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Application of factor decomposition techniques to vertical specialisation measurements

  • Meng, Bo
  • Yamano, Norihiko
  • Webb, Colin
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    The increasing importance of vertical specialisation (VS) trade has been a notable feature of rapid economic globalisation and regional integration. In an attempt to understand countries’ depth of participation in global production chains, many Input-Output based VS indicators have been developed. However, most of them focus on showing the overall magnitude of a country’s VS trade, rather than explaining the roles that specific sectors or products play in VS trade and what factors make the VS change over time. Changes in vertical specialisation indicators are, in fact, determined by mixed and complex factors such as import substitution ratios, types of exported goods and domestic production networks. In this paper, decomposition techniques are applied to VS measurement based on the OECD Input-Output database. The decomposition results not only help us understand the structure of VS at detailed sector and product levels, but also show us the contributions of trade dependency, industrial structures of foreign trade and domestic production system to a country’s vertical specialisation trade.

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    File Function: First version, 2011
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    Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 276.

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    Date of creation: Feb 2011
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    Publication status: Published in IDE Discussion Paper. No. 276. 2011. 2
    Handle: RePEc:jet:dpaper:dpaper276
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    1. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
    2. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
    3. Daisuke Hiratsuka & Yoko Uchida, 2010. "The Development of Input Trade and Production Networks in East Asia," Chapters, in: Input Trade and Production Networks in East Asia, chapter 1 Edward Elgar Publishing.
    4. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2008. "How Much of Chinese Exports is Really Made In China? Assessing Domestic Value-Added When Processing Trade is Pervasive," NBER Working Papers 14109, National Bureau of Economic Research, Inc.
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