Essays on international changes in industrial structure of production and trade

This thesis is composed of three related essays on international changes in industrial structure of production and trade.; The first chapter starts with the observation that the distribution of output across industries is becoming more skewed while the distribution of exports across industries is becoming more equal. This empirical fact is surprising since most theories of specialization do not have distinct predictions for output and exports. The analysis shows how a combination of horizontal specialization (i.e., countries specialize in industries---between industry) and vertical specialization (i.e., countries specialize in stages---within industries) triggered by a fall in trade costs can explain the changing pattern of world specialization consistently with the empirical evidence.; The second chapter emphasizes the limits of the explanations based on trade costs alone and presents an alternative explanation: When information is hindered by unobservable individual abilities of in-house workers, international subcontracting of intermediate inputs allows to reduce the risk stemming from their potential defect and to raise their expected productivity. The resulting trade is consistent with the large volume of trade between comparable countries and offers some predictions on the direction of trade as well. More importantly, international subcontracting provides an alternative explanation for the changing nature of world trade where goods are produced in different stages located in different countries: Vertical specialization defined as the import content of exports. International subcontracting not only rationalizes the rise in imports and exports (as an hypothetical fall in transport costs would do) but also a change in the content of these imports. The U.S. industrial data provide considerable support for these findings.; The third chapter considers the dual approach: A country that specializes in some industry also implies that the industry agglomerates in some country. This chapter describes the pattern of agglomeration within the OECD, the LDCs, as well as in the world and analyses the link between externalities, revealed comparative advantage and agglomeration. The observed changes in country/industry (revealed comparative) advantage affect the tension between history and expectations in selecting a predictable pattern of agglomeration among the multiple equilibria that typically arise in the presence of externalities. Using these insights and the industrial characteristics, we find support for explanations of agglomeration based on technological externalities (i.e., R&D spillovers), factor pooling (i.e., intellectual and informational spillovers) and market externalities.; It follows that viewed from the lens of country specialization or the lens of industry agglomeration, the international and industrial structure of production undergoes substantial changes that affect the volume, the direction and the nature of trade. The causes for such changes are linked to falls in trade costs as well as to the ways firms organize and locate themselves in the global economy.