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The gains from the division of labour and comparative advantage

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  • Kwok Tong Soo

Abstract

This paper develops a model of international trade based on comparative advantage and the division of labour. Comparative advantage in intermediate goods determines the extent of the division of labour, while the division of labour and comparative advantage in final goods lead to gains from trade. Labour is used to produce traded intermediate inputs which are used in the production of traded final goods; therefore trade is both inter- and intra-industry in nature. Large countries export a smaller share of final goods and a larger share of intermediate goods than small countries. These predictions find supportive evidence in the data.

Suggested Citation

  • Kwok Tong Soo, 2013. "The gains from the division of labour and comparative advantage," Working Papers 33867696, Lancaster University Management School, Economics Department.
  • Handle: RePEc:lan:wpaper:33867696
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    File URL: http://www.lancaster.ac.uk/media/lancaster-university/content-assets/documents/lums/economics/working-papers/Adam_Smith.pdf
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    References listed on IDEAS

    as
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    4. S├ębastien Miroudot & Rainer Lanz & Alexandros Ragoussis, 2009. "Trade in Intermediate Goods and Services," OECD Trade Policy Papers 93, OECD Publishing.
    5. Gene M. Grossman & Esteban Rossi-Hansberg, 2010. "External Economies and International Trade Redux," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 829-858.
    6. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    7. Davis, Donald R., 1995. "Intra-industry trade: A Heckscher-Ohlin-Ricardo approach," Journal of International Economics, Elsevier, vol. 39(3-4), pages 201-226, November.
    8. Choi, E. Kwan & Harrigan, James, 2003. "Handbook of International Trade," Staff General Research Papers Archive 11375, Iowa State University, Department of Economics.
    9. Ethier, Wilfred J, 1982. "National and International Returns to Scale in the Modern Theory of International Trade," American Economic Review, American Economic Association, vol. 72(3), pages 389-405, June.
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