An Empirical Study Of Vertical Specialization On Exports Quality

With the deepening of East Asia production network, vertical specialization has developed as the main patterns of specialization and trade. The increasing relative importance of vertical specialization is more vividly observed in machinery trade. The difference of economic structure, trade structure and factors structure in East Asia countries provides the basis for the formation and development of production network. More specifically, the East Asia developed economies such as Japan, with the relative abundance of technology and capital factors, mainly responsible for exporting machinery parts; while the East Asia’s emerging economics including ASENAS and China, with abundant land and labor factors, has comparative advantage in processing and assembling. Essentially, the formation of the production network is a globally optimal allocation of resources. Commonly, production network contributes to the improvement of economic efficiency at macro level. Besides, the participation of production network is also beneficial to industrial upgrading on the meso-level as well as promoting enterprise production efficiency from the micro-level. However, there are still little researches on how vertical specialization affects product quality upgrading.Intuitively, vertical specialization is beneficial for refining production chain thus upgrading product quality. Besides, the high degree of coupling in production chain will bring in the knowledge and technology spillover. On one hand, countries with relative low-income import high quality parts and components from developed countries; on the other hand, countries will acquire learning by doing effect through building a more close trade relationship with other countries. In terms of developed countries with high-level income, participation of vertical specialization will contribute to the save resources to produce high quality parts and components.In order to find empirical support for the hypothesis, this paper use threshold model to measure vertical specialization in East Asia, then using unit price as the proxy variable of product quality based on the available data, building a panel data model to estimate the impact of vertical specialization on product quality.Finally this paper draws a conclusion that vertical specialization has a significantly positive impact on exports’quality upgrading. Meanwhile, the results of sub-sample show that this positive effect is more vividly observed in low-income countries. Moreover, this paper also finds that the improvement in product quality mainly origins from the input of parts and components with high quality. As so far, we confirm that it is available that new emerging economics improve its exports’ quality through participating in vertical specialization.