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Distance, skill deepening and development : will peripheral countries ever get rich?

  • Stephen Redding
  • Peter K Schott

This paper models the relationship between countries' distance from global economic activity, endogenous investments in education and economic development. Firms in remote locations pay greater trade costs on both exports and intermediate imports, reducing the amount of value added left to remunerate domestic factors of production. If skill-intensive sectors have higher trade costs, more pervasive input–output linkages or stronger increasing returns to scale, we show theoretically that remoteness depresses the skill premium and therefore incentives for human capital accumulation. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment. We also show that the world's most peripheral countries are becoming increasingly economically remote over time.

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File URL: http://eprints.lse.ac.uk/207/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 207.

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Date of creation: Dec 2003
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Publication status: Published in Journal of Development Economics, December, 2003, 72(2), pp. 515 -541. ISSN: 0304-3878
Handle: RePEc:ehl:lserod:207
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