Bilateral vertical specialization between the US and its trade partners - before and after the free trade agreements

The focus of this paper is on examining the effect of free trade agreements on bilateral vertical specialization (VS) in manufacturing between the U.S. and its trading partners. A bilateral VS variable is constructed using input-output analysis before being modeled in an augmented gravity equation. Results show that North American countries are by far the most significant trade partners with the U.S., followed by other Asian and Oceanic countries. The average treatment effect of a free trade agreement is 0.94, which shows that bilateral trade increases, on average, by 155% from a free trade agreement. (C) 2016 Elsevier Inc. All rights reserved.