Country size and trade in intermediate goods

This paper documents a negative relationship between country size and the share of consumption goods in total exports. A model is developed, based on the division of labour and comparative advantage, to explain this relationship. Labour is used to produce traded intermediate inputs which are used in the production of traded final goods. Large countries gain relatively more from comparative advantage than from the division of labour, while the opposite is true for small countries. As in the data, large countries export a smaller share of final goods and a larger share of intermediate goods than small countries.