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Vertical specialization and the changing nature of world trade

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  • David L. Hummels
  • Dana Rapoport
  • Kei-Mu Yi

Abstract

A major feature of globalization has been the enormous increase in international flows of goods and services: countries are now trading much more with each other. In this article, the authors demonstrate the greater role vertical specialization is playing in these increased flows. Vertical specialization occurs when a country uses imported intermediate parts to create a good it later exports--that is, the country links sequentially with other countries to produce a final good. Deriving evidence from four case studies as well as OECD input-output tables, the authors reveal that vertical specialization has accounted for a large and increasing share of international trade over the last several decades. They also note that because the trends encouraging vertical specialization--lower trade barriers and improvements in transportation and communications technologies--are likely to continue, this type of international trade should become even more prevalent in the next century.

Suggested Citation

  • David L. 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, vol. 4(Jun), pages 79-99.
  • Handle: RePEc:fip:fednep:y:1998:i:jun:p:79-99:n:v.4no.2
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    References listed on IDEAS

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    1. Andrew K. Rose, 1991. "Why Has Trade Grown Faster than Income?," Canadian Journal of Economics, Canadian Economics Association, vol. 24(2), pages 417-427, May.
    2. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
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