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Optimal Education Policies And Comparative Advantage

Author

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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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Suggested Citation

  • Spiros Bougheas & Richard Kneller & Raymond Riezman, 2011. "Optimal Education Policies And Comparative Advantage," Pacific Economic Review, Wiley Blackwell, vol. 16(5), pages 538-552, December.
    • Handle: RePEc:bla:pacecr:v:16:y:2011:i:5:p:538-552
    DOI: j.1468-0106.2011.00563.x
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    File URL: http://hdl.handle.net/10.1111/j.1468-0106.2011.00563.x
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    Cited by:

    1. Egger, Hartmut & Fischer, Christian, 2020. "Increasing resistance to globalization: The role of trade in tasks," European Economic Review, Elsevier, vol. 126(C).
    2. Chatterjee, Arpita, 2017. "Endogenous comparative advantage, gains from trade and symmetry-breaking," Journal of International Economics, Elsevier, vol. 109(C), pages 102-115.
    3. Andrea Moro & Peter Norman, 2019. "Endogenous Comparative Advantage," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(3), pages 1088-1124, July.
    4. Pao-Li Chang & Fali Huang, 2010. "Trade and Divergence in Education Systems," Working Papers 33-2010, Singapore Management University, School of Economics.
    5. Hartmut Egger & Peter Egger & Josef Falkinger & Volker Grossmann, 2010. "The Impact of Capital Market Integration on Educational Choice and the Consequences for Economic Growth," The World Economy, Wiley Blackwell, vol. 33(10), pages 1241-1268, October.
    6. Evgenia Tonkova & Sevdalina Hristova & Dancho Petrov, 2020. "Comparative Advantages in Attracting Investments - Contemporary View," Izvestia Journal of the Union of Scientists - Varna. Economic Sciences Series, Union of Scientists - Varna, Economic Sciences Section, vol. 9(3), pages 12-18, December.
    7. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.
    8. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo.

    More about this item

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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