GEP Research Paper 03/23
IT, Production Specialization and Division of Labor: A Smith-Ricardo Model of International Trade
Zhihao Yu
Abstract
A simple Smith-Ricardo model is developed that incorporates division of labor into the continuum-good Ricardian model of Dornbusch et al. (1977). The trade-off between the efficiency gain and coordination cost associated with production specialization determines the efficient level of division of labor. The model is applied to explain how the recent IT revolution could affect a country's efficient level of production specialization and competitive advantage. In particular, absolute advantage (in division of labor) and relative labor supply plays a crucial role in determining the effects of an IT progress on a country's competitive margin in international trade.
Issued in July 2003.
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