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Optimal Education Policies and Comparative Advantage

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  • Spiros Bougheas
  • Richard Kneller
  • Raymond Riezman

Abstract

We consider the optimal education policies of a small economy whose government has a limited budget. Initially, the economy is closed and the government chooses its education policy to maximize welfare under autarky. Then the economy trades with the rest of the world. Lastly, the government chooses a new education policy that maximizes welfare under trade. Is it ever optimal for the government to choose its new policy so that it reverses the economy’s comparative advantage? We find that if the budget stays fixed when it is optimal to ‘move up the skills chain’ it is not feasible. In such a case a foreign loan is welfare improving. A move in the opposite direction can be optimal and when it is optimal it is also feasible.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2631.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2631

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Keywords: patterns of trade; education policy; welfare;

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References

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  1. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 57-84, February.
  2. Giovanni Maggi & Gene M. Grossman, 2000. "Diversity and Trade," American Economic Review, American Economic Association, American Economic Association, vol. 90(5), pages 1255-1275, December.
  3. Redding, S., 1997. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Economics Papers 140, Economics Group, Nuffield College, University of Oxford.
  4. Jota Ishikawa, 1996. "Scale Economies in Factor Supplies: International Trade, and Migration," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 29(3), pages 573-94, August.
  5. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  6. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, 08.
  7. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521873161.
  8. Cartiglia, Filippo, 1997. "Credit constraints and human capital accumulation in the open economy," Journal of International Economics, Elsevier, Elsevier, vol. 43(1-2), pages 221-236, August.
  9. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2003. "Trade, Wage Gaps, and Specific Human Capital Accumulation," CESifo Working Paper Series 911, CESifo Group Munich.
  10. 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.
  11. Bougheas, Spiros & Riezman, Raymond, 2007. "Trade and the distribution of human capital," Journal of International Economics, Elsevier, Elsevier, vol. 73(2), pages 421-433, November.
  12. Egger, Hartmut & Egger, Peter & Falkinger, Josef & Grossmann, Volker, 2005. "International Capital Market Integration, Educational Choice and Economic Growth," IZA Discussion Papers 1863, Institute for the Study of Labor (IZA).
  13. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(1), pages 209-239, February.
  14. Eckhard Janeba, 2003. "Does Trade Increase Inequality when Skills are Endogenous?," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 11(5), pages 885-898, 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, University of Chicago Press, vol. 91(6), pages 957-78, December.
  16. Ranjan, Priya, 2001. "Dynamic evolution of income distribution and credit-constrained human capital investment in open economies," Journal of International Economics, Elsevier, Elsevier, vol. 55(2), pages 329-358, December.
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Cited by:
  1. Fali HUANG & Pao-Li CHANG, 2012. "Trade and Divergence in Education Systems," DEGIT Conference Papers, DEGIT, Dynamics, Economic Growth, and International Trade c017_016, DEGIT, Dynamics, Economic Growth, and International Trade.
  2. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20906, Hamburg University, Department of Economics.
  3. Carl Davidson & Nicholas Sly, 2013. "A Simple Model of Globalization, Schooling and Skill Acquisition," CESifo Working Paper Series 4394, CESifo Group Munich.

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