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International Demonstration Effect and Domestic Division of Labour: A Simple Model


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  • Po-Ting Liu
  • Guang-Zhen Sun


The implications of the international demonstration effect (IDE) for the development of underdeveloped economies have long been studied and debated. Yet few formal analyses exist in the literature, especially regarding its implications for the growth of domestic markets and the division of labour in developing economies. We offer an analysis of endogenous specialization under IDE, the first of its kind, showing that, far more complicated than the scenario held by conventional wisdom, IDE makes more difficult the emergence of the market underpinning the domestic division of labour, but facilitates the expansion of the market once the market has been developed.

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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 17/05.

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Length: 18 pages
Date of creation: 01 Oct 2005
Date of revision:
Handle: RePEc:mos:moswps:2005-17

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Keywords: External habit formation; specialization and division of labour; international demonstration effect; economic development; emergence and extent of the market.;

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