The rise of vertical specialization trade
AbstractManufacturing and vertical specialization (VS) trade, trade in goods that incorporate imported inputs, have grown rapidly since the 1960s. I argue that declining trade costs are an important explanation for these facts. I present a three stage vertical specialization trade model, with raw materials, manufactured parts and final goods sectors. In the simulated model, falling trade costs explain much of the observed growth in overall and VS trade. Manufacturing trade grows twice as fast as overall trade. Raw materials trade was more important in the 1960s when trade costs were high, since their production is more strongly linked to endowments than manufacturing. Therefore, materials will be traded even when trade costs are high. Trade costs have fallen more for manufactured goods over the last 40years, leading to a rapid expansion of manufactured parts trade relative to materials.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Economics.
Volume (Year): 86 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505552
Trade costs; Vertical specialization; Manufacturing trade;
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- F1 - International Economics - - Trade
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- Richard Frensch & Jan Hanousek & Evžen Kočenda, 2012.
"Incomplete specialization and offshoring across Europe,"
321, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).
- Richard Frensch & Jan Hanousek & Evžen Kocenda, 2012. "Incomplete Specialization and Offshoring across Europe," CESifo Working Paper Series 3809, CESifo Group Munich.
- Richard Frensch & Jan Hanousek & Evžen Kocenda, 2012. "Incomplete specialization and offshoring across Europe," FIW Working Paper series 091, FIW.
- Benjamin Bridgman, 2010. "International Supply Chains and the Volatility of Trade," BEA Working Papers 0059, Bureau of Economic Analysis.
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