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Market size, division of labor, and firm productivity

  • Chaney, Thomas
  • Ossa, Ralph

We generalize Krugman's (1979) ‘new trade’ model by allowing for an explicit production chain in which a range of tasks is performed sequentially by a number of specialized teams. We demonstrate that an increase in market size induces a deeper division of labor among these teams which leads to an increase in firm productivity. The paper can be thought of as a formalization of Smith's (1776) famous theorem that the division of labor is limited by the extent of the market. It also sheds light on how market size differences can limit the scope for international technology transfers.

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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 1 ()
Pages: 177-180

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Handle: RePEc:eee:inecon:v:90:y:2013:i:1:p:177-180
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

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  1. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  2. Zilibotti, Fabrizio & Redding, Stephen & Burgess, Robin & Aghion, Philippe, 2005. "Entry Liberalization and Inequality in Industrial Performance," Scholarly Articles 4481508, Harvard University Department of Economics.
  3. Keller, Wolfgang, 2002. "International Technology Diffusion," CEPR Discussion Papers 3133, C.E.P.R. Discussion Papers.
  4. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jenson & Samuel Kortum, 2000. "Plants and Productivity in International Trade," NBER Working Papers 7688, National Bureau of Economic Research, Inc.
  5. Daniel Trefler, 2001. "The Long and Short of the Canada-U.S. Free Trade Agreement," NBER Working Papers 8293, National Bureau of Economic Research, Inc.
  6. Andrew B. Bernard & Stephen Redding & Peter K. Schott, 2006. "Multi-Product Firms and Trade Liberalization," CEP Discussion Papers dp0769, Centre for Economic Performance, LSE.
  7. Melitz, Marc J, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," CEPR Discussion Papers 3381, C.E.P.R. Discussion Papers.
  8. David N. Weil, 1996. "Appropriate Technology and Growth," Working Papers 96-24, Brown University, Department of Economics.
  9. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning By Exporting Important? Micro-Dynamic Evidence From Colombia, Mexico, And Morocco," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 903-947, August.
  10. Carsten Eckel & J Peter Neary, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Working Papers 200608, School Of Economics, University College Dublin.
  11. Nina Pavcnik, 2000. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," NBER Working Papers 7852, National Bureau of Economic Research, Inc.
  12. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  13. Dixit, Avinash K & Grossman, Gene M, 1982. "Trade and Protection with Multistage Production," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 583-94, October.
  14. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers 11375, Iowa State University, Department of Economics.
  15. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
  16. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185.
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