Infrastructure and Evolution in Division of Labor

This paper studies the relationship between infrastructure expenditure and endogenous growth generated by spontaneous evolution in division of labor. It identifies the necessary condition for infrastructure expenditure to take place and its equilibrium time path. Dynamic equilibrium shows that the optimal infrastructure expenditure, the size of the market network, and the level of division of labor increase concurrently. While infrastructure can promote the evolution in division of labor through reducing unit transaction cost, total transaction cost each consumer-producer incurs rises as the optimal income share of infrastructure expenditure increases with economic development