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Optimal Educational 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 imroving. A move in the opposite direction can be optimal and when it is optimal it is also feasible.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 09/02.

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Handle: RePEc:not:notgep:09/02

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Keywords: Patterns of Trade; Education Policy; Welfare;

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  1. 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.
  2. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers, Center for International Development at Harvard University 42, Center for International Development at Harvard University.
  3. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2007. "Trade, Wage Gaps, and Specific Human Capital Accumulation," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 75-92, 02.
  4. 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.
  5. Redding, Stephen, 1999. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Oxford Economic Papers, Oxford University Press, Oxford University Press, vol. 51(1), pages 15-39, January.
  6. 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.
  7. 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.
  8. 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.
  9. Hartmut Egger & Peter Egger & Josef Falkinger & Volker Grossmann, 2005. "International Capital Market Integration, Educational Choice and Economic Growth," CESifo Working Paper Series, CESifo Group Munich 1630, CESifo Group Munich.
  10. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 57-84, February.
  11. 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.
  12. 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.
  13. Hartog,Joop & Maassen van den Brink,Henriƫtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521873161.
  14. 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.
  15. Carl Davidson & Steven Matusz, 2005. "Trade Liberalization and Compensation," International Trade, EconWPA 0503008, EconWPA.
  16. 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.
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Cited by:
  1. Pao-Li Chang & Fali Huang, 2012. "Trade and Divergence in Education Systems," Working Papers, Singapore Management University, School of Economics 32-2012, Singapore Management University, School of Economics.
  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, CESifo Group Munich 4394, CESifo Group Munich.

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