Educational Attainment as a Determinant of International Trade Flows

International differences in educational attainment rates affect the volume of trade through several channels. According to the factor proportions model of trade, the ratio of highly educated workers to less educated workers in each country determines the national product mix. In this model, the volume of bilateral trade is decreasing in the similarity of the countries' factor proportions. On the other hand, educational attainment may shift the relative demands of consumers toward education-intensive goods. In this case, countries with similar ratios of highly educated consumers to less educated consumers have a relatively larger volume of trade. These relative supply and relative demand effects of education are not mutually exclusive. However, they are likely to offset each other in an empirical analysis of the effect of educational attainment on international trade. In this study, we attempt to disentangle the two effects. We provide evidence that both effects are empirically relevant by utilizing gender-specific measures of educational attainment and labor force participation.