ABSTRACT
The phenomenon ‘vertical specialization’ (VS) or ‘intra-industry trade’ (Balassa (1967) and Findlay (1978)) has been studied quite extensively by trade economists. It has also been labeled as ‘long-distance purchasing of services abroad’ (Bhagwati 1984)), ‘production delocalization’ (Leamer 1996), ‘disintegration of production in the global economy’ (Feenstra 1998), ‘outsourcing referred to a specific segment of the growing international trade in services’ (Bhagwati and Dehejia 1994), ‘fragmentation in production’ (Arndt and Kierzkowski 2001), ‘outsourcing in global economy’ (Grossman and Helpman 2002, 2004), ‘factor content of trade; intra-product specialization’ (Davis 1995; Davis and Weinstein 2000, 2001a, b). Many theoretical models of this persuasion focus on the impacts of increased vertical specialization on factor processes, production and trade patterns and welfare. Further, recently there has also been empirical documentation of measurements for the increase of vertical specialization. For example, Hummels et al. (2001) calculated the level of vertical specialization of ten OECD nations and their growth between 1970 and 1990. They also found out that growth in vertical specialization accounts for 30 per cent of the growth in these countries’ exports.
