Stages of Diversification
Stanford GSB Working Paper No. 1653
41 Pages Posted: 15 Jan 2001
Date Written: September 2000
This paper studies the evolution of sectoral labor concentration in relation to the level of per capita income. We show that various measures of sectoral concentration follow a U-shaped pattern across a wide variety of data sources: countries first diversify, in the sense that labor is spread more equally across sectors, but there exists, relatively late in the development process, a point at which they start to specialize again. We introduce a model with endogenous costs of trading internationally that provides an explanation for this new empirical fact. The model highlights a trade-off between the benefits of diversification in the context of high trading costs, and the benefits of specialization in a Ricardian sense.
Keywords: Specialization, International Macroeconomics, International Trade, Comparative Advantage.
JEL Classification: F43, F15, O40
Suggested Citation: Suggested Citation