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Trade liberalisation and human capital adjustment

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Author Info

  • Falvey, Rod
  • Greenaway, David
  • Silva, Joana

Abstract

This paper highlights the way in which workers of different ages and abilities are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin trade model is supplemented with an education sector which uses skilled labour and time to convert unskilled workers into skilled workers. A skilled worker's income depends on her ability, but all unskilled workers have the same income. Trade liberalisation in a relatively skilled labour abundant country increases the relative skilled wage and induces skill upgrading by the existing workforce, with younger and more able unskilled workers most likely to upgrade. But not all upgraders are better off as a result of the liberalisation. The older and less able upgraders are likely to lose. For an anticipated liberalisation we show that the preferred upgrading strategies depend on a worker's ability and that much of the upgrading will take place before the liberalisation. Hence some workers who would have upgraded had they anticipated the liberalisation will not if it is unanticipated, and adjustment assistance that applies only to post-liberalisation upgraders will fail to compensate some losers and distort the upgrading decisions of others.

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Bibliographic Info

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

Volume (Year): 81 (2010)
Issue (Month): 2 (July)
Pages: 230-239

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Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:230-239

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

Related research

Keywords: Trade liberalisation Skill acquisition Labour market adjustment;

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References

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  1. Feenstra, Robert C. & Lewis, Tracy R., 1994. "Trade adjustment assistance and Pareto gains from trade," Journal of International Economics, Elsevier, vol. 36(3-4), pages 201-222, May.
  2. Matusz, Steven J. & Tarr, David, 1999. "Adjusting to trade policy reform," Policy Research Working Paper Series 2142, The World Bank.
  3. David Card & Thomas Lemieux, 2001. "Can Falling Supply Explain The Rising Return To College For Younger Men? A Cohort-Based Analysis," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 705-746, May.
  4. Artuç, Erhan & Chaudhuri, Shubham & McLaren, John, 2008. "Delay and dynamics in labor market adjustment: Simulation results," Journal of International Economics, Elsevier, vol. 75(1), pages 1-13, May.
  5. Davidson, Carl & Matusz, Steven J. & Nelson, Douglas R., 2007. "Can compensation save free trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 167-186, March.
  6. Carl Davidson & Steven Matusz, 2005. "Trade Liberalization and Compensation," International Trade 0503008, EconWPA.
  7. Udo Kreickemeier, 2009. "Trade, technology, and unemployment: the role of endogenous skill formation," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 639-664, May.
  8. Borsook, I., 1987. "Earnings, ability and international trade," Journal of International Economics, Elsevier, vol. 22(3-4), pages 281-295, May.
  9. Caroline L. Freund & John McLaren, 1999. "On the dynamics of trade diversion: evidence from four trade blocs," International Finance Discussion Papers 637, Board of Governors of the Federal Reserve System (U.S.).
  10. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2003. "Trade, Wage Gaps, and Specific Human Capital Accumulation," CESifo Working Paper Series 911, CESifo Group Munich.
  11. Paul Segerstrom & Elias Dinopoulos, 1999. "A Schumpeterian Model of Protection and Relative Wages," American Economic Review, American Economic Association, vol. 89(3), pages 450-472, June.
  12. Martin, John P, 1976. "Variable Factor Supplies and the Heckscher-Ohlin-Samuelson Model," Economic Journal, Royal Economic Society, vol. 86(344), pages 820-31, December.
  13. Lori G. Kletzer, 2004. "Trade-related Job Loss and Wage Insurance: a Synthetic Review," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 724-748, November.
  14. Neary, J Peter, 1978. "Capital Subsidies and Employment in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 30(3), pages 334-56, November.
  15. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
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Citations

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Cited by:
  1. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
  2. Emily Blanchard & Gerald Willmann, 2007. "Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy," CESifo Working Paper Series 2070, CESifo Group Munich.
  3. Rod Falvey & David Greenaway & Joana Silva, . "International Competition, Returns to Skill and Labor Market Adjustment," Discussion Papers 08/10, University of Nottingham, GEP.
  4. Carl Davidson & Nicholas Sly, 2013. "A Simple Model of Globalization, Schooling and Skill Acquisition," CESifo Working Paper Series 4394, CESifo Group Munich.
  5. Richard G. Harris & Peter Robertson, 2009. "Trade, Wages And Skill Accumulation In The Emerging Giants," Economics Discussion / Working Papers 09-19, The University of Western Australia, Department of Economics.
  6. Blanchard, Emily & Willmann, Gerald, 2011. "Escaping a protectionist rut: Policy mechanisms for trade reform in a democracy," Journal of International Economics, Elsevier, vol. 85(1), pages 72-85, September.
  7. Artuc, Erhan, 2012. "Workers'age and the impact of trade shocks," Policy Research Working Paper Series 6035, The World Bank.
  8. ICHIDA Toshihiro, 2011. "A Model of Multi-Dimensional Human Capital Investment: Specific vs. general investments under uncertainty," Discussion papers 11056, Research Institute of Economy, Trade and Industry (RIETI).
  9. Joël Hellier, 2012. "The North-South HOS Model, inequality and globalization," Working Papers 244, ECINEQ, Society for the Study of Economic Inequality.
  10. Fabien CANDAU & Elisa DIENESCH, 2013. "Globalization, Spatial Sorting and the Geography of Education," Working Papers 2012-2013_7, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2013.

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