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Economic Development, International Trade, and Income Distribution

Author

Listed:
  • Xiaokai Yang

    (Department of Economics, Monash University, Clayton, Vic. 3800, Australia (e-mail: XiaoKai.Yang@BusEco. monash.edu.au); – Dingsheng Zhang, Institute for Advanced Economic Studies, Wuhan University, China and Department of Economics, Monash University, Clayton, Vic. 3800, Australia (e-mail: whuzds@163.com))

  • Dingsheng Zhang

    (Department of Economics, Monash University, Clayton, Vic. 3800, Australia (e-mail: XiaoKai.Yang@BusEco. monash.edu.au); – Dingsheng Zhang, Institute for Advanced Economic Studies, Wuhan University, China and Department of Economics, Monash University, Clayton, Vic. 3800, Australia (e-mail: whuzds@163.com))

Abstract

This paper applies the inframarginal analysis, which is a combination of marginal and total cost-benefit analysis, to investigate the relationship between division of labor, the extent of the market, productivity and inequality of income distribution. The model with transaction costs and exogenous and endogenous comparative advantages shows that as trading efficiency is improved the general equilibrium discontinuously jumps from autarky to partial division of labor with a dual structure, then to the complete division of labor where dual structure disappears. In this process different groups of individuals with different trading efficiency become involved in a certain level of division of labor at different stages of development. As the leading group becomes involved in a higher level of division of labor leaving others behind, a dual structure emerges and inequality increases. As latecomers catch up dual structure disappears and inequality declines. When the leader goes to an even higher level of specialization, dual structure occurs and inequality increases again. Inequality decreases again as the latecomers catch up. Hence, the equilibrium degree of inequality fluctuates in this development process. The relationship between inequality and productivity is neither monotonically positive nor monotonically negative. It might not be an inverted U-curve. The key driving force of economic development and trade is improvement in trading efficiency.

Suggested Citation

  • Xiaokai Yang & Dingsheng Zhang, 2003. "Economic Development, International Trade, and Income Distribution," Journal of Economics, Springer, vol. 78(2), pages 163-190, February.
    • Handle: RePEc:kap:jeczfn:v:78:y:2003:i:2:d:10.1007_s00712-002-0560-y
    DOI: 10.1007/s00712-002-0560-y
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    Cited by:

    1. Shuohua Shen & Hongchang Li & Mingzhen Li, 2023. "Transportation Infrastructure and Digital Economy—Evidence from Chinese Cities," Sustainability, MDPI, vol. 15(22), pages 1-24, November.
    2. Xueping Jiang & Jen-Mei Chang & Hui Sun, 2019. "Inframarginal Model Analysis of the Evolution of Agricultural Division of Labor," Mathematics, MDPI, vol. 7(12), pages 1-14, December.
    3. Cheng, Wenli & Yang, Xiaokai, 2004. "Inframarginal analysis of division of labor: A survey," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 137-174, October.

    More about this item

    Keywords

    Keywords: income distribution; division of labor; dual structure; economic development;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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