Vertical Specialization and Nonstationarities in International Trade Series

In this paper, we analyze the statistical properties of a large sample of trade openness series in the Second Era of Globalization (from 1948 to the recent crisis) and find a clear stationary pattern for developing countries versus a unit root pattern for developed countries. Most interestingly, we show how the progress of vertical specialization can rationalize this presence of unit roots in the ratio of export to GDP. We use scattered data of vertical specialization (defined as the imported input content of exports) for ten OECD countries to construct yearly export series free from the upwards bias introduced by vertically specialised trade in the official values. We find that when the statistical analysis is applied to the unbiased series of openness, they become trend stationary for nearly all the countries, corroborating the responsibility of vertical specialization in the presence of unit roots.