Economic development according to Friedrich list

Abstract

In this paper, we develop a Listian model of economic development. The economy consists of a primary sector and a potential industrial sector that can arise via industrialization. Industrialization however depends on if the primary sector specializes on the primary product, which can lead to a division of labor between the primary and the industrial sector. In this case, the industrial sector will use a modern technology to produce industrial goods. If such does not occur, the primary sector continues to produce all goods with a traditional technology of production. In addition, the industrial sector has to decide if it concentrates production in one location or if it disperses production in two locations. We show that the level of transport costs matters for division of labor and for the degree of manufacturing agglomeration if and only if the refinement of the primary input is strong, i.e., if the raw material loses a lot of weight through industrial transformation. Otherwise, if the industrial process is not so much “weight-losing”, industrialization can begin with a decentralized symmetric spatial pattern independently of the transport costs level.