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Trade Libaralisation, Terms of Trade and Skill Formation in a North-South Model


  • Arabinda Ghosh

    (Department of Economics, Raghunathpur College, Raghunathpur District, Purulia, West Bengal, India)

  • Kausik Gupta

    (Department of Economics, University of Burdwan, Burdwan, West Bengal, India)


This paper analyses a North-South model in which the Southern labour market is decomposed into skilled labour and unskilled labour. The skilled labour is an intermediate input produced with capital and unskilled labour. The South is a net receiver of foreign capital from the North. The terms of trade is endogenously determined and it plays an important role in determining the stock of skilled labour and the inflow of foreign capital in the South. Our study shows that a policy of trade liberalisation may deteriorate the terms of trade but it may increase the inflow of foreign capital and the supply of skilled labour. Moreover, we have also seen that a rise in the domestic capital formation may improve the terms of trade for the South.

Suggested Citation

  • Arabinda Ghosh & Kausik Gupta, 2007. "Trade Libaralisation, Terms of Trade and Skill Formation in a North-South Model," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 42(1), pages 97-109, July.
  • Handle: RePEc:dse:indecr:v:42:y:2007:i:1:p:97-109

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    More about this item


    Skill Formation; Terms of Trade; Trade Liberalisation;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies


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