Vertical Specialization Research Articles

Has digital infrastructure accelerated enterprises' specialization? Evidence from China

PurposeThis paper intends to explore the impact and mechanism of digital infrastructure development on enterprises vertical specialization. The following questions are discussed: (1) What is the impact of digital infrastructure on enterprise vertical specialization? (2) If the digital infrastructure serves to raise the level of vertical specialization of enterprises, does the impact differ depending on the level of city, industry and enterprise?Design/methodology/approachThe research employs the “Broadband China” strategy as a quasi-natural experiment for digital infrastructure development, with a multi-period difference-in-difference model constructed to test the research hypothesis. The study examined data from Chinese A-share enterprises listed between 2007 and 2019.FindingsThe study’s findings indicate that the construction of digital infrastructure significantly increases firms' vertical specialization. According to the mechanism analysis, digital infrastructure can increase vertical specialization by lowering market transaction costs. This study employs group regressions in terms of cities, industries and companies to gain a better understanding of the heterogeneity of this effect. The results indicate that digital infrastructure contributes more significantly to higher levels of vertical specialization among enterprises in areas with higher levels of innovation and entrepreneurship as well as in eastern and central cities, service industries, and mature firms.Research limitations/implicationsThere are two shortcomings to this study that warrant investigating further. The first limitation is the mechanism. This study simply looked at the mechanism between variables in terms of transaction costs, using existing theories. As the level of technology continues to improve, the process of digital infrastructure’s impact on vertical specialization requires greater investigation. Another weakness of this study is its country-specific focus. The effect of digital infrastructure on vertical specialization differs by country, reflecting disparities in economic growth. Further discussion of cross-national comparative studies is required.Originality/valueThe study’s marginal contributions are largely represented in the two aspects listed below: (1) This paper includes a comprehensive theoretical study of the influence of digital infrastructure development on vertical specialization, focusing on transaction costs. This provides a theoretical foundation for the empirical study presented in this paper; (2) this study fills the gap in earlier research in this field, and the findings broaden research findings in areas such as digital infrastructure development and vertical specialization.

Vertical specialization, global expansion of supply chain, and convergence

Abstract In this paper, we construct an elaborate general equilibrium model with a continuum of production fragments for an intermediate good, then incorporate it in a growth model to address the effects of global production fragmentation, vertical specialization, and trade on growth and inequality for a small developing country. Among other things, we show that a small developing economy grows faster than the rest of the world as a result of global fragmentation and trade in intermediates if it is skilled-labor scarce. We further address the effects of such a trade opening on wage inequality.

Why does international vertical specialisation affect within‐firm skill premium in China? Investigation and interpretation

AbstractWith highly disaggregated data during 2000–2006 in China, we construct the firm‐level international vertical specialisation index and find that China's ascension to WTO decreased the index in manufacturing firms. We investigate its relationship with measured skill premium in manufacturing firms and find that a one percentage point decrease in international vertical specialisation could lead to as much as a two‐tenth percentage point deduction in the skill premium. The effect is more pronounced when the specialisation is with OECD developed economies, while it is reversed with non‐OECD economies. Furthermore, the relationship is only significant in ordinary firms though processing firms also experienced changes in international vertical specialisation during the same period. Our results are robust to various empirical alternatives. We then propose a model that features a two‐stage production in Melitz's (2003, Econometrica, 71, 1695) heterogeneous firm model. The model can explain the puzzle why China's trade volume surged after entering WTO, while the degree of international vertical specialisation decreased. Furthermore, it also explains why vertical specialisation might affect within‐firm skill premium under trade liberalisation.

Will global value chain participation reduce environmental emissions? Evidence from Chinese firm-level data

The global value chain (GVC) had brought different pattern to the environment impact of trade. Thus, exploring the effect of participation in GVCs on firms’ environmental performance is of great significance. Using micro data on Chinese industrial firms between 2000 and 2013, we investigate the degree of vertical specialization in their sulfur dioxide (SO2) emission intensity. The results showed that the higher degree of vertical integration in GVCs is conducive to decreasing SO2 emission intensity through the channels of imported intermediate inputs and enhancement coal-use efficiency. Besides, we construct two different instrument variables to mitigate the endogeneity problem, along with a series of robustness and heterogeneity tests. This study contributes to the literature on the effect of GVC trade on the environment by providing firm-level evidence from China.

Импортоемкость регионов российской экономики

In the pre-sanction period, foreign economic relations in Russia were growing in importance. While the country’s gross domestic product increased by 1.75 times in 2013 compared to 2000, imports increased by 5.7 times in comparable prices during this period. Despite actual and potential effects of comparative advantages, the growing dependence on foreign markets also had negative consequences. The study assesses the demand for imported goods, considering the existing interindustry relations in the Russian economy. The paper describes the first stage of comparison of direct and total costs for the Russian economy and presents mathematical tools used to calculate indicators of its import dependence. In the future, we are planning to extend this approach to examine the spatial economy of two macrozones, namely, the European and Asian parts of Russia. Statistics show that the direct import intensity of the Russian economy is approximately 6 %, which is less than the global average. The vertical specialisation index of about 11 % indicates a relatively low dependence of the export of domestic goods on imports. In 2014–2020, total import costs reduced the most in the pulp and paper industry (-5 %) and vehicle manufacturing industry (-3 %) mainly due to a decline in their import intensity. In general, the impact of forced import substitution turned out to be negative for most regions after 2013. The proposed methods can be used to forecast the trade balance and consequences of implementing various import substitution policies. Since that intermediate consumption flows are included in indirect and total costs, it is advisable to develop a methodology accounting for investment goods.

Network causal effects of deepening global trade agreements on embodied carbon emissions

With the deepening vertical specialization of production networks and value chains among countries, the problem of global embodied carbon emission leakage under multilateral trade agreement cooperation is becoming increasingly prominent. This study measures the index of “World Trade Organization+" and “World Trade Organization-X,” finds the complex impact of the two types of deep integration of trade agreements on embodied carbon emissions from the network perspective, and compares them to draw conclusions and suggestions. First, the global trade-embodied carbon transfer link spontaneously diversifies, with most countries moving from the network's perimeter to its center. Second, more trade agreements can help carbon-absorbing, and carbon-spillover countries narrow the “production side” and “consumption side” divide. Third, “World Trade Organization+" and “World Trade Organization-X" deep integration influence embodied carbon emission linkages differently for countries with different embodied carbon emission attributes, with “World Trade Organization-X" having a more significant impact. At the policy level, free trade agreements have deepened to a certain extent to provide a consistent and synergistic path for trade governance and climate globalization. Countries should actively introduce relevant provisions based on the governance of trade-embodied carbon emission reductions in “World Trade Organization+" and “World Trade Organization-X", especially in “World Trade Organization-X", and some of the relevant policy provisions can be appropriately weighted in favor of developing countries.

The Significance of Participation in the Global Production Network to Economic Development: An Econometric Analysis of BRICS+T Countries

With globalization, the international fragmentation of production (IFP) splits the production process of final goods and services into several stages undertaken in different countries integrated into global production networks. BRICS + T countries have rapidly participated in the (IFP) process especially after 2000s. The main purpose of this paper is to analyze the nexus between BRICS+T countries’ participation in the global production networks and their economic development. The vertical specialization rate, as an indicator of this participation, had been calculated utilizing OECD Input-Output Tables. Subsequently, the development index was calculated utilizing economic-technological and cultural-institutional indicators published by World Bank. The vertical specialization’s impact on development was estimated utilizing the CS-ARDL estimator. The results revealed that while the vertical specialization has a statistically significant positive impact on development in the short term, a positive but not statistically significant impact was recorded in the long term. Konya (2006) causality test was performed to examine the causal relationship among the selected variables. The results revealed a one-way causality running from development to vertical specialization in China and Turkey and a one-way causality running from vertical specialization to development in Brazil. No causality relationship could be detected in other countries included in the analysis.

The impact of digitalization on the division of labour in enterprises- evidence from China

ABSTRACT In the context of the accelerated development of digitalization, the rapid popularization and wide application of digital technology have become significant factors driving enterprises to participate more deeply in the division of labour. This paper examines data from 2359 A-share listed companies in China from 2010 to 2018, using a combination of machine learning text analysis and multiple regression analysis to construct a digital transformation index. Our research findings reveal that digital transformation has an inverted U-shaped effect on vertical specialization in enterprises’ division of labour. The present study examines the moderating effects of organizational inertia on the linear relationship between digital transformation and vertical specialization division of labour in enterprises. Additionally, the study explores the negative moderating effects of corporate strategic radicality on the inverted U-shaped relationship between the two variables. The findings of this study are significant as they provide a theoretical explanation for the impact mechanism of digital transformation development on the production organization mode of enterprises.

Tracing topic evolution in higher education: a text mining study on Italian universities

ABSTRACT In the last decade, the fast technological and social transformations have been placing new demands on Higher Education (HE) systems to update their educational offers. Grounded in the broader discourse on the impact of such transformation on HE, this article relies on Text Mining (TM). We consider as a case study the Italian HE system, providing an overview of the university education in the last 10 Academic Years. We automatically analyse 54,535 learning outcomes of degree programmes to identify the relevant topics with Named Entity Recognition, a technique of TM. For each topic, we measured its trend in time and coverage on a geographical basis and in the disciplinary fields. We detected 6062 different topics, among these the most growing are artificial intelligence, sustainability, rare diseases, and ethics. The findings reveal that topics related to hard sciences register higher occurrence than the ones concerning humanities and social sciences. Furthermore, we observed that universities are overcoming the boundaries of disciplinary fields, promoting knowledge contamination and vertical specialisation. The proposed approach can advance studies in HE literature for effective and efficient analysis. The findings can inform policies and practices in HE on evolving learning outcomes and educational offerings, even across different countries and disciplines.

Market entry deregulation and corporate vertical specialization: Evidence from China

Market entry deregulation can contribute to a freer and more dynamic market environment. It not only increases entry opportunities for market participants but also has the potential to stimulate multi-node investments by firms in the industry chain. However, the effect of these market changes on the selection of the division of labor mode remains relatively unknown. Leveraging a quasi-experiment on the negative market entry list system, we utilize a staggered difference-in-differences approach to investigate the impact of market entry deregulation on corporate vertical specialization. Our findings robustly demonstrate that market entry deregulation increases corporate vertical specialization. This effect is primarily achieved through the reduction of entry barriers, the increase in sources of information, and the enhancement of the competition mechanism to reduce external transaction costs. Further, this effect is particularly pronounced among firms with higher asset specialization, operating in more competitive industries, and situated in regions with well-developed informatization system.

The role of specialization in increasing farmers' income: Horizontal or vertical?

AbstractBased on the theory of division of labor and specialization, this article attempts to address the problem of “splitting horizontal and vertical division of labor” by innovatively integrating horizontal specialization, vertical specialization, and farmers' income into a unified analytical framework. Using the data for 416 chicken farmers in four districts and counties of Guangdong Province as the sample, the theoretical framework proposed in this article is tested by constructing multiple linear regression models and structural equation models. The results are as follows: Both vertical and horizontal specialization can bolster the income of farmers, but they have different specific mechanisms of action. Vertical specialization promotes agricultural income through the mediating effect of horizontal specialization. It is evident that the discussion of horizontal specialization of farmers should not be separated from the conditions of vertical specialization. The policy effect of emphasizing horizontal specialization alone may be limited. Especially for those farmers who are limited by their own endowments and objective conditions to increase their horizontal specialization level and production scale in the short term, it is more important to promote their vertical specialization level.

Do Women Benefit from Global Production Networks? Evidence from the Indonesian Footwear Industry

Despite the remarkable improvements in key economic and social standards, the Indonesian footwear industry still struggles to ensure decent work, particularly for women workers. In this paper, female workers are divided into production and non-production workers. Women production workers are used as a proxy for occupational segregation based on sex, called non-skilled workers, while women non-production workers are used as a proxy for women’s share of work in managerial and administrative work, called skilled workers. This paper examines the close links between decent work (DW) and global production networks (GPNs) in the Indonesian footwear industry. More specifically, this article scrutinizes fair employment treatment for local female employees within the DW framework in the country’s footwear industry with the expansion of GPNs based on Indonesian footwear firm-level panel data from 2001 to 2015. Vertical specialization is a proxy for GPNs and is the main independent variable in this paper. The results show that vertical specialization is in line with the fair treatment indicators and has a significant level for female production workers. In addition, the other independent variable, namely the wages of production workers, has a significant level, and the results are inversely proportional to the fair treatment indicator, while the wages of non-production workers show results that are inversely proportional to female production workers but positive for female non-production workers. This shows that an increase in the wages of production workers is less profitable for female production workers than for female non-production workers. Thus, the results show that the expansion of GPNs in the Indonesian footwear sector has essentially led to improved fair employment treatment, especially for women workers.

An international value chain of China’s manufacturing industry based on big data technology

In order to study the impact of the vertical specialisation level and competitiveness of China’s manufacturing industry on the international competitiveness of the manufacturing industry, this paper combines improved data mining technology to analyze the rising factors of the international value chain of the manufacturing industry and construct a regression equation. Moreover, this paper analyzes the impact of vertical specialisation on the competitiveness of manufacturing industry by adding control variables, and finally puts forward policy recommendations for improving the international competitiveness of manufacturing based on the results of empirical analysis, thereby promoting the rise of the status of China’s manufacturing industry in the division of labour in the international value chain. The research shows that the analysis model of rising factors of manufacturing international value based on big data technology proposed in this paper has good results.

Analysis of the Position of China Information Industry in the Global Value Chain

Identifying the division of labor position of China information industry in the global value chain is particularly important for optimizing the structure of China's information industry and improving its overall competitiveness. The article calculates the global value chain revenue generated by the participation of the information industry in the global value chain division of labor production in various countries, and then establishes a global value chain height index to analyze the global scale and development of China information industry; Analyze the degree of vertical specialization of the information industry through the decomposition of international trade flows, and finally calculate the global value chain status index of the information industry in different countries. The results indicate that: (1) the value chain height index of China's information manufacturing industry is continuously decreasing, at the level of middle and lower reaches; The telecommunications industry and computer programming industry in China information service industry are in an upstream position in the value chain. (2) There is an imbalance in bilateral trade between China and the United States in information manufacturing and information service industries. Compared to the United States, China information industry has a lower value chain position. The United States mainly engages in research and development, design, and other work, while China is more engaged in less value-added work such as assembly and reprocessing. (3) From the global value chain status index, China information manufacturing industry is at the middle and lower reaches of the world, with Japan firmly ranking first and the United States second. The ranking of other developed countries is basically in the top 20, fluctuating between the middle and upper reaches. The position of China's information service industry in the global value chain is at the mid to upper level. Russia, Japan, and the United States are among the top three countries in the global value chain of the information services industry, while developed countries such as the UK, France, and Germany are in the upper reaches of the information services industry.

Decomposing structural changes of production network for electronics industry in Northeast Asia regions in the 2010s

ABSTRACT This article analyzes structural changes of regional production network (RPN) for the electronics industry across 20 Northeast Asia regions for the period 2005–2015. We develop an extended Structural Decomposition Analysis approach which decomposes changes in Vertical Specialization (VS) share into seven components of foreign intermediate suppliers, input composition, and import intensity in terms of the import structure; and production structure, trade balance, trade openness, and domestic demand in terms of the export one. The development of production fragmentation in Northeast Asia’s electronic industry was associated with the coexistence of nine subregional patterns, including four VS patterns of Coastal China, Inland China, North China, and Central China; four vertical integration (VI) patterns of Northeast Japan, Central Japan, Seoul region, and Busan region. The substantial increases in the VS of North China and Central China result from changes in domestic demand and production structure, while the decline in the VS in Central Japan and Busan region is influenced by the shifts in import intensity and trade openness.

How Does the Regional Comprehensive Economic Partnership Affect the Restructuring of Global Value Chains?

AbstractThis paper quantifies the way in which the Regional Comprehensive Economic Partnership (RCEP) affects the restructuring of global value chains (GVCs). It incorporates an input– output structure into a general equilibrium model, highlighting important differences between intermediates and final goods. Using tariff reduction schedules for the RCEP agreement and Asian Development Bank Multi‐Region Input–Output database, it evaluates the impact of the RCEP's tariff cuts on vertical specialization and the GVC position index of members. It shows that the RCEP significantly increased vertical specialization and the weighted average number of stages for members for primary factors of production and final consumption, which led to more complex and longer production chains. This was mainly due to the trade creation in intermediates imported from member countries and those outside it. This is an important finding, distinct from traditional trade models without an input–output structure.

Inside the white box: Unpacking the determinants of quality and vertical specialization

This paper explores patterns of quality differentiation and specialization relying on model-level panel data of retail sales and prices of refrigerators across 23 countries in the European Union. Unlike customs data aggregated at the product category, typically used in the trade literature, model-level data allow us to test for the presence of nonhomotheticities by comparing market shares of identical models across different markets. We measure quality at the model level, account for varying willingness-to-pay for quality at different incomes, and link quality measures to objective model attributes. Using originally assembled data on the country of manufacture of each model, we study patterns of quality specialization by brands with plants in multiple countries. We find that firms locate the production of their higher-quality models in richer countries and argue that the home-market effect linked to nonhomothetic preferences is a key driver of such patterns of quality specialization.

Exploring Pakistan’s Regional Economic Cooperation Potential ( The Presidential Address)

Free trade benefits are not well-harnessed despite the WTO because of the regional groupings. Such groupings have, in fact, resulted in a chaos. Pakistan has been a member of the SAARC and the ECO. In both the groups, intra-regional trade accounts for only four percent of total trade. The present study briefly reviews and identifies constraints to intra-regional trade and other modes of economic cooperation in the region. The SAFTA agreement and the possibilities of greater economic cooperation are also examined. Comparative advantage and low trade complementarity are found to be the main impediments to trade. Other obstacles such as limited capacity to generate exportable surpluses, restrictive trade policies, and political problems have also inhibited the growth of intra-regional trade. Higher trade levels can be achieved through intra-industry trade, vertical specialisation, joint export marketing of competing regional export products, deepening trade liberalisation, promoting monetary cooperation, and encouraging joint industrial ventures. It is imperative for the success of SAFTA that the negative list is kept quite small and the countries are prepared for closure of a few industries. Thus the SAFTA has great potential and South Asian countries should accept short-term costs for longrun benefits. Expansion of trade as well as efficiency and improved quality of exports would benefit the countries participating in the regional co-operation effort.

The impact of digital finance development on vertical specialization: evidence from A-share listed companies in China

PurposeThis study intends to explore the relationship between digital finance and the vertical specialization of firms. The following questions are discussed: (1) As a representative new financial development model, what is the role of digital finance in the vertical specialization of firms? (2) If digital finance improves the level of vertical specialization of firms, what is the mechanism behind such improvement? (3) How does digital finance impact the vertical specialization of firms in different regions, industries, and firms?Design/methodology/approachA two-way fixed-effect model of panel data is proposed to verify the relationship between digital finance and the vertical specialization of firms. This model is constructed by matching the city-level data of digital finance with the data of China's A-share listed companies from 2011 to 2018. Meanwhile, the instrumental variable (IV) method and difference-in-difference (DID) method are adopted to deal with the endogeneity problem of the model.FindingsThe authors' study finds that digital finance has significantly improved the level of vertical specialization of firms. The result is robust under the endogeneity consideration and a series of robustness tests. After the dimensionality of the index is reduced, the depth of digital finance usage is more conducive to the improvement of the vertical specialization of firms compared with the width of digital finance coverage and the level of financial digitization. Digital finance mainly improves the level of vertical specialization of firms by reducing transaction costs and increasing the market thickness of the intermediate products. Moreover, digital finance has certain heterogeneity in promoting the vertical specialization of firms, an effect that is more significant in the eastern region, manufacturing industry and state-owned enterprises (SOEs).Research limitations/implicationsThe first limitation is the mechanism test. This research only analyzes the mechanism from transaction cost and the market thickness of the intermediate products. With the rapid development of information technology, digital finance will be further integrated into people's production and life. There will then be more mechanisms that should be explored between digital finance and the vertical specialization of firms. Another limitation is the data sample of this paper. The conclusions of this research are based only on the data of listed companies. However, in the authors' opinion, the specialization level of small and medium-sized enterprise (SMEs) should be higher. Therefore, the conclusions of this work are underestimated, which can be considered as the lower limit of digital finance for enterprise specialization.Social implicationsAs a favorable financing channel to supplement traditional financial service functions, digital finance plays a critical role in the operating efficiency of enterprises and the effective allocation of macro resources. The authors' research shows that digital finance has significantly improved the vertical specialization of firms. This conclusion provides guides to improve the production efficiency of enterprises and the quality of economic development.Originality/valueThis paper has three main contributions. (1) The relationship between financial development and the vertical specialization of firms is innovatively discussed from the perspective of digital finance, which implies that digital finance can effectively promote the level of vertical specialization of firms. (2) This paper provides new perspectives and ideas to reveal the impact mechanism of digital finance on the real economy by systematically analyzing the mechanism of digital finance on the vertical specialization of firms from the perspectives of transaction costs and financing constraints. (3) The regional differences in the development of digital finance, industry differences in the vertical specialization of firms and differences in the nature of enterprise property rights are all under consideration, which improves the effectiveness and pertinence of digital finance in promoting the vertical specialization of firms.

ВИМІРЮВАННЯ УЧАСТІ КРАЇН У ГЛОБАЛЬНИХ ЛАНЦЮГАХ СТВОРЕННЯ ВАРТОСТІ

The article is devoted to the generalization and systematization of the main theoretical approaches and practical methods of measuring the participation of countries or industries in global value chains (GVC). The work provides the definition and main content of global value chains. It has been noted that the growing role of global value chains and their importance not only changes the approach to the ways of generating income and ensuring economic growth, but also gives an awareness that the most important driver of economic growth of an industry or country is direct participation in global value chains. Significant arguments have been presented in favor of the participation of countries in global value chains. Summarizing the existing methods of calculating the degree of a country’s participation in global value chains, the authors have singled out four index based methods: Index of Vertical Specialization, Export complexity index, GVC participation index and GVC position index. Index of Vertical Specialization assumes using data on the country’s expenditure-output for the distribution of the value of imported foreign goods contained in export products of a certain industry in this country, on the total export value of the industry. Export complexity index based on export volume and income of a country that participates in global value chains, as well as the export of goods of a specific country and the industry index of goods to measure the national product index. GVC participation index is measured in terms of the value of goods and services added as a result of trade. GVC position index shows the “status” of a certain industry in a country: the higher the value, the higher the “status” of a certain industry in the country’s global value chain, and vice versa. The main formulas for calculating indices, advantages and disadvantages of their use have been presented. Thus, it has been proven that the GVC participation index, which is based on the Index of Vertical Specialization, reflects the dynamics of the integration of countries in the GVC and allows for inter-country and inter-industry comparative analysis, but does not provide an opportunity to assess the benefits received from participation in the GVC. The use of the GVC Status Index allows to solve this task both at the country and at the sectoral level. It has been proposed to use GVC participation index and GVC position index as a basis for analyzing Ukraine’s participation in global value chains. This will allow not only to reveal the degree of Ukraine’s participation in the modern international division of labor but also, based on the conclusions of such an analysis, to develop recommendations for improving the place of Ukraine in the GVC and change the position of Ukraine from a raw material supplier country to a raw material processing country.