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The Skill Bias of World Trade

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  • Paolo Epifani
  • Gino Gancia

Abstract

This article suggests that international trade, even between identical countries, can raise the relative demand for skilled labour. It shows that a simple generalisation of Krugman's (1979) model of trade in differentiated products has implications for the skill premium, through economies of scale rather than Hecksher‐Ohlin effects, that are consistent with a number of stylised facts. It provides new evidence in support of these results by showing that increases in market size lead to higher returns to education, skill premia and income inequality.

Suggested Citation

  • Paolo Epifani & Gino Gancia, 2008. "The Skill Bias of World Trade," Economic Journal, Royal Economic Society, vol. 118(530), pages 927-960, July.
  • Handle: RePEc:wly:econjl:v:118:y:2008:i:530:p:927-960
    DOI: 10.1111/j.1468-0297.2008.02156.x
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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