Vertical specialization and industrial upgrading: a preliminary note

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Vertical specialization is a measure of the import content of exports. Given the widely recognized importance of trade in tasks and global production networks, vertical specialization has recently gained the attention of international trade researchers and policy makers. In this note, we use measured changes in the within-country pattern of vertical specialization to gauge the relevance of task trade for industrial upgrading and economic development. We first calculate vertical specialization (VS) for five countries between 1995 and 2005 – USA, China, India, Brazil and South Africa. We then construct our own measure – the import content of export expansion ratio (ICEER) – to isolate changes in import content from the growth in exports. Since the ICEER measure captures structural change in the import content of exports for each country at the sectoral level, we use ICEER as a proxy for the kind of industrial upgrading associated with raising the proportion of export value accruing to the domestic sector. We name this kind of upgrading ‘vertical upgrading’.