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Human Capital Formation and International Trade



This paper develops a two-country, two-sector model of trade where the only difference between two countries is the cost of human capital formation. It is shown that this difference completely shapes the pattern of trade. Trade, in turn, affects the distribution of human capital both at extensive and intensive margins. Furthermore, cross-country differences in the costs of human capital formation determine the effects of trade on income distribution and welfare in each country. The paper also shows that lowering the cost of human capital acquisition in one country affects human capital formation, income distribution, and welfare asymmetrically in two countries.

Suggested Citation

  • Bulent Unel, 2013. "Human Capital Formation and International Trade," Departmental Working Papers 2013-01, Department of Economics, Louisiana State University.
  • Handle: RePEc:lsu:lsuwpp:2013-01

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    References listed on IDEAS

    1. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-2348, August.
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    7. Paula Bustos, 2005. "The impact of trade liberalization on skill upgrading. Evidence from Argentina," Economics Working Papers 1189, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2011.
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    9. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
    10. Kevin O’rourke & Jeffrey Williamson, 2005. "From Malthus to Ohlin: Trade, Industrialisation and Distribution Since 1500," Journal of Economic Growth, Springer, vol. 10(1), pages 5-34, January.
    11. Jota Ishikawa, 1996. "Scale Economies in Factor Supplies: International Trade, and Migration," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 573-594, August.
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    13. 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.
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    Cited by:

    1. Dinopoulos, Elias & Unel, Bulent, 2015. "Entrepreneurs, jobs, and trade," European Economic Review, Elsevier, vol. 79(C), pages 93-112.
    2. Petit, Sylvain, 2016. "International trade in services and inequalities: Empirical evaluation and role of tourism services," MPRA Paper 75206, University Library of Munich, Germany.

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