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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, issue 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. James R. Markusen, 1997. "Trade versus Investment Liberalization," NBER Working Papers 6231, National Bureau of Economic Research, Inc.
    2. 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.
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    Keywords

    International trade;

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