International Demonstration Effect and Domestic Division of Labour: A Simple Model

Po-Ting Liu and Guang-Zhen Sun

No 17/05, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: The implications of the international demonstration effect (IDE) for the development of underdeveloped economies have long been studied and debated. Yet few formal analyses exist in the literature, especially regarding its implications for the growth of domestic markets and the division of labour in developing economies. We offer an analysis of endogenous specialization under IDE, the first of its kind, showing that, far more complicated than the scenario held by conventional wisdom, IDE makes more difficult the emergence of the market underpinning the domestic division of labour, but facilitates the expansion of the market once the market has been developed.

Keywords: External habit formation; specialization and division of labour; international demonstration effect; economic development; emergence and extent of the market. (search for similar items in EconPapers)
JEL-codes: O12 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2005-10-01
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Citations: View citations in EconPapers (1)

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Journal Article: THE INTERNATIONAL DEMONSTRATION EFFECT AND THE DOMESTIC DIVISION OF LABOUR: A SIMPLE MODEL (2005)
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