International Trade and Economic Growth in Open Economies The Classical Dynamics of Hume, Smith, Ricardo and Malthus
The Classical Dynamics of Hume, Smith, Ricardo and Malthus
Chapter 6: A Dynamic Model of the Division of Labor and the Extent of the Market
A Dynamic Model of the Division of Labor and the: Extent of the Market I The Enduring Relevance of the Division of Labor Whatever the precise innovations in Smith’s presentation of the division of labor, his discussion of its limitation by the extent of the market has once again recaptured the imagination of growth theorists. Smith’s influence is acknowledged within a variety of recent theoretical approaches explaining the sources of economic growth. The breadth and diversity of the economic literature which prominently cites the Wealth ofNation.? growth dynamics is daunting-indeed it leads one to suspect that it will take a modern-day Smith to systematize and unify its divergent strands. This chapter presents a quasi-spatial economic rnodel which examines the mutually reinforcing growth of the division of labor (DOL) and the extent of the market (EOM). The following section briefly indicates the range and variety of growth models that Smith has (at least partly) inspired. The model presented in this chapter is exclusively concerned with a very simple and aggregated (that is macroeconomic) view of the reinforcing interactions between trade and growth. The third section introduces a network representation of trade across an array of discrete points set in a spatial plane. In this model of economic growth factor accumulation and technical change are endogenous. I t is designed to examine the interactions between the extent af’a trading network, the potentiallimits togrowth, and the convergence o incomes. Within a sufficiently f large trading network this model generates unbounded growth. Conversely, dividing...
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