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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, 1999. "Endogenous Structure of the Division of Labor, Endogenous Trade Policy Regime, and a Dual Structure in Economic Development," CEMA Working Papers 11, China Economics and Management Academy, Central University of Finance and Economics, revised Apr 2000.
    • Handle: RePEc:cuf:wpaper:11
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    References listed on IDEAS

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    5. 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..
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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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