A Study On The Vertical Specialization And Intra-product Trade

One of the prominent features in the second upsurge of economic globalization, which appeared in second half of the 20th century, is the international vertical specialization and the prevalent intra-product trade. The intra-product trade taken the form of processing trade promoted the rapid development of global trade including the East Asian region. As the latest changes of international specialization, the intra-product trade caused by vertical specialization was the most important variable to explain the significant growth of global trade since 1960s. However, the standard trade theory mostly focused on the final product, but not the international specialization of working procedure, which made the international trade theory lag behind the practice. Therefore, the research on the theory of vertical specialization and intra-product trade is helpful to both the development of international trade theory and the in-depth study on the other specific international economic issues.In order to better understand the economic globalization and the development of international trade, to explore the existing limitations of international trade theory and possible improvements, but also to analyze the existing international economic issues with the use of the new theoretical framework, this paper will carry out a study on the vertical specialization and trade issues on the basis of existed research results, mainly from the following aspects: (1)From the perspective of the causes, patterns and effects of vertical specialization, analyzing its effects on international trade. (2) Analyzing the contents, modes, effects and the relationship between the intra-product trade and the other forms from the perspective of vertical specialization. (3)With the use of the analysis methods and framework of traditional trade theory and new trade theory, establish a system of concepts and a theoretical framework about intra-product trade from the perspective of vertical specialization. (4)Explain the global value chains, global trade imbalance and other practical issues with the use of theoretical framework of vertical specialization and intra-product. (5)This paper will have an analysis on China's foreign trade issues on the basis of vertical specialization and intra-product trade.This paper run in accordance with the discussing sequence of "specialization theory then trade theory then specific problems", collect and absorb the existing research results, establish an analyzing framework including both specialization theory characterized by vertical specialization and trade theory characterized by intra-product trade, explain the global value chain and global trade imbalances, then test the theoretical and practical significances of this theoretical framework with taking China's foreign trade for an example, consequently, come to some significant conclusions.Vertical specialization is the latest stage of the development of international division of labour, its major features are the integration of trade and investment promoted by multinational corporations. Vertical specialization framework renew the system of international division from the perspective of production process, intra-product trade is the inevitable result of vertical specialization, which countries to improve the welfare of both developed and developing countries. Through intra-product trade, on one hand, a country could embedded in the global value chains and achieve industrial upgrading, on the other hand, it could also create a negative impact on the country such as trade imbalances, Nevertheless, intra-product trade has become the new trade development trend.Intra-product trade theory summarizes and supplements the international trade theory including the classical trade theory, the new classical trade theory, the new trade theory and the theory of industrial organization from the aspect of vertical specialization, pointing out that as long as one country own the comparative advantage, economies of scale, technological advantages, market monopoly or beneficial ownership arrangements in some processes or sections, it is possible to achieve cost savings and improve the efficiency of resource distribution and embed in the global value chain, ultimately, improve the country's national welfare. Intra-product trade theory answered some questions about the terms of trade, the direction of trade, the interest's distribution of trade and other issues.Global value chains (GVC) are the dynamic value creation activities through vertical specialization, which is the result of the integration of vertical specialization and Intra-product trade promoted by the multinational corporations. The vertical specialization explained the reasons, the dynamic mechanism, the governance mode and the industrial upgrading of the GVC. Both the transfer of international production and the regional trade network led by vertical specialization are the important reasons for the global trade imbalances. China's huge trade surplus with USA is one of the most important parts of the global trade imbalances, the most fundamental reason of Sino-US merchandise trade surplus is the industrial upgrading along the global value chain and the transfer of East Asia industrial structure, as well as the large number of FDI in China.China's intra-product trade has a rapid growth in accordance with the method of input-output measurements, mainly taking the form of processing trade in the East Asian regional production networks. The processing trade mainly invested by FDI promotes China's terms of trade, the interests of trade and industrial competitiveness. The rapid growth of China's foreign trade and the large number of accumulated trade surplus mainly attribute to the intra-product trade which is in form of processing trade to a large extent. China's intra-product trade has had a positive economic effect, but the processing trade faced with the challenges of transformation and upgrading.This paper develops the standard trade theory from the point of view of vertical specialization and intra-product trade, put the focus of standard trade theory onto process level on the basis of the persisting on the theory of comparative advantage, re-examine the traditional trade theory from a new perspective. At the same time, this paper analyzes the global value chain and global trade imbalances by using the theory about vertical specialization and intra-product trade. However, this research method still used the standard trade theory analysis tools to explain vertical specialization and intra-product trade, but not fundamentally changed international trade analysis, just adjusted from the different aspects. About the vertical specialization and the intra-product trade related to FDI, regional economic integration, enterprise organization mode and so on, as well as the participation of developing countries in vertical specialization still need an in-depth study.In a word, this paper has a research on the FDI, international outsourcing, processing trade, industry clusters and the other international economic activities together by establishing an analysis framework on vertical specialization and intra-product trade. The study on the vertical specialization and intra-product trade contributes to the analysis and explanation the processing trade, the global trade imbalances, the global value chain and other issues in recent years. From China's view, the in-depth study on intra-product trade theory is helpful to solve the rapid growth of China's trade surplus, to use foreign direct investment rationally, to develop effective tariff rate, to set and achieve reasonable exchange rate level, to upgrade processing trade and carry out other external economic activities.