TRADE IN PRODUCER SERVICES AND RETURNS DUE TO SPECIALIZATION UNDER MONOPOLISTIC COMPETITION

This paper demonstrates that liberalizing trade in services, while yielding efficiency gains associated with comparative advantage, may yield additional gains for both importing and exporting countries because of an increased division of labour. A model is developed in which producer services co-ordinate and control the specialized members of complex production processes. The model is used to analyse trade in services and its effect on the division of labour and the realization of returns from specialization. This differs from the recent literature on traded services and specialization because of the explicit role introduced for services in the specialization process. -Author