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Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development

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Author Info

  • Xiaokai Yang

    (Department of Economics, Monash University)

  • Dingsheng Zhang

    (Institute for Advanced Study, Wuhan University)

Abstract

This paper develops a general equilibrium model with transaction costs and endogenous and exogenous comparative advantages. The governments are allowed to choose between tariff war, tariff negotiation, and a {\it laissez faire} regime. It shows that the level of the division of labor and trade increases as transaction conditions improve. When a high level of the division of labor occurs in general equilibrium, all countries prefer Nash tariff bargaining game that would result in multilateral free trade. If a medium level of the division of labor occurs in general equilibrium, then unilateral protection tariff in a less developed country and unilateral {\it laissez faire} policies in a developed country would coexist. The results show that tariff negotiations are essential for achieving multilateral free trade. In addition, the model may explain the policy transition of some European governments from mercantilism to free-trade regime in the 18th and 19th century and policy changes in developing countries from protection tariff to tariff negotiation and trade liberalization.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 11.

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Length: 20 pages
Date of creation: May 1999
Date of revision: Apr 2000
Publication status: Published in Annals of Economics and Finance, May 2000, pages 211-230
Handle: RePEc:cuf:wpaper:11

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Web page: http://cema.cufe.edu.cn/
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Keywords: Endogenous structure of the division of labor; Dual economy; Endogenous trade policy regime;

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References

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  1. Gene M. Grossman & Elhanan Helpman, 1993. "Trade Wars and Trade Talks," NBER Working Papers 4280, National Bureau of Economic Research, Inc.
  2. Xiaokai Yang, 1994. "Endogenous vs. exogenous comparative advantage and economies of specialization vs. economies of scale," Journal of Economics, Springer, vol. 60(1), pages 29-54, February.
  3. Cheng, Wen Li & Liu, Meng-Chun & Yang, Xiaokai, 2000. "A Ricardian Model with Endogenous Comparative Advantage and Endogenous Trade Policy Regimes," The Economic Record, The Economic Society of Australia, vol. 76(233), pages 172-82, June.
  4. Wen-Li Chen & Xiaokai Yang & Jeffrey D. Sachs, 1999. "An Infra-marginal Analysis of the Ricardian Model," CID Working Papers 13, Center for International Development at Harvard University.
  5. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
  6. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, January.
  7. Sun, Guang-Zhen & Yang, Xiaokai & Zhou, Lin, 2004. "General equilibria in large economies with endogenous structure of division of labor," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 237-256, October.
  8. Pincus, J J, 1975. "Pressure Groups and the Pattern of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 757-78, August.
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Citations

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Cited by:
  1. Jian Li & Kunrong Shen & Ru Zhang, 2011. "Measuring Knowledge Spillovers: A Non-appropriable Returns Perspective," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 265-293, November.
  2. Wenli Cheng & Dingsheng Zhang, 2011. "Why might a country want to develop its comparative disadvantage industries? A general equilibrium analysis," CEMA Working Papers 436, China Economics and Management Academy, Central University of Finance and Economics.

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