The nature and growth of vertical specialization in world trade

Dramatic changes are occurring in the nature of international trade. Production processes increasingly involve a sequential, vertical trading chain stretching across many countries, with each country specializing in particular stages of a good's production sequence. We document a key aspect of these vertical linkages - the use of imported inputs in producing goods that are exported - which we call vertical specialization. Using input-output tables from 10 OECD and four emerging market countries we calculate that vertical specialization accounts for 21% of these countries' exports, and grew almost 30% between 1970 and 1990, We also find that growth in vertical specialization accounts for 30% of the growth in these countries' exports. (C) 2001 Elsevier Science B.V. All rights reserved.