Push or Pull? The relationship Between Development, Trade and Resource Endowment.

We develop a model that combines both the transaction efficiency and primary resource explanations for specialization and development. Our model builds on the Yang (1990) framework but introduces a primary resource factor into this model. We show that neither a labour surplus nor the development of efficient trading institutions, by themselves, may be sufficient for the evolution of specialization. Rather, specialization and development is most likely to occur when there is a correct balance between these two factors. By combining the labour surplus 'push' theory of specialization with the transaction efficiency 'pull' theory, our model provides a more complete explanation of the pattern of development observed in a variety of countries.