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Skill distribution and income disparity in a North-South trade model


  • Hesham Abdel-Rahman


What are the impacts of free trade agreement on the welfare of different types of workers in a developed country? What is the impact of free trade on a developed country's income disparity? What is the effect of free trade on the skill distribution of a developed country? The objective of this paper is to address the above questions in a two-sector general-equilibrium North-South trade model in which both countries produce one final good and one high-tech intermediate input. The final good is produced with the use of a high-tech intermediate input and unskilled workers. Horizontally differentiated skilled workers produce the high-tech intermediate input. Each country is populated by a continuum of unskilled workers with differential potential ability. Workers in the North and South can acquire skills by investment in training or education. Thus, skill distribution in the North and South is determined endogenously in the model through a self-selection process. I characterize two different types of equilibria: a closed-economy equilibrium without trade and a free trade equilibrium. Then, I investigate the impact of free trade, in the presence of training costs, on the skill distribution within each country, income disparity, and social welfare.

Suggested Citation

  • Hesham Abdel-Rahman, 2005. "Skill distribution and income disparity in a North-South trade model," Canadian Journal of Economics, Canadian Economics Association, vol. 38(4), pages 1298-1326, November.
  • Handle: RePEc:cje:issued:v:38:y:2005:i:4:p:1298-1326

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    References listed on IDEAS

    1. Galor, Oded & Tsiddon, Daniel, 1997. "Technological Progress, Mobility, and Economic Growth," American Economic Review, American Economic Association, vol. 87(3), pages 363-382, June.
    2. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 407-437.
    3. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-1064, October.
    4. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
    5. Amparo Castello & Rafael Domenech, 2002. "Human Capital Inequality and Economic Growth: Some New Evidence," Economic Journal, Royal Economic Society, vol. 112(478), pages 187-200, March.
    6. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, July.
    7. Bandyopadhyay, Debasis & Basu, Parantap, 2001. "Redistributive Tax and Growth in a Model with Discrete Occupational Choice," Australian Economic Papers, Wiley Blackwell, vol. 40(2), pages 111-132, June.
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    Cited by:

    1. Hesham ABDEL-RAHMAN, "undated". "Trade, Urban Systems, and Labor Markets," Regional and Urban Modeling 284100000, EcoMod.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F10 - International Economics - - Trade - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials


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