DP2642 Stages of Diversification
Author(s): | Jean Imbs, Romain Wacziarg |
Publication Date: | December 2000 |
Keyword(s): | Comparative Advantage, International Macroeconomics, International Trade, Specialization |
JEL(s): | F15, F43, O40 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=2642 |
This Paper studies the evolution of sectoral labour 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 labour 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.