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Optimal Educational Policies and Comparative Advantage

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Listed author(s):
  • Spiros Bougheas
  • Richard Kneller
  • Raymond Riezman

Abstract

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 imroving. A move in the opposite direction can be optimal and when it is optimal it is also feasible.

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Paper provided by University of Nottingham, GEP in its series Discussion Papers with number 09/02.

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Handle: RePEc:not:notgep:09/02
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Keywords: Patterns of Trade; Education Policy; Welfare;

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Find related papers by JEL classification:
  • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
  • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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  1. Giovanni Maggi & Gene M. Grossman, 2000. "Diversity and Trade," American Economic Review, American Economic Association, vol. 90(5), pages 1255-1275, December.
  2. Ngo Van Long & Raymond Riezman & Antoine Soubeyran, 2007. "Trade, Wage Gaps, and Specific Human Capital Accumulation," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 75-92, 02.
  3. 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 957-978, December.
  4. 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..
  5. Hartog,Joop & Maassen van den Brink,Henriëtte (ed.), 2007. "Human Capital," Cambridge Books, Cambridge University Press, number 9780521873161.
  6. 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.
  7. Redding, Stephen, 1999. "Dynamic Comparative Advantage and the Welfare Effects of Trade," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 15-39, January.
  8. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-563, July.
  9. 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.
  10. 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).
  11. 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.
  12. 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.
  13. 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.
  14. Jaume Ventura, 1997. "Growth and Interdependence," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 57-84.
  15. 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.
  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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Cited by:

  1. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series 2692, CESifo Group Munich.
  2. Pao‐Li Chang & Fali Huang, 2014. "Trade And Divergence In Education Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55, pages 1251-1280, November.
  3. Davidson, Carl & Sly, Nicholas, 2014. "A simple model of globalization, schooling and skill acquisition," European Economic Review, Elsevier, vol. 71(C), pages 209-227.

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