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Skill Distributions, Effective Endowment and Trade

Author

Listed:
  • Xiaoping Chen

    (Division of Economics, Nanyang Technological University, 14 Nanyang Drive, Singapore 637332.)

Abstract

This paper revisits the role of skill distributions in trade using a variant of the Heckscher-Ohlin model with multidimensional skill endowment and specialized production organized in teams. The equilibrium is characterized by the effective endowment", the part of endowment that is actually utilized in production, which depends on the team matches and the task specialization within teams. It is shown that: (1) The endowment correlation between skill dimensions for each agent and the skill dispersion across agents, additional to the aggregate endowment, both matter for the pattern of trade; (2) There are new gains from trade, attributed to potential adjustments of the effective endowment upon trade integration; (3) Different endowment distributions can also generate different wage inequality levels across countries; An empirically found job polarization pattern can be generated in all developed countries in the global economy; (4) Additionally, it reveals a new channel through which the institutions may have effects on trade, by shaping the skill distributions. In particular, the potential effects of different educational policies and some labor market institutions on the skill distributions and trade are discussed.

Suggested Citation

  • Xiaoping Chen, 2016. "Skill Distributions, Effective Endowment and Trade," Economic Growth Centre Working Paper Series 1603, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    • Handle: RePEc:nan:wpaper:1603
    as

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    File URL: https://web.hss.ntu.edu.sg/egc/wp/2016/2016-03.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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