Dramatic changes are occurring in the nature of international trade. Produc
tion processes increasingly involve a sequential, vertical trading chain st
retching across many countries, with each country specializing in particula
r stages of a good's production sequence. We document a key aspect of these
vertical linkages - the use of imported inputs in producing goods that are
exported - which we call vertical specialization. Using input-output table
s from 10 OECD and four emerging market countries we calculate that vertica
l specialization accounts for 21% of these countries' exports, and grew alm
ost 30% between 1970 and 1990, We also find that growth in vertical special
ization accounts for 30% of the growth in these countries' exports. (C) 200
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