Vertical Specialization and the Changing Nature of World Trade

21 Pages Posted: 23 Oct 2007  

David L. Hummels

Purdue University - Department of Economics; National Bureau of Economic Research (NBER)

Dana Rapoport

affiliation not provided to SSRN

Kei-Mu Yi

Federal Reserve Bank of Philadelphia

Date Written: June 1998

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.

Keywords: vertical specialization

JEL Classification: F1, F14, F23

Suggested Citation

Hummels, David L. and Rapoport, Dana and Yi, Kei-Mu, Vertical Specialization and the Changing Nature of World Trade (June 1998). Economic Policy Review, Vol. 4, No. 2, June 1998. Available at SSRN: https://ssrn.com/abstract=1023939

David L. Hummels (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dana Rapoport

affiliation not provided to SSRN

No Address Available

Kei-Mu Yi

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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