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Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development

Author

Listed:
  • Xiaokai Yang

    (Department of Economics, Monash University)

  • Dingsheng Zhang

    (Institute for Advanced Study, Wuhan University)

Abstract
This paper develops a general equilibrium model with transaction costs and endogenous and exogenous comparative advantages. The governments are allowed to choose between tariff war, tariff negotiation, and a {\it laissez faire} regime. It shows that the level of the division of labor and trade increases as transaction conditions improve. When a high level of the division of labor occurs in general equilibrium, all countries prefer Nash tariff bargaining game that would result in multilateral free trade. If a medium level of the division of labor occurs in general equilibrium, then unilateral protection tariff in a less developed country and unilateral {\it laissez faire} policies in a developed country would coexist. The results show that tariff negotiations are essential for achieving multilateral free trade. In addition, the model may explain the policy transition of some European governments from mercantilism to free-trade regime in the 18th and 19th century and policy changes in developing countries from protection tariff to tariff negotiation and trade liberalization.

Suggested Citation

  • Xiaokai Yang & Dingsheng Zhang, 2000. "Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development," Annals of Economics and Finance, Society for AEF, vol. 1(1), pages 211-230, May.
    • Handle: RePEc:cuf:journl:y:2000:v:1:i:1:p:211-230
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    References listed on IDEAS

    as
    1. Wen Li Cheng & Jeffrey Sachs & Xiaokai Yang, 2005. "An Inframarginal Analysis Of The Ricardian Model," World Scientific Book Chapters, in: An Inframarginal Approach To Trade Theory, chapter 6, pages 87-107, World Scientific Publishing Co. Pte. Ltd..
    2. Grossman, Gene M & Helpman, Elhanan, 1995. "The Politics of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 85(4), pages 667-690, September.
    3. Mei Wen, 1998. "An Analytical Framework of Consumer-Producers, Economies of Specialization and Transaction Costs," Palgrave Macmillan Books, in: Kenneth J. Arrow & Yew-Kwang Ng & Xiaokai Yang (ed.), Increasing Returns and Economic Analysis, chapter 7, pages 170-185, Palgrave Macmillan.
    4. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-850, September.
    5. repec:bla:reviec:v:8:y:2000:i:2:p:208-20 is not listed on IDEAS
    6. Pincus, J J, 1975. "Pressure Groups and the Pattern of Tariffs," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 757-778, August.
    7. Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-153, March.
    8. Grossman, Gene M & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 675-708, August.
    9. Wen Li Cheng & Meng-Chun Liu & Xiaokai Yang, 2005. "A Ricardian Model With Endogenous Comparative Advantage And Endogenous Trade Policy Regimes," World Scientific Book Chapters, in: An Inframarginal Approach To Trade Theory, chapter 7, pages 109-130, World Scientific Publishing Co. Pte. Ltd..
    10. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    11. Xiaokai Yang, 1994. "Endogenous vs. exogenous comparative advantage and economies of specialization vs. economies of scale," Journal of Economics, Springer, vol. 60(1), pages 29-54, February.
    12. Sun, Guang-Zhen & Yang, Xiaokai & Zhou, Lin, 2004. "General equilibria in large economies with endogenous structure of division of labor," Journal of Economic Behavior & Organization, Elsevier, vol. 55(2), pages 237-256, October.
    13. Paul Krugman, 1986. "Strategic Trade Policy and the New International Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610450, April.
    14. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    15. Rosen, Sherwin, 1983. "Specialization and Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 1(1), pages 43-49, January.
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    17. Dixit, Avinash K & Kyle, Albert S, 1985. "The Use of Protection and Subsidies for Entry Promotion and Deterrence," American Economic Review, American Economic Association, vol. 75(1), pages 139-152, March.
    18. Pomfret, R., 1992. "International Trade Policy with Imperfect Competition," Princeton Studies in International Economics 17, International Economics Section, Departement of Economics Princeton University,.
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    Cited by:

    1. Jian Li & Kunrong Shen & Ru Zhang, 2011. "Measuring Knowledge Spillovers: A Non-appropriable Returns Perspective," Annals of Economics and Finance, Society for AEF, vol. 12(2), pages 265-293, November.

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    More about this item

    Keywords

    Endogenous structure of the division of labor; Dual economy; Endogenous trade policy regime;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • F10 - International Economics - - Trade - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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