Type
Article
Title
Market Size, Division of Labor, and Firm Productivity
In
Journal of International Economics
Author(s)
CHANEY Thomas - Département d'économie (Author)
OSSA Ralph - University of Chicago (Booth School of Business) (Author)
Editor
NL : Elsevier
Volume
90
Number
1
Pages
170 - 180 p.
ISSN
00221996
DOI
http://dx.doi.org/10.1016/j.jinteco.2012.11.003
Keywords
Division of labor, Firm productivity, Technology transfer
Abstract
EN
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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