Internal and International Vertical Specialization – Estimations for Brazil and new Approach to Gravity Models

WTO, OECD with many others, suggest the trade in value-added would be a “better” measure to understand the impact of trade on employment, growth, production etc. when import content in exports is important. We use in this work an Input-Output table for 2008, to calculate the value-added exported by Brazilian states. We distinguish the value-added exported directly by the state itself or indirectly via other states. First, by using value-added we define the extent of vertical specialization among Brazilian states. Exported value-added are then used in a gravity model to determine the structure of trade in value-added terms. We also define a trilateral gravity structure which permits to control for the vertical specialization between states and to estimate the trade determinants at three steps: origin state, re-exporter state and importer country