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Specialization and Division of Labor: A Survey
and Siang Ng Department of Economics, Monash University
* The authors would like to thank Ken Arrow,
Gary Becker, James Buchanan, Jeff Borland, James Baumgardner, Fischer
Black, Gene Grossman, Yew-Kwang Ng, Cyrus Chu, Stephen King, Rohan
Pitchford, Ho-Mou Wu, participants of the seminars at Monash University,
the Australian National University, the Chinese University of Hongkong,
the Hongkong University of Sciences and Technology, the National Taiwan
University, Academia Sinica, and Tamkam University, and participants
of the conference on "Increasing Returns and Economic Analysis"
for comments and criticisms. Thanks also go to Ching-hsi Chang, John
Freebairn, Edwin Mills, Yingyi Qian, Lloyd Renolds, Sherwin Rosen,
Jeff Sachs, Babu Nahata, Heling Shi, and Guoqiang Tian for their generous
support of the research projects that relate to this paper. The financial
support from the Australian Research Council (Large ARC grant A79602713)
and from the National Sciences Council of the Republic of China is
gratefully acknowledged.
The paper first briefly reviews the
classical literature on specialization. The classical research approach
to the study of specialization that was followed by Adam Smith, Allyn
Young, and Houthakker is distinguished from neoclassical economics
structured by Marshall. The modern literature on specialization and
division of labor is then surveyed in detail. Three lines of research
are identified. One is associated with neoclassical trade theory which
assumes constant returns to scale in production and explains the pattern
of specialization and division of labor by exogenous comparative advantage
between countries. The second line is associated with new trade and
growth models which endogenize one aspect of the division of labor,
the number of goods, by formulating a tradeoff between economies of
scale and economies of variety of consumption or producer goods. The
third line is associated with models that endogenize all aspects of
the division of labor: individuals' levels of specialization, the
length of a roundabout production chain, and the number of goods in
each link of the chain. In particular, the implications of new classical
economics and inframarginal analysis for the resurrection of the spirit
of classical economics in a modern body are explored. Inframarginal Economics Society www.inframarginal.com
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