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Optimal Education Policies and Comparative Advantage

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Author Info
Spiros Bougheas ()
Richard Kneller ()
Raymond Riezman ()

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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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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 2631.

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

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Related research
Keywords: patterns of trade; education policy; welfare;

Find related papers by JEL classification:
F11 - International Economics - - Trade - - - Neoclassical Models of Trade
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

References listed on IDEAS
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  1. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February. [Downloadable!] (restricted)
  2. Gene M. Grossman & Giovanni Maggi, 2000. "Diversity and Trade," American Economic Review, American Economic Association, vol. 90(5), pages 1255-1275, December. [Downloadable!] (restricted)
    Other versions:
  3. Eckhard Janeba, 2003. "Does Trade Increase Inequality when Skills are Endogenous?," Review of International Economics, Blackwell Publishing, vol. 11(5), pages 885-898, November. [Downloadable!] (restricted)
  4. Bougheas, Spiros & Riezman, Raymond, 2007. "Trade and the distribution of human capital," Journal of International Economics, Elsevier, vol. 73(2), pages 421-433, November. [Downloadable!] (restricted)
    Other versions:
  5. Jota Ishikawa, 1996. "Scale Economies in Factor Supplies: International Trade, and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 573-94, August. [Downloadable!] (restricted)
  6. Cartiglia, Filippo, 1997. "Credit constraints and human capital accumulation in the open economy," Journal of International Economics, Elsevier, vol. 43(1-2), pages 221-236, August. [Downloadable!] (restricted)
  7. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  8. 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.
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  9. Deardorff, A.V., 1997. "International Externalities in the Use of Domestic Policies to Redistribute Income," Working Papers 405, Research Seminar in International Economics, University of Michigan.
  10. Ranjan, Priya, 2001. "Dynamic evolution of income distribution and credit-constrained human capital investment in open economies," Journal of International Economics, Elsevier, vol. 55(2), pages 329-358, December. [Downloadable!] (restricted)
  11. 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, vol. 47(3), pages 723-747, 08. [Downloadable!] (restricted)
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  12. Redding, Stephen, 1999. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 15-39, January.
    Other versions:
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