Trade liberalization in a Heckscher–Ohlin model: Does public skill formation change the conventional results?
Standard trade theory suggests that trade liberalization produces opposite effects on human capital accumulation in developed and developing countries, reducing the incentives to invest in education in skill-scarce countries. How would conventional wisdom be modified if we introduce public provision of education in the standard framework? This paper develops a simple model for this purpose, showing that when skills formation depends on public provision of education, trade liberalization affects the human capital accumulation process depending on the economic structure; thus, in contrast to the previous literature, this framework explains convergence or divergence in the accumulation of skills between trading countries.
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