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Are Imports from Rich Nations Deskilling Emerging Economies? - Human Capital and the Dynamic Effects of Trade

  • Raphael Anton Auer

This paper starts by documenting that during the last decades, the human capital embodied in imports from skill abundant nations has noticeably reduced skill accumulation in the less developed world. To identify the causal relation between these variables, the analysis utilizes over-time variation in the supply of skilled labor and the extent to which this variation affects the skill content of trade given the bilateral distance between im- and exporter. In a panel estimation covering 41 non-OCED members, a one standard deviation higher geographic pressure to import human capital is associated with a 12% reduction in the national average length of schooling. The paper next develops a model to analyze the income and welfare consequences of such trade-induced human capital disaccumulation. The model is based on heterogeneous workers who make educational decisions in the presence of complete markets. When heterogeneous workers invest in schooling, high type agents earn a surplus from their investment. Trade shifts this surplus to rich countries that can use skills more efficiently. Consequently, the dynamic effects of liberalization tend to occur to initially rich countries, thus leading to divergence.

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Paper provided by Swiss National Bank in its series Working Papers with number 2010-18.

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Length: 51 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:snb:snbwpa:2010-18
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  1. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, 07.
  2. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  3. Robert C. Feenstra & Robert E. Lipsey & Harry P. Bowen, 1997. "World Trade Flows, 1970-1992, with Production and Tariff Data," NBER Working Papers 5910, National Bureau of Economic Research, Inc.
  4. Rubinstein, Yona & Helpman, Elhanan & Melitz, Marc, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," Scholarly Articles 3228230, Harvard University Department of Economics.
  5. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  6. Elhanan Helpman & Oleg Itskhoki, 2007. "Labor Market Rigidities, Trade and Unemployment," NBER Working Papers 13365, National Bureau of Economic Research, Inc.
  7. Yong_Seok Choi & Pravin Krishna, 2000. "The Factor Content of Bilateral Trade:an Empirical Test," Working Papers 2000-11, Brown University, Department of Economics.
  8. Auer, Raphael & Fischer, Andreas M, 2008. "The Effect of Trade with Low-Income Countries on U.S. Industry," CEPR Discussion Papers 6819, C.E.P.R. Discussion Papers.
  9. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Unequal Effects of Trade on Workers with Different Abilities," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 421-433, 04-05.
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