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


  • 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.

Suggested Citation

  • Po-Ting Liu & Guang-Zhen Sun, 2005. "International Demonstration Effect and Domestic Division of Labour: A Simple Model," Monash Economics Working Papers 17/05, Monash University, Department of Economics.
  • Handle: RePEc:mos:moswps:2005-17

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    Cited by:

    1. Durga P. Gautam, 2014. "Remittances and Governance: Does the Government Free Ride?," Working Papers 14-40, Department of Economics, West Virginia University.

    More about this item


    External habit formation; specialization and division of labour; international demonstration effect; economic development; emergence and extent of the market.;

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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