Dwyer (ed.), International Intergration of the Australian Economy Reserve Bank of Australia.
- Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
- Findlay, Ronald, 1978. "An "Austrian" Model of International Trade and Interest Rate Equalization," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 989-1007, December.
- Berman, Eli & Bound, John & Griliches, Zvi, 1994. "Changes in the Demand for Skilled Labor within U.S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 367-97, May.
- David Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
- Sanyal, Kalyan K & Jones, Ronald W, 1982. "The Theory of Trade in Middle Products," American Economic Review, American Economic Association, vol. 72(1), pages 16-31, March.
- Paul Krugman, 1989. "Is Bilateralism Bad?," NBER Working Papers 2972, National Bureau of Economic Research, Inc.
- Caroline L. Freund, 1998. "Regionalism and permanent diversion," International Finance Discussion Papers 602, Board of Governors of the Federal Reserve System (U.S.).
- Slaughter, Matthew J., 2000. "Production transfer within multinational enterprises and American wages," Journal of International Economics, Elsevier, vol. 50(2), pages 449-472, April.
- repec:fth:michin:422 is not listed on IDEAS
- Robert Z. Lawrence, 1994. "Trade, Multinationals, & Labor," NBER Working Papers 4836, National Bureau of Economic Research, Inc.
- Sanyal, Kalyan K, 1983. "Vertical Specialization in a Ricardian Model with a Continuum of Stages of Production," Economica, London School of Economics and Political Science, vol. 50(197), pages 71-78, February.
- Jose Campa & Linda S. Goldberg, 1997. "The evolving external orientation of manufacturing: a profile of four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 53-81.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- "Globalisation and the Costs of International Trade from 1870 to the Present"
by Mark Thoma in Economist's View on 2008-08-16 20:08:00
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.