Division Of Labor, Non-tradable Services And Economic Development

This thesis presents a series of models to explore economic development in the light of the division of labor. Two sectors exist in a small developing economy: "traditional sector" and "modern sector". In the former a constant return to scale technology with labor as the sole input is used; in the later an increasing return to scale technology based on the division of labor that needs both labor and capital as input is used. We can show that in a closed economy or in the situation of complete international specialization the increase of productivity in traditional sector leads to the expansion of modern sector. However, in the situation of incomplete international specialization the effect is uncertain. We also find that the increase of productivity in traditional sector does not necessarily improve the comparative advantage in this sector. Moreover, we analyze two types of situations with multiple equilibria in which the economy can jump from a "traditional technology" to a "modern technology" equilibrium.