Vertical Specialisation and its Determinants

Abstract

Vertical specialisation (VS) and outsourcing have gained prominence in international trade recently and could represent an entry point for developing countries into world markets as well as a channel for technology transfer. However, entry into international supply chains often requires just-in-time delivery and close to zero fault rates, making market entry via VS difficult. This paper analyses the importance of infrastructure and quality of institutions for VS, for total trade and with a focus on the clothing and electronics sectors. It is found that good governance and an open trade policy is strongly related to VS in electronics. Infrastructure, particularly ports, is strongly related to VS in the clothing sector.

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