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Skill Dispersion and Trade Flows

  • Matilde Bombardini

    (University of British Columbia, CIFAR, NBER and RCEA)

  • Giovanni Gallipoli

    (University of British Columbia and RCEA)

  • Germán Pupato

    (University of British Columbia)

Is skill dispersion a source of comparative advantage? While it is established that a country's aggregate endowment of human capital is an important determinant of comparative advantage, this paper investigates whether the distribution of skills in the labor force can play a role in the determination of trade flows. We develop a multi-country, multi-sector model of trade in which comparative advantage derives from (i) differences across sectors in the complementarity of workers' skills, (ii) the dispersion of skills in the working population. First, we show how higher dispersion in human capital can trigger specialization in sectors characterized by higher substitutability among workers' skills. We then use industry-level bilateral trade data to show that human capital dispersion, as measured by a standard international metric, has a significant effect on trade flows. We find that the effect is of a magnitude comparable to that of aggregate endowments. The result is robust to the introduction of several controls for other proximate causes of comparative advantage.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 20_09.

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Date of creation: Jan 2009
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Handle: RePEc:rim:rimwps:20_09
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