Infrastructure and Evolution in Division of Labor

Mei Wen

Review of Development Economics, 1997, vol. 1, issue 2, 191-206

Abstract: This paper studies the relationship between infrastructure expenditure and endogenous growth generated by spontaneous evolution of division of labor. It identifies the necessary condition for infrastructure expenditure to take place and its equilibrium time path. Dynamic equilibrium shows that the optimal infrastructure expenditure, the size of the market network, and the level of division of labor increase concurrently. While infrastructure can promote the evolution of division of labor through reducing the unit transaction cost, the total transaction cost each consumer‐producer incurs rises as the optimal share of the infrastructure expenditure increases with economic development.

Date: 1997
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