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Market size, division of labor, and firm productivity


Chaney, Thomas; Ossa, Ralph (2013). Market size, division of labor, and firm productivity. Journal of International Economics, 90(1):177-180.

Abstract

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.

Abstract

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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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
Uncontrolled Keywords:Market size, division of labor, firm productivity, technology transfer
Language:English
Date:May 2013
Deposited On:01 Mar 2017 16:33
Last Modified:16 Feb 2018 20:08
Publisher:Elsevier
ISSN:0022-1996
OA Status:Green
Publisher DOI:https://doi.org/10.1016/j.jinteco.2012.11.003

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