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Trade Verticality and Structural Change in Industries:The Cases of Taiwan and South Korea


This paper documents that a significant portion of trade for Taiwan and Korea follows the trend of world trade in moving toward a pattern of vertical specialization (VS). Noteworthy is the manufacturing sector, whose VS shares of exports has been steadily increasing and has accounted for more than 90% of the total VS shares of manufactured exports. For Taiwan, nearly 57% of the growth in exports is contributed by the growth in VS-based trade; for Korea, it is as high as 64%. In the analysis, we compare VS shares of exports with or without input-output circulation among domestic industries in an open economy. Using Taiwan as a case study, we further discuss the implications of trade liberalization through tariff reductions for trade verticality.

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Correspondence to Hung-Yi Chen.

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JEL Classification Numbers: F1, F14

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Chen, HY., Chang, YM. Trade Verticality and Structural Change in Industries:The Cases of Taiwan and South Korea. Open Econ Rev 17, 321–340 (2006).

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Key Words

  • vertical specialization
  • fragmentation
  • tariff reductions