This paper develops a model of international trade based on comparative
advantage and the division of labour. Comparative advantage in intermediate
goods determines the extent of the division of labour, while the division of labour
and comparative advantage in final goods lead to gains from trade. Labour is used
to produce traded intermediate inputs which are used in the production of traded
final goods; therefore trade is both inter- and intra-industry in nature. Large
countries export a smaller share of final goods and a larger share of intermediate
goods than small countries. These predictions find supportive evidence in the data.