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Optimal Education Policies and Comparative Advantage

  • Spiros Bougheas
  • Richard Kneller
  • Raymond Riezman

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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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-04/cesifo1_wp2631.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2631.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2631
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  1. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2003. "Trade, Wage Gaps, and Specific Human Capital Accumulation," CESifo Working Paper Series 911, CESifo Group Munich.
  2. Spiros Bougheas & Raymond Riezman, 2013. "Trade and the distribution of human capital," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 20, pages 395-407 World Scientific Publishing Co. Pte. Ltd..
  3. Cartiglia, Filippo, 1997. "Credit constraints and human capital accumulation in the open economy," Journal of International Economics, Elsevier, vol. 43(1-2), pages 221-236, August.
  4. Ranjan, Priya, 2001. "Dynamic evolution of income distribution and credit-constrained human capital investment in open economies," Journal of International Economics, Elsevier, vol. 55(2), pages 329-358, December.
  5. Carl Davidson & Steven J. Matusz, 2006. "Trade Liberalization And Compensation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 723-747, 08.
  6. Robert J. Barro & Jong-Wha Lee, 2000. "International Data on Educational Attainment: Updates and Implications," CID Working Papers 42, Center for International Development at Harvard University.
  7. Ventura, Jaume, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 57-84, February.
  8. Jota Ishikawa, 1996. "Scale Economies in Factor Supplies: International Trade, and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 573-94, August.
  9. Grossman, Gene & Maggi, Giovanni, 1998. "Diversity and Trade," CEPR Discussion Papers 2005, C.E.P.R. Discussion Papers.
  10. Redding, S., 1997. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Economics Papers 140, Economics Group, Nuffield College, University of Oxford.
  11. Eckhard Janeba, 2000. "Trade, Income Inequality, and Government Policies: Redistribution of Income or Education Subsidies?," NBER Working Papers 7485, National Bureau of Economic Research, Inc.
  12. Egger, Hartmut & Egger, Peter & Falkinger, Josef & Grossmann, Volker, 2005. "International Capital Market Integration, Educational Choice and Economic Growth," IZA Discussion Papers 1863, Institute for the Study of Labor (IZA).
  13. repec:cup:cbooks:9780521873161 is not listed on IDEAS
  14. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
  15. Gene M. Grossman, 2004. "The Distribution of Talent and the Pattern and Consequences of International Trade," Journal of Political Economy, University of Chicago Press, vol. 112(1), pages 209-239, February.
  16. Eckhard Janeba, 2003. "Does Trade Increase Inequality when Skills are Endogenous?," Review of International Economics, Wiley Blackwell, vol. 11(5), pages 885-898, November.
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