Vertical Specialization Research Articles

Production Globalization Makes China’s Exports Cleaner

Summary Production globalization, which is when firms expand their supply chains across national boundaries, creates an opportunity for developing countries to engage in international production networks via trade. Described as the world's factory, China specializes in assembly manufacturing mainly through processing exports. Firms use imported intermediate inputs for production and, after processing or assembly, re-export the finished products to international markets. Here, we show that the carbon efficiency of China’s processing exports is greater than that of its ordinary exports. If the impact of trade heterogeneity is ignored, then the domestic emissions embodied in China’s exports will be overestimated by 23.4%, and the foreign emissions embodied in China’s exports will be underestimated by 29.3%. If the degree of global value chain participation, which ranges from 0 to 1, increases by 0.1, although foreign emissions embodied in China’s exports would increase, the gross carbon intensity of China’s exports will decrease by 11.7%.

Integration in Manufacturing Trade in Asia: A Cross-country Scenario with Special Reference to India

The fragmentation of production due to vertical disintegration has profusely impacted growth in world trade via vertical specialisation in production and trade. This article is purported to examine domestic and import contents in exports in the manufacturing sector of India, and a few select countries in Asia. We have used the World Input–Output Database (WIOD) to estimate the domestic and foreign value-added shares of export. The period of our study is from 2000 to 2014. Our results pertaining to the aggregate manufacturing industry of India reveal that while, on the one hand, the domestic value-added contents of export have fallen significantly, the foreign value-added contents of export, on the other hand, have increased significantly over time. We have also conducted disaggregated industry-level analyses, which show that there is a wide variation in the degree of vertical integration in trade. The cross-country analysis reveals that the foreign value-added shares in total manufacturing export increased for developed Asia in 2014 over 2000. In emerging and developing Asia, it either has increased or remained stagnant. This scenario indicates a larger backward linkage of the manufacturing sector in the global value chain (GVC) across countries. Here, we have primarily focussed on the six key manufacturing industries viz. Food, Textiles, Chemicals, Basic Metals, Fabricated Metals and Motor Vehicles for cross-country industry-level analysis. Industry-level heterogeneity is highly prevalent in Asia in terms of their participation in GVC.

Distinct exporters and the environment: Empirical evidence from China manufacturing

With the continuous advancement of economic interaction and vertical specialization in world economics, the importance of processing exports is catching up with ordinary exports. Although environmental consequences of export have been discussed from macro and micro perspectives, the effect of distinct exports, especially processing exports, on the environment at the plant level receives scant attention and remains unclear. To explore the firm-level environmental differences between processing exports and ordinary exports, in this paper we investigate how pollution emitted by individual establishments reacts to distinct export status by employing a panel of plant-level data from China manufacturing sector for the years 2006 and 2007. Our estimates indicate that exporters obtain both economic and environmental advantages over non-exporters, and processing exports generate fewer emissions than non-processing exports. For exporters, the beneficial effect of the decline in pollution intensity driven by the adoption of clean technology outweighs the negative effect of production expansion. Compared to non-processing exporters, processing ones have lower pollution intensity due to the inclination of abatement investments and the inclined inflows of FDI that bring advanced abatement technology to processing trade sectors.

Vertical Specialization and Wage Inequality: A Simple Model of Monopolistic Competition

Vertical Specialization and Wage Inequality: A Simple Model of Monopolistic Competition

Competitive Circular Economy Management. The Mitsubishi Corporation Case

In today’s scenario of ‘hyper competition’, global corporations face many other MNCs (more and more frequently based in the US, China, South Korea, Taiwan and Europe). In oversize economy, global companies move to adopt closed innovation policies. In particular, the circular economy suggests that sustainable outputs can be achieved without loss of revenue or extra costs for global manufacturers. The transformation from MNCs to global networks has led towards vertical specialization and highly diversified patterns of collaboration through inter-firm and intra-firm transactions coordinated by global corporations. As we can see from the experience of the greatest global corporations (e.g., Mitsubishi Corporation), the biggest global companies see the circular economy as a specific tool to compete, in the context of a network vision (competitive circular economy management).

Research on China’s OFDI Location Strategy in EU from the Perspective of Host Country Manufacturing Industry GVC Evolution

Based on the driven mode and the form of labor division, the two paths that affect the evolution of the host country’s manufacturing industry GVC, this paper constructs a mechanism on their impacts on China’s OFDI location strategy, and then verifies the theoretical hypotheses by taking China’s OFDI stock across 26 EU member states and 13 manufacturing sub-industries during 2003 to 2014 as the sample. The empirical results obtained by comprehensive Generalized Least Squares (GLS) estimation show that, from the perspective of the GVC driven model, the high-tech level, rich human capital under the producer-driven model, and huge market potential based on buyer-driven mode are important factors affecting China’s OFDI location choice across EU member states. From the perspective of GVC labor division, the higher vertical specialization and host country’s GVC status of manufacturing sub-industry attract the inflow of Chinese investments.

Aspects of the Development of Lithuanian Economic Specialisation in the Context of Globalization

Aspects of the Development of Lithuanian Economic Specialisation in the Context of Globalization

The Role of Global Production Networks in Indonesian Exports

This study looks into Indonesia’s participation in fragmented structures within the Global Value Chain. By using a global input-output dataset and splitting gross exports into distinctive elements of value-added, the study measures vertical specialization of Indonesia against its four largest trading partners (NAFTA, East Asia, European Union and ASEAN) covering 29 countries for three periods: 1997, 2004 and 2012. Value-added is computed according to the initial source country and in the last destination. The paper also compares Indonesia to its ASEAN partners. The results show that Indonesia moved from exporting 50% of its value-added through finished products in 1997 to being a supplier of intermediates goods in 2012 (nearly 60% of its value-added). Foreign inputs in Indonesian exports account for 12%, a lower share versus ASEAN regional partners (35%) who are more vertically integrated. A total of 21% of Indonesian goods will be further exported to third countries. The degree of vertical integration in Indonesia in 2012 is 32.3%, up from 26% in 1997. Indonesia advanced in integration with East Asia and ASEAN countries (region), while it lowered its share of value-added traded with the North America and the Europe. Indonesia gained more than any other ASEAN partner in intra-regional trade

Analysis and comparison of embodied energies in gross exports of the construction sector by means of their value-added origins

Energy is a vital necessity in driving the development of the global economy, national industries, and even services for people. The construction sector consumes a high proportion of energy and this requires improvement for its sustainable development. Due to the growth of multilateral trade, the energy flows embodied in the global trade network have become more complex, and the energy embodied in the exports of vertical specialisation trade has increased rapidly in satisfying domestic final energy consumption. This paper traces the original creation of the value added in the national construction sectors in the global value chain based on their energy consumption in the production of gross exports. The gross exports are broken down into domestic and foreign value-added exports, and the energies embodied in these two types of exports are analysed and compared. The exports of foreign value added is mainly indicated by the exports of vertical specialisation trade. Net outflows in domestic value-added exports and net outflows in exports of vertical specialisation trade are then used in measurement of sectoral position in the global value chain. The results show that the overall trend of domestic value-added exports continues to increase in the construction sectors of the majority of countries. Russia, China, and the USA performed significantly in relation to the quantity of energy embodied in domestic value-added exports. Moreover, the effect of technology needs to be considered in the production of exports for vertical specialisation trade. The distribution of the net outflow is similar to the performance of the energy embodied in domestic content in the construction sector. The net inflow of embodied energy was positive in all countries, which indicates that the energy embodied in exports of vertical specialisation trade was mainly derived from the support of the international market. Only one country had a lower net outflow of embodied energy than in gross exports. For policymakers, a policy guiding the exports of the construction sector needs to be considered in relation to the origins of the value added. The export structure in the construction sector is encouraged to move toward technology-intensive, instead of labour-intensive products in order to enhance sustainable energy development.

Composition of energy outflows embodied in the gross exports of the construction sector

Energy sustainability has great importance in the development of the economy and society since energy is a necessary driving force for economic growth. The construction sector accounts for a greater percentage of global energy consumption than most other sectors. The structure of exports in the current trade pattern has affected the transmission of sectoral embodied energy through changes in regional economies. This paper uncovers the composition of productions for gross exports and examines embodied energy from the viewpoint of value added through a case study in the construction sector. Multi-regional input–output tables have been used to process the data relevant to economic trade and energy input, while the production of gross exports in 40 countries has been decomposed into the exports of value-added trade and the exports of vertical specialisation trade based on data from world input–output tables. The decomposition and reorganisation clearly show the pathways and composition in the trade activities of gross exports. The embodied energy of value-added exports accounted for 60–90% of gross exports in the construction sectors of 37 countries. The framework for sharing production in the construction sector still dominated the connections among many countries, especially the trade relationships between large economies. In the process of vertical specialisation trade, the foreign value added of the construction sector was still limited by significant events such as the global financial crisis. The construction sectors were ranked between 5 and 11 in all 35 domestic sectors in 34 countries as measured by the total export of embodied energy. So, the creation of high value added is enhanced by improvement in energy efficiency in the construction sector. However, the reduction of energy consumption in the construction sector may indirectly increase energy consumption in its upstream sectors because of the connection between exports and related production. The balance between energy consumption and creation of value added in exports is an important consideration for government supervision and sectoral development. Local construction markets need to strengthen their ability in the supply of intermediate goods, which benefits value-added exports and domestic demand. Moreover, developing national and international supply chains can positively offset the impact of the imbalanced distribution of globalised production.

Trade, Productivity and Employment Nexus: An Examination in Post-Reforms India

In the backdrop of India’s jobless economic growth since the macroeconomic reforms of the 1990’s, this study goes into the inter-relations among growth of productivity, employment and trade. Most of the studies on productivity in Indian manufacturing indicate a surge in the post reforms period though the individual manufacturing groups achieve varying growth. In the recent period, TFP growth in the sector is attributed to technology-based intermediate imports. Changing patterns of trade, especially export composition, have contributed to low employment generation. Growth in productivity and lack of growth in employment are thus explained by changing composition of trade. This paper starts by defining alternative measures of labor productivity growth, namely ‘industry’ labor productivity and ‘system’ labor productivity drawing on World Input-Output Database (WIOD). KLEMS database for India is also used for employment data. The time period for the study is from 1995 to 2014. Trend growth rates are estimated for alternative productivity measures, employment and output. The growth estimates show rapid productivity growth while the rates vary according to the labor intensity in production. It is found that productivity growth, particularly in labor intensive sectors, has been slow. India’s share in world trade has been low and rising slowly. Additionally, the share in world trade of leather and textiles is very small. The composition of trade in India is biased towards the manufacturing sector as a whole while the labor-intensive sectors are neglected. Another emerging pattern of India’s trade is escalating import of intermediate inputs. To establish the nexus between trade and productivity growth, a vertical specialization index has been estimated by using Hummel’s formulation. The estimated result from panel regression with fixed effects establishes positive nexus between vertical specialization and productivity growth. It is argued that India needs to circumvent jobless growth by a balanced approach to job creation and productivity growth. A conscious policy of vertical specialization in products that draw on the country’s vast reserve of un-skilled and semiskilled labor can go a long way in this direction.

Closeness centrality for similarity-weight network and its application to measuring industrial sectors’ position on the Global Value Chain

This paper focuses on measuring the industrial sector’s position on the Global Value Chain (GVC), as reinforcements to the present studies on international trade. We firstly reconsidered the length-related and position-related measures in literatures about vertical specialization from the perspective of bibliometrics and econophysics. Secondly, the inter-country and inter-sector propagating process of intermediate goods was redefined, resulting in the concept of Strongest Relevance Path Length (SRPL) based on Revised Floyd–Warshall Algorithm (RFWA). Thirdly, enlightened by closeness centrality, we introduced two new SRPL-based indices to measure the Interdependence from a given sector to all its upstream and downstream sectors, and proposed Relative Upstreamness Index (RUI) to measure the relative position of the industrial sector. Finally, these indices were applied to the empirical analysis of the global economic system by physical statistics.

Relating Vertical Specialization to Indigenous Technological Capability Growth: The Case of China

It remains a challenge to empirically verify whether the large scale of exports are results of China’s export-oriented growth strategy and participation in global vertical specialization (VS) and has this transformed its indigenous technological capability. In the current literature of export performance study, however, there is a methodological gap in quantifying the domestic contents of exports from total exports. Therefore, the domestic technological change cannot be clearly identified and analyzed. This article bridged the gap by employing a unique Input-Output model to derive the domestic contents from total exports and to analyze the nature of related technological change. Our data analysis of China’s exports of manufacturing products for 1992–2009 reveal: (1) China’s participation in the global vertical specialization in high-tech sector grew accelerated chronically; (2) the VS participation was more aggressive in high-tech than in the medium-tech, low-tech and resources-based sectors; and (3) the net domestic contents in China’s exports in high-tech sectors grew much faster than the other sectors. The findings indicate that China’s export-oriented growth strategy, instead of creating dependence on low-tech and resource-based exports, had led to a rapid growth in sophisticated high-tech manufacturing with its indigenous capability.

Participation in GVCs and CO2 emissions

This paper attempts to explore the determinants of CO2 emissions in the context of international trade. While there exist studies that examine the roles of horizontal specialization and inter-industry trade transactions, little previous research attention has been paid to the roles of vertical specialization and intra-industry trade transactions in affecting CO2 emissions. To fill the knowledge gap, this study uses the panel data of 62 countries and regions for the period of 1995–2011 to estimate the effect of participation in global value chains (GVCs) on per capita CO2 emissions. Major findings include: (1) The relationship between participation degrees in GVCs and per capita CO2 emissions is found to be inversely U-shaped at the aggregate economy-level and for most individual industries; (2) Per capita GDP shows an N-shaped relationship with per capita CO2 emissions; and (3) Benign drivers of CO2 emissions include R&D, energy conservation, and population control. It can be concluded that countries with low GDP or GVC participation degrees are expected to experience worsening CO2 emissions in the short or even medium run. This trend, however, can be moderated or even reversed with more R&D investments.

Production networks under The ASEAN Plus Six. A good deal or a threat?

This study breaks up the gross trade of ASEAN countries into the different components of Value-added trade to analyze the integration of ASEAN into the Global Value Chain (GVC). The study employs a global input-output database using data by the years1997, 2004, and 2012. The research considers the possible effects of expanding ASEAN into an ASEAN Plus Six agreement from the Vertical Specialization point of view. Gross trade is further broken down into nine components of value-added trade which creates a series of indicators of value creation, participation-position in GVC, among others. The study found that ASEAN has made significant gains in enlarging total trade (235%), and thus undergoing a particularly faster growth in production sharing structures. Over the time, ASEAN has assumed a notable function across the GVC as a provider of value-added through parts and components (33%) than as a producer of final goods (30%). Vertical trade accounts for more than 43% of ASEAN gross exports, but it depends on foreign intermediate goods (35%) to produce its exports, most of them are supplied from Asia. ASEAN single production region has gained a little while it has grown with Asian partners and lost market share with NAFTA and Europe. The ASEAN Plus six leads to a broad range of integration and might translate to larger gains than Intra-ASEAN trade. While ASEAN is expanding faster regionally than globally, both in supplies and in demand, the ASEAN internal market might not be large enough to drive growth. Meanwhile the dynamics of ASEAN appear as being part of a strong GVC through Asia.

Structural Changes in Global Value Chains (GVCs): ASEAN and India

China still serves as a leading production hub in Asia, but it is interesting to look at recent production unbundling in ASEAN and India. Catalyzed by increasing labor costs in China, production networks have begun to extend to ASEAN and India. As ASEAN and India have young and large populations, they have definite advantages in labor-intensive processes. Recent trade statistics show that ASEAN and India are importing many intermediate goods and exporting capital goods. There are a few noticeable changes in ASEAN and India’s GVC structure. First, ASEAN and India’s GVC integration has risen. Second, the vertical specialization (VS) structure shows potential evidence of GVC upgrad-ing in ASEAN and India. Third, the regional value chain has become more prominent in ASEAN and India over the years. Fourth, the regional trade matrix of intermediate goods and re-export reveals that regional production hubs are more diversified in ASEAN and India.

Vertical specialization in North–South trade: Industrial relocation, wage and welfare

AbstractThis paper presents a North–South trade model with vertically linked industries and examines how declining costs of trade across stages of production encourage vertical specialization and affect wages and welfare. As trade costs fall below a threshold, the production of all final goods relocates to the South and vertical specialization emerges. In some industries, production of intermediate goods also relocates against comparative costs because of benefits of co‐location, and further declines in trade costs lead to reshoring. A country may temporarily lose from falling trade costs, but both countries can be better off after trade costs fall sufficiently.

Revised Floyd-Warshall Algorithm to Find Optimal Path in Similarity-Weight Network and Its Application in the Analysis of Global Value Chain

This paper focuses on measuring the globally and nationally economic system’s connectedness and industrial sector’s function on the Global Value Chain (GVC), as reinforcements to the present studies on international trade. Firstly, we reconsidered the length-related and position-related measures in literatures about vertical specialization from the perspective of econophysics. Secondly, we redefined the inter-country and inter-sector propagating process of intermediate goods and proposed the concept of Strongest Relevance Path Length (SRPL) based on Revised Floyd-Warshall Algorithm (RFWA), which is the basis of new measurement. Thirdly, enlightened by betweenness centrality of node and edge, we introduced SRPL-based index to measure the Value-Added Pivotability of Industrial Sectors and Input-Output Relationships. Fourthly, we also proposed the concepts of Backward Closeness and Forward Closeness of Industrial Sectors based on closeness centrality.

Vertical Specialization in Foreign Trade: Some Findings Concerning Industries in Turkey

Küresel ekonominin üretim ve dış ticaret yapısı 1980’li yıllar itibariyle kapsamlı bir dönüşüm sürecine girmiş, bu dönüşüm 2000’li yıllarda daha da hız kazanmıştır. Yaşanan süreç, üretim maliyetinin görece düşük olduğu ekonomilerin küresel sisteme entegre olması sonucunda, ülkeler arasında uzmanlaşma yapısının değişmesine ve genişleyen pazar ölçeğiyle hem rekabet baskısının hem de potansiyel getiri imkânlarının artmasına yol açmıştır. Türkiye gibi vasıfsız emeğin yoğun olduğu ve düşük katma değerli ürünlerde uzmanlaşan ülkeler gelişmiş ülke firmalarının oluşturduğu dikey uzmanlaşma yapılarına daha güçlü bir şekilde entegre olurken, küresel alıcıların alt tedarikçileri olarak dış pazarlara güçlü bir şekilde açılma fırsatı yakalamıştır. Bu çalışmada, Türkiye’nin 2005-2017 döneminde gerçekleştirdiği uluslararası ticareti dikkate alarak, toplam ve endüstriyel dikey uzmanlaşma eğilimi belirlenmeye çalışılmıştır. Bulgular, Türkiye’nin toplam dikey uzmanlaşma düzeyinde 2005 yılından 2017 yılına mütevazı bir artış olduğunu göstermektedir. Dikey uzmanlaşma payı en yüksek olan endüstrilerin, ithal girdi bağımlılığı da yüksek olan “Metal ve Metalden Eşya” ve “Kok Kömürü, Rafine Edilmiş Petrol Ürünleri ve Nükleer Yakıt İmalatı” olduğu saptanmıştır.

Relocation, standardization and vertical specialization: Core–periphery relations in the European automotive value chain

The global automotive industry has been exposed to an overproduction crisis for several decades. Under the pressure of restructuring, automotive companies renew both the geographical scope and the technological standardization of their production processes. We analyze the effects this restructuring had on the development of European economies in order to understand whether vertical specializations in the automotive value chain can lead to Central and Eastern European countries’ catching up to advanced economies, or whether such specializations reproduce new forms of core-periphery relations. In order to answer this question, we introduce a new methodological approach to understand vertical specialization in the global value chain from a semi-peripheral perspective. We combine the theory of global value chains with Vernon's product life-cycle theory. In the research we focus on the standardization of the production of electric engines behind the geographical relocation of production between core and periphery.