Can vertical specialization explain the growth of world trade?
By: Kei-Mu Yi.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 96; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 96.
Publisher: Federal Reserve Bank of New York
Published: 2000
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Vertical integration -- Econometric models.; International trade -- Econometric models.
Description: "The growth in the trade share of output is one of the most important features of the world economy since World War II.  The growth is generally thought to have been generated by falling tariff barriers worldwide.  This thinking, however, does not square with standard static and dynamic international trade models.  Because tariff barriers have decreased little since the early 1960s, these models cannot explain the growth of trade without assuming counterfactually large elasticities of substitution between domestic and foreign goods.  I show that this growth can be reconciled with the relatively small declines in tariffs once vertical specialization is included in the models.  Vertical specialization, which occurs when countries specialize only in particular stages of a good's production sequence, magnifies the trade growth effects of trade barrier reduction.  To show this, I calibrate and simulate a dynamic Ricardian model of trade with vertical specialization.  I show that this model can explain about 70 percent of the growth of trade with just a unitary elasticity of substitution.  The model also has important implications for the gains from trade"--Federal Reserve Bank of New York web site.
Notes: Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 2/15/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.