Vertical Specialization with Developed and Developing Countries

Abstract

This paper investigates country and industry-level determinants of vertical specialization-based production and trade between the United States and both developed and developing countries. Industries engaged in vertical specialization are identified through their use of offshore assembly provisions in the U.S. tariff code. The main difference between developed and developing countries is that educational attainment of the workforce exerts a positive effect on vertical specialization with developed countries and a negative effect with developing countries. Most industry-level determinants exert similar influences on the decision to conduct vertical specialization with developed and developing countries. Global firms must choose between developed and developing countries when deciding where parts and components will be produced and where final products will be manufactured.