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Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?

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  • Stephen Redding
  • Peter K. Schott

Abstract

This paper models the relationship between countries' distance from global economic activity, endogenous investments in education, and economic development. Firms in remote locations pay greater trade costs on both exports and intermediate imports, reducing the amount of value added left to remunerate domestic factors of production. If skill-intensive sectors have higher trade costs, more pervasive input-output linkages, or stronger increasing returns to scale, we show theoretically that remoteness depresses the skill premium and therefore incentives for human capital accumulation. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment. We also show that the world's most peripheral countries are becoming increasingly remote over time.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9447.

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Date of creation: Jan 2003
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Publication status: published as Redding, Stephen and Peter K. Schott. "Distance, Skill Deepening And Development: Will Peripheral Countries Ever Get Rich?," Journal of Development Economics, 2003, v72(2,Dec), 515-541.
Handle: RePEc:nbr:nberwo:9447

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