Vertical Specialization in Manufacturing Industry: Evidence from Central and Eastern European Countries (CEECS)

Since 1980 with the accelerating trends of globalization, the international fragmentation of production was one of the drastic transformations that occurred in the world economy. It is defined as the process whereby more than one country participates in previously integrated production activities (vertical specialization) involved in producing a final good. After the dissolution of the Soviet Union, the post-socialist Central and Eastern European countries (CEECs) boost their participation in global production networks. The main motivation of this paper is analyzing the extent to which the CEECs that joined the EU in 2004 (Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia) are involved in the global production process. Based on the World Input-Output Database (WIOD); HIY method proposed by Hummels, Ishii & Yi (2001) is applied to the national input-output tables (NIOTs) of CEECs to estimate the manufacturing industries’ vertical specialization rate during 2000-2014. The results revealed that the CEECs’ vertical specialization rate increased during 2000-2014 but decreased during the 2008-2009 global financial crisis. The highest rate was respectively accounted for Hungary, Slovakia, Estonia, Slovenia, Lithuania, Poland and Latvia. The countries with the highest manufacturing industry’s vertical specialization were Hungary, Estonia, Slovakia, Latvia, Czech Republic, Slovenia, Poland and Lithuania, respectively. The manufacturing industries’ vertical specialization rate in Estonia, Hungary, Latvia and Poland was higher than that of the entire economy. Finally, in the Czech Republic, Latvia, Lithuania and Poland; higher rates were accounted for the medium-low technology sectors, but for medium-high and high-tech sectors in Estonia, Hungary, Slovakia and Slovenia.