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This paper aims to provide theoretical and empirical evidence to explain the middle-income trap from the perspective of Global value chains (GVCs). GVCs improve vertical specialization in two possible ways: (i) “economies of specialization”, induced by market expansion among developed countries; and (ii) the inequity of factor prices between emerging markets and developed ones (comparative advantages). This paper clarifies the differences between the two channels with a model considering two kinds of labor – technological labor and regular labor – and shows how vertical specialization plays an important role in the socalled “middle-income trap”. We argue that GVCs accelerate global market integration, which makes the labor wage in emerging markets to approach the middle-income level. Through vertical specialization, emerging markets lose their advantage of low labor costs, while the disadvantage in terms of technological production increases. We also explore the differences between vertical specialization patterns in empirical part to check whether the data can verify what we find in the theoretical part. We find that middle-income countries are at a more disadvantaged position than other countries in vertical specialization (they are locked in an unfavorable situation of international division of labor), which provides evidence for what are derived from the theoretical model. First published online 3 April 2026

This article develops an elementary theory of global supply chains. We consider a world economy with an arbitrary number of countries, one factor of production, a continuum of intermediate goods and one final good. Production of the final good is sequential and subject to mistakes. In the unique free trade equilibrium, countries with lower probabilities of making mistakes at all stages specialize in later stages of production. Using this simple theoretical framework, we offer a first look at how vertical specialization shapes the interdependence of nations.

PurposeThis study intends to explore the relationship between digital finance and the vertical specialization of firms. The following questions are discussed: (1) As a representative new financial development model, what is the role of digital finance in the vertical specialization of firms? (2) If digital finance improves the level of vertical specialization of firms, what is the mechanism behind such improvement? (3) How does digital finance impact the vertical specialization of firms in different regions, industries, and firms?Design/methodology/approachA two-way fixed-effect model of panel data is proposed to verify the relationship between digital finance and the vertical specialization of firms. This model is constructed by matching the city-level data of digital finance with the data of China's A-share listed companies from 2011 to 2018. Meanwhile, the instrumental variable (IV) method and difference-in-difference (DID) method are adopted to deal with the endogeneity problem of the model.FindingsThe authors' study finds that digital finance has significantly improved the level of vertical specialization of firms. The result is robust under the endogeneity consideration and a series of robustness tests. After the dimensionality of the index is reduced, the depth of digital finance usage is more conducive to the improvement of the vertical specialization of firms compared with the width of digital finance coverage and the level of financial digitization. Digital finance mainly improves the level of vertical specialization of firms by reducing transaction costs and increasing the market thickness of the intermediate products. Moreover, digital finance has certain heterogeneity in promoting the vertical specialization of firms, an effect that is more significant in the eastern region, manufacturing industry and state-owned enterprises (SOEs).Research limitations/implicationsThe first limitation is the mechanism test. This research only analyzes the mechanism from transaction cost and the market thickness of the intermediate products. With the rapid development of information technology, digital finance will be further integrated into people's production and life. There will then be more mechanisms that should be explored between digital finance and the vertical specialization of firms. Another limitation is the data sample of this paper. The conclusions of this research are based only on the data of listed companies. However, in the authors' opinion, the specialization level of small and medium-sized enterprise (SMEs) should be higher. Therefore, the conclusions of this work are underestimated, which can be considered as the lower limit of digital finance for enterprise specialization.Social implicationsAs a favorable financing channel to supplement traditional financial service functions, digital finance plays a critical role in the operating efficiency of enterprises and the effective allocation of macro resources. The authors' research shows that digital finance has significantly improved the vertical specialization of firms. This conclusion provides guides to improve the production efficiency of enterprises and the quality of economic development.Originality/valueThis paper has three main contributions. (1) The relationship between financial development and the vertical specialization of firms is innovatively discussed from the perspective of digital finance, which implies that digital finance can effectively promote the level of vertical specialization of firms. (2) This paper provides new perspectives and ideas to reveal the impact mechanism of digital finance on the real economy by systematically analyzing the mechanism of digital finance on the vertical specialization of firms from the perspectives of transaction costs and financing constraints. (3) The regional differences in the development of digital finance, industry differences in the vertical specialization of firms and differences in the nature of enterprise property rights are all under consideration, which improves the effectiveness and pertinence of digital finance in promoting the vertical specialization of firms.

In this paper, we construct an elaborate general equilibrium model with a continuum of production fragments for an intermediate good, then incorporate it in a growth model to address the effects of global production fragmentation, vertical specialization, and trade on growth and inequality for a small developing country. Among other things, we show that a small developing economy grows faster than the rest of the world as a result of global fragmentation and trade in intermediates if it is skilled-labor scarce. We further address the effects of such a trade opening on wage inequality.

Intra-product international specialization promotes the global diversification of manufacturing industries with various carbon intensities. With the emerging topic of global warming, a new constraint on the use of carbon in international trade is being imposed on developing countries such as China. To explore the potential effects of this constraint on the progress of specialization, a new theoretical framework was proposed with a series of empirical tests derived from detailed panel data built on statistics from 2004 to 2020 from manufacturing industries in China. The test results indicate that carbon emissions and emission levels in manufacturing industries are partially induced by specialization. Industries with various attributes present heterogeneous performances under the carbon effect. Intra-product international specialization has more significant carbon effects on certain industries, such as those with a limited technique, capital-intensive industries, and industries that use a medium to a high level of carbon. Therefore, given the carbon constraints, high-quality development in manufacturing industries may be attained in developing countries such as China through improvements in specialization in the international market and incremental foreign investment in high-value-added and low-carbon production sectors. These improvements could be secured by implementing appropriate industrial policies and constraints on energy consumption.

The authors estimate the domestic value-added content in exports of manufacturing goods (VAX-D ratio) for 91 countries over the period from 1970 to 2013. They find a strong decline in the world VAX-D ratio since the mid-1980s mostly accounted for by the substitution of foreign for domestic intermediates. Using a breakpoint detection method, they identify three waves of vertical specialisation in the world economy: 1970–1979, 1986–1995 and 1996–2008. The authors find that most countries (79) initiated a period of vertical specialisation at least once. They find strong evidence that the VAX-D ratio correlates negatively with GDP per capita, and that the negative slope is flattening out at higher levels of income.

The aim of the article is to evaluate the position in global value chains (GVCs) of food processing industries in the Visegrad countries (V4; Poland, Czechia, Hungary and Slovakia) between 1995 and 2018. To identify the intensity and forms of integration in GVC of these industries in each country and to compare it to the other V4 countries, we employed complex methods to measure the importance of foreign demand, (backward and forward) participation and position in GVCs, the territorial context of integration, and shifting patterns of the integration into GVCs using data from the TiVA database. Our findings revealed variations in the integration of food processing industries in GVCs in the V4 countries. Common characteristics and trends were observed (e.g., increasing participation) until the Great Recession before stalling, increasing integration into European value chains, and absorption of foreign value added mostly from services industries. These trends are consistent with findings from previous studies. A significant contribution of this study is that it reveals how food exports from the Czech Republic, Hungary and Slovakia are mostly linked to increased GVC participation. Notably, food processing industries in Hungary and Slovakia have continued to increase their participation in GVCs even after the Great Recession. Given the evidence of beneficial economic outcomes from increased participation in GVCs, this implies that the food processing industries in Hungary and Slovakia will become more competitive. Food industries in Poland and Hungary are positioning themselves relatively more downstream in the GVCs, while shifts in the Czech Republic and Slovakia are increasingly upstream. Given evidence of beneficial economic outcomes from increased participation in GVCs being more downstream in the GVCs, the V4 countries will need to evaluate how their trajectories may impact the future wellbeing of businesses and employees working in these industries.

Based on the theory of division of labor and specialization, this article attempts to address the problem of “splitting horizontal and vertical division of labor” by innovatively integrating horizontal specialization, vertical specialization, and farmers' income into a unified analytical framework. Using the data for 416 chicken farmers in four districts and counties of Guangdong Province as the sample, the theoretical framework proposed in this article is tested by constructing multiple linear regression models and structural equation models. The results are as follows: Both vertical and horizontal specialization can bolster the income of farmers, but they have different specific mechanisms of action. Vertical specialization promotes agricultural income through the mediating effect of horizontal specialization. It is evident that the discussion of horizontal specialization of farmers should not be separated from the conditions of vertical specialization. The policy effect of emphasizing horizontal specialization alone may be limited. Especially for those farmers who are limited by their own endowments and objective conditions to increase their horizontal specialization level and production scale in the short term, it is more important to promote their vertical specialization level. Based on the theory of division of labor and specialization, this article attempts to address the problem of “splitting horizontal and vertical division of labor” by innovatively integrating horizontal specialization, vertical specialization, and farmers' income into a unified analytical framework. Using the data for 416 chicken farmers in four districts and counties of Guangdong Province as the sample, the theoretical framework proposed in this article is tested by constructing multiple linear regression models and structural equation models. The results are as follows: Both vertical and horizontal specialization can bolster the income of farmers, but they have different specific mechanisms of action. Vertical specialization promotes agricultural income through the mediating effect of horizontal specialization. It is evident that the discussion of horizontal specialization of farmers should not be separated from the conditions of vertical specialization. The policy effect of emphasizing horizontal specialization alone may be limited.

In the last decade, the concept of ‘global value chain’ (GVC) has become popular to describe the way firms fragment production into different stages that are located in different economies. However, recent evidence indicates that there are lower levels of fragmentation of production. Some authors also suggest that supply chains are regional rather than global. We offer a comprehensive review of the evidence based on the 2018 update of the OECD trade in value added database. The ‘made in the world’ narrative is correct when describing the rise of GVCs in the 2000s. But globalization reached a peak in 2012, and since then supply chains are becoming more domestic rather than more regional.

To examine how changes in relative national prices affect trade flows, this study estimates the impact of changes in industry-specific effective real exchange rates on industry-level trade balances, exports, and imports. We analyze the variations in industry-specific intra-industry trade and vertical specialization, which may both govern the long-run relationship between real exchange rates and trade flows. We employ sample information from 13 manufacturing industries across five Asian countries from 2001 to 2015. Rather than country-level aggregate measures, we use disaggregated industry-specific real exchange rates, which provide better measures of relative national prices and may help to uncover different responses that are masked by aggregate data. Fixed-effect estimations reveal that greater price competitiveness, as measured by depreciation in industry-specific effective real exchange rates, increases industry-level trade balances. We find that the elasticity of industry-level trade balances with respect to industry-specific real exchange rates declines as vertical specialization increases. There is also some limited evidence that this elasticity increases as intra-industry trade increases. Taken together, our findings suggest that global supply chains are more important than intra-industry trade in examining the response of trade balances to real exchange rate changes. Importantly, these heterogeneous impacts imply that policies regarding exchange rate management may be of limited potency and will affect different industries in different ways.