The Labor Productivity Effects Of Vertical Specialization In Manufacturing Industry

Since the latter half of the20th century, a remarkable feature of the secondglobalization orgasm is the specific production process which is divided intodifferent stages of the production and spread in different countries or regions. Chinais involved in the global division of labor in the typical mode of processing tradewhich thus promotes the rapid development of China’s foreign trade. Hummel(2001)defined this division of labor as vertical specialization and proposed verticalspecialization indicators from the demand point of view in order to measure thevalue of imports in intermediate goods exports. How about China’s participation ininternational vertical specialization? How comprehensively to analyze China’svertical specialization from the both point of view of the demand and supply andmake empirical analysis of its economic effects? Research on this issue, not onlyhelp to deepen the understanding and knowledge of vertical specialization, and helpto design policy recommendations for improving the labor productivity of theindustry from the point of view of the vertical specialization, and propose scientificand informative empirical basis for the transformation and upgrading of China’smanufacturing industry and the international division of labor.The paper measures the degree of specialization in the manufacturing sector ofthe world in32countries (regions) and18manufacturing sub-industry andcomparative analysis, using the1995,2000and2005input-output table provided byOECD database, based on the demand-driven input-output model and supply-driveninput-output model. Then it builds a theoretical model of vertical specializationimpacting on labor productivity, and makes empirical research on the effect ofvertical specialization of labor productivity in transnational level and sub-industrylevel. The results show that: Firstly, China’s manufacturing industry verticalspecialization share is lower, but the growth is faster in both of the demand-driveninput-output model and supply-driven input-output model. Secondly, from the pointview of China’s industry segments high-tech intensive industry vertical specialization share is higher and its growth rate is faster. Thirdly, verticalspecialization level based on supply-driven input-output model is higher than thelevel of vertical specialization based on demand-driven. Vertical specialization fromthe demand perspective can not fully reflect the division of the state of a country, soChina needs to pay more attention to the role of supply factors. Fourthly, moredeveloped countries’ labor productivity effect of vertical specialization based onsupply-driven input-output model is higher than the demand, while in China’smanufacturing sub-industry labor productivity effects of vertical specialization basedon demand-driven input-output model is higher than the supply. Fifthly, the effect ofR&D on labor productivity is higher than the effect of vertical specialization onlabor productivity in the developed countries, but in China the thing is opposite.Based on the above findings, the paper provides some suggestions that theGovernment should encourage enterprises to actively participate in internationalvertical specialization and pay more attention to playing the role of supply factors ininternational vertical specialization and its economic effects.