International Division of Labor

The international division of labor refers to the geographical organization of industry through trade. The [Page 475]evolution of international markets has led to specialization among countries so that what is profitable to produce and what is not profitable is significantly influenced by global competitive conditions.

According to neoclassical approaches, international trade and division of labor should lead to greater efficiency, economic growth, and upward convergence of living conditions in the countries participating in international trade. In contrast, critical approaches emphasize uneven development and unequal power relations that the international economic relations entail.

In the eighteenth and early nineteenth centuries, international trade had only a minor role. In the early twentieth century, trade was a consequence rather than a cause of the rapid economic growth. The demand for primary exports (natural resources) was a major source of growth for many developing countries. The “golden age” of 1950 to 1973 witnessed rapid growth of international trade. There was a decline in both trade and output in the 1980s, followed by rapid rise of international trade in the 1990s.

These patterns are related to the transformation of the regulatory framework. The General Agreement on Tariffs and Trade (GATT), a multilateral form for tariff negotiations established after World War II, was superseded by the World Trade Organization (WTO) in 1995. GATT produced large reductions in tariffs and thus liberalized trade. WTO aims to reduce or eliminate a range of nontariff barriers and differences in trading conditions between countries. It is a significant institutional force in trade liberalization, much more powerful than GATT, because its dispute panels have authority to make binding judgments.

Developed states have dominated postwar trade in both manufacturing and services. Until the 1980s, developing countries preferred the protectionist developmental strategy. The 1980s saw a sea change among developing countries with widespread reduction in trade barriers undertaken both as a domestic strategy and under pressure from multilateral institutions such as the World Bank, International Monetary Fund (IMF), and WTO. In the 1990s, non-oil trade between developed and developing countries rose as a proportion of total trade, overwhelmingly because of East Asian countries and China. The global economy is now multipolar. Within the complexity of uneven relations, three regional blocks (triads) have emerged: North America, the European Union (EU), and East and South East Asia.

Trade has expanded because of decreasing tariff barriers and transport costs and because of the changing structure of global production. According to the new international division of labor thesis, production was being reallocated away from urban areas in industrial countries toward rural communities in developing countries. This shift occurred mostly in the labor-intensive industries such as textile and electronics assembly. This also represented a shift from strong, unionized, protected, male labor toward a weakly organized, cheaper, and female one. Although the low-skilled manufacturing work was transferred, the high-skilled marketing, research and development, and finance and administration were retained in the high-cost countries. Although depicting much of the significant processes, this account tends to simplify the highly complex organization of many production processes.