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Trade Liberalization, Division of Labor, and Firm Productivity

Kamei, Keita (2013): Trade Liberalization, Division of Labor, and Firm Productivity.

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Abstract

In this paper, we construct a simplified general oligopolistic equilibrium (GOLE) model, in which Smith's (1776) famous theory of division of labor is embedded. In the absence of labor market integration with trading countries, we show that trade liberalization promotes a reduction of the number of firms in each country and a deeper division of labor, thus increasing firm productivity and improving welfare. Our model suggests a new interpretation of the trade-induced firm productivity effect.

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