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Trade liberalisation and human capital adjustment


  • Falvey, Rod
  • Greenaway, David
  • Silva, Joana


This paper highlights the way in which workers of different ages and abilities are affected by anticipated and unanticipated trade liberalisations. A two-factor (skilled and unskilled labour), two-sector Heckscher-Ohlin trade model is supplemented with an education sector which uses skilled labour and time to convert unskilled workers into skilled workers. A skilled worker's income depends on her ability, but all unskilled workers have the same income. Trade liberalisation in a relatively skilled labour abundant country increases the relative skilled wage and induces skill upgrading by the existing workforce, with younger and more able unskilled workers most likely to upgrade. But not all upgraders are better off as a result of the liberalisation. The older and less able upgraders are likely to lose. For an anticipated liberalisation we show that the preferred upgrading strategies depend on a worker's ability and that much of the upgrading will take place before the liberalisation. Hence some workers who would have upgraded had they anticipated the liberalisation will not if it is unanticipated, and adjustment assistance that applies only to post-liberalisation upgraders will fail to compensate some losers and distort the upgrading decisions of others.

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  • Falvey, Rod & Greenaway, David & Silva, Joana, 2010. "Trade liberalisation and human capital adjustment," Journal of International Economics, Elsevier, vol. 81(2), pages 230-239, July.
  • Handle: RePEc:eee:inecon:v:81:y:2010:i:2:p:230-239

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    References listed on IDEAS

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    Cited by:

    1. Harris, Richard G. & Robertson, Peter E., 2013. "Trade, wages and skill accumulation in the emerging giants," Journal of International Economics, Elsevier, vol. 89(2), pages 407-421.
    2. Artuc, Erhan, 2012. "Workers'age and the impact of trade shocks," Policy Research Working Paper Series 6035, The World Bank.
    3. Joël Hellier, 2012. "The North-South HOS Model, inequality and globalization," Working Papers 244, ECINEQ, Society for the Study of Economic Inequality.
    4. Nils Herger, 2015. "An uncovered interest parity condition that worked - The continental investment demand for London bills of exchange during the gold standard (1880 -1914)," Working Papers 15.04, Swiss National Bank, Study Center Gerzensee.
    5. Emily Blanchard & Gerald Willmann, 2013. "Trade, Education, and the Shrinking Middle Class," CESifo Working Paper Series 4141, CESifo Group Munich.
    6. Auer, Raphael A., 2015. "Human capital and the dynamic effects of trade," Journal of Development Economics, Elsevier, vol. 117(C), pages 107-118.
    7. Nathalie Chusseau & Joel Hellier, 2014. "Globalization and social segmentation," Working Papers 339, ECINEQ, Society for the Study of Economic Inequality.
    8. Blanchard, Emily & Willmann, Gerald, 2013. "Trade, education, and the shrinking middle class," Kiel Working Papers 1831, Kiel Institute for the World Economy (IfW).
    9. Peter Egger & Sergey K. Nigai, 2016. "World-Trade Growth Accounting," CESifo Working Paper Series 5831, CESifo Group Munich.
    10. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.
    11. ICHIDA Toshihiro, 2011. "A Model of Multi-Dimensional Human Capital Investment: Specific vs. general investments under uncertainty," Discussion papers 11056, Research Institute of Economy, Trade and Industry (RIETI).
    12. Emily Blanchard & Gerald Willmann, 2007. "Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy," CESifo Working Paper Series 2070, CESifo Group Munich.
    13. Fabien Candau & Elisa Dienesch, 2015. "Spatial distribution of skills and regional trade integration," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 54(2), pages 451-488, March.
    14. Blanchard, Emily & Willmann, Gerald, 2011. "Escaping a protectionist rut: Policy mechanisms for trade reform in a democracy," Journal of International Economics, Elsevier, vol. 85(1), pages 72-85, September.
    15. Blanchard, Emily & Willmann, Gerald, 2016. "Trade, education, and the shrinking middle class," Journal of International Economics, Elsevier, vol. 99(C), pages 263-278.
    16. Greenland, Andrew & Lopresti, John, 2016. "Import exposure and human capital adjustment: Evidence from the U.S," Journal of International Economics, Elsevier, vol. 100(C), pages 50-60.
    17. Rod Falvey & David Greenaway & Joana Silva, "undated". "International Competition, Returns to Skill and Labor Market Adjustment," Discussion Papers 08/10, University of Nottingham, GEP.


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