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Trade and the distribution of human capital

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  • Bougheas, Spiros
  • Riezman, Raymond

Abstract

We develop a two-country, two-sector model of trade where the only difference between the two countries is their distribution of human capital endowments. We show that even if the two countries have identical aggregate human capital endowments the pattern of trade depends on the properties of the two human capital distributions. We also show that the two distributions of endowments also completely determine the effects of trade on income inequality. Then, we prove that there are long-term gains from trade if the marginal utility of income is constant or as long as losers from trade are compensated by winners. Finally, we look at a simple majority voting model. It turns out depending on the distribution of human capital, autarky and free trade with and without compensation may be the outcome of majority voting.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 73 (2007)
Issue (Month): 2 (November)
Pages: 421-433

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Handle: RePEc:eee:inecon:v:73:y:2007:i:2:p:421-433

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Web page: http://www.elsevier.com/locate/inca/505552

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References

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  1. Eckhard Janeba, 2000. "Trade, Income Inequality, and Government Policies: Redistribution of Income or Education Subsidies?," NBER Working Papers 7485, National Bureau of Economic Research, Inc.
  2. Zhu, Susan Chun & Trefler, Daniel, 2005. "Trade and inequality in developing countries: a general equilibrium analysis," Journal of International Economics, Elsevier, vol. 65(1), pages 21-48, January.
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  5. repec:fth:michin:405 is not listed on IDEAS
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  12. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
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  14. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
  15. Carl Davidson & Steven Matusz, 2005. "Trade Liberalization and Compensation," International Trade 0503008, EconWPA.
  16. Brander, James A., 1981. "Intra-industry trade in identical commodities," Journal of International Economics, Elsevier, vol. 11(1), pages 1-14, February.
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