Vertical specialisation and regionalism

There is a growing literature on the measurement of vertical intra-industry linkages at firm and industry level. Hummels and others have analysed such linkages using input-output data. The team at the University of Sussex directed by Gasiorek, Holmes and Rollo, together with related work by Li and Lopez-Gonzales, have been using disaggregated trade data to examine linkages previously believed to be accessible only via input–output analysis and developed a flexible indicator of vertical intra-industry specialisation (VIIS) which enables vertical specialisation to be measured and compared at the sector level and across types of trade and countries.

The proposed research has three phases. The first is analytical/descriptive, using European, Japanese, US and East Asian data to create “stylised facts” concerning the evolution of vertical specialisation and exploring different hypotheses about supply-chain integration. The second phase will explore the role of vertical specialisation using econometrics for a broader range of countries. The aim will be to assess the importance of regional economic groupings as an explanatory variable for different types of integration, while controlling for other explanatory factors such as income levels and distance. We will need to identify degrees of vertical specialisation by industry and by trading partner by examining how the scope of PTAs can influence patterns of vertical specialisation. Subject to data constraints, the project would also explore the relationship between vertical specialisation and flows of FDI. The third phase of the project will investigate how vertical specialisation enhances/pushes the process of regional integration, in particular in East Asia.