The paper by David Hummels, Jun Ishii, and Kei-Mu Yi examines the increasing vertical specialization in international trade, where production processes involve a sequential, vertical trading chain across multiple countries, with each country specializing in specific stages of a good's production sequence. The authors introduce the concept of *vertical specialization* (VS), defined as the use of imported inputs to produce goods that are exported. Using input-output tables from the OECD and emerging market countries, they estimate that VS accounts for up to 30% of world exports and has grown by about 40% over the past 25 years. The key insight is that trade barriers (tariffs and transportation costs) are incurred repeatedly as goods-in-process cross multiple borders, leading to significant gains from trade even with small reductions in these costs. The authors formally illustrate this point by extending the Dornbusch-Fischer-Samuelson Ricardian trade model to account for the effects of vertical specialization on trade growth and welfare gains. They find that vertical specialization facilitates a finer division of labor and magnifies the impact of trade barrier reductions, leading to larger welfare gains. The paper also discusses the geographic orientation of vertical specialization, showing that it is primarily north-north, but with a growing trend towards north-south trade, particularly in the U.S.The paper by David Hummels, Jun Ishii, and Kei-Mu Yi examines the increasing vertical specialization in international trade, where production processes involve a sequential, vertical trading chain across multiple countries, with each country specializing in specific stages of a good's production sequence. The authors introduce the concept of *vertical specialization* (VS), defined as the use of imported inputs to produce goods that are exported. Using input-output tables from the OECD and emerging market countries, they estimate that VS accounts for up to 30% of world exports and has grown by about 40% over the past 25 years. The key insight is that trade barriers (tariffs and transportation costs) are incurred repeatedly as goods-in-process cross multiple borders, leading to significant gains from trade even with small reductions in these costs. The authors formally illustrate this point by extending the Dornbusch-Fischer-Samuelson Ricardian trade model to account for the effects of vertical specialization on trade growth and welfare gains. They find that vertical specialization facilitates a finer division of labor and magnifies the impact of trade barrier reductions, leading to larger welfare gains. The paper also discusses the geographic orientation of vertical specialization, showing that it is primarily north-north, but with a growing trend towards north-south trade, particularly in the U.S.