CAN DESTRUCTIVE NETWORK ACTIVITIES PUSH AN ECONOMY TO A LOWER LEVEL OF SPECIALIZATION? A THEORETICAL ILLUSTRATION

Abstract

In the existing literature of infra-marginal analysis, there are many models describing how infrastructure investment can promote division of labour, trade interdependency, and income growth. However, detrimental effects from destructive network activities have not been formally studied. Destructive network activities can slow down both production and transaction activities. This paper develops a general equilibrium model to illustrate how destructive network activities can push a developed market economy to a lower level of division of labour, thereby causing losses in both productivity and real per capita income.