Comparative Advantage and Human Capital: A Cross-country Quantitative Analysis

Ma, Xiao and Nakab, Alejandro (2020): Comparative Advantage and Human Capital: A Cross-country Quantitative Analysis.

Abstract

Trade openness can affect welfare through changes in workers’ skill acquisition. We develop a multisector Eaton–Kortum model, in which skill intensities and on-the-job learning opportunities are heterogeneous across sectors. Workers decide whether to become skilled before entering the labor market and accumulate human capital on the job. Through the lens of our model, trade-induced sector reallocation changes the returns of becoming skilled and on-the-job learning opportunities. Our model allows for an analytical formula of the gains from trade. This formula is an augmented version of the ACR formula and includes gains due to changes in skill acquisition. Our calibrated model suggests that the gains from trade due to changes in skill acquisition are vastly different across countries and may be negative, with sizable gains for the United States, the United Kingdom, and India, as well as considerable losses for Germany, Brazil, and Argentina.

• Item Type: MPRA Paper
• Language: English
• Keywords: international trade; sector reallocation; gains from trade; skill acquisition; human capital; college education; on-the job learning.
• Subjects: F - International Economics > F1 - Trade; J - Labor and Demographic Economics > J2 - Demand and Supply of Labor

References

Adão, R., Costinot, A. and Donaldson, D. (2017), ‘Nonparametric Counterfactual Predictions in Neoclassical Models of International Trade’, American Economic Review 107(3), 633–89.

Aguiar, M. and Hurst, E. (2013), ‘Deconstructing Life Cycle Expenditure’, Journal of Political Economy 121(3).

Arkolakis, C., Costinot, A. and Rodríguez-Clare, A. (2012), ‘New Trade Models, Same Old Gains?’, American Economic Review.

Atkin, D. (2016), ‘Endogenous Skill Acquisition and Export Manufacturing in Mexico’, American Economic Review 106(8).

Bagger, J., Fontaine, F., Postel-Vinay, F. and Robin, J.-M. (2014), ‘Tenure, Experience, Human Capital, and Wages’, American Economic Review 104.

Baqaee, D. and Farhi, E. (2019), ‘Networks, Barriers, and Trade’, Working Paper.

Barro, R. and Lee, J.-W. (2013), ‘A New Data Set of Educational Attainment in the World, 1950-2010’, Journal of Development Economics 104.

Blanchard, E. and Olney, W. (2016), ‘Globalization and Human Capital Investment: Export Composition Drives Educational Attainment’, Journal of International Economics 106.

Borusyak, K. and Jaravel, X. (2018), ‘Consistency and Inference in Bartik Research Designs’, Working Paper.

Buera, F. J. and Oberfield, E. (2020), ‘The Global Diffusion of Ideas’, Econometrica 88(1), 83–114.

Burstein, A. and Vogel, J. (2017), ‘International Trade, Technology, and the Skill Premium’, Journal of Political Economy 125.

Caliendo, L. and Parro, F. (2015), ‘Estimates of the Trade and Welfare Effects of NAFTA’, Review of Economic Studies 82.

Costinot, A. and Rodriguez-Clare, A. (2014), Trade Theory with Numbers: Quantifying the Consequences of Globalization, in ‘Handbook of International Economics’, Vol. 4, Chapter 4.

Danziger, E. (2017), ‘Skill acquisition and the dynamics of trade-induced inequality’, Journal of International Economics 107, 60–74.

Deaton, A. (1997), The Analysis of Household Surveys: A Microeconometric Approach to Development Policy, The World Bank, Washington, D.C.

Eaton, J. and Kortum, S. (2002), ‘Technology, Geography, and Trade’, Econometrica 70(5).

Faberman, J., Mueller, A., Sahin, A. and Topa, G. (2017), ‘Job Search Behavior among the Employed and Non-Employed’, NBER Working Paper .

Fajgelbaum, P. D. (2019), ‘Labor market frictions, firm growth, and international trade’, NBER Working Paper No. 19492.

Falvey, R., Greenaway, D. and Silva, J. (2010), ‘Trade liberalisation and human capital adjustment’, Journal of International Economics 81(2), 230–239.

Feenstra, R. C., Inklaar, R. and Timmer, M. P. (2015), ‘The Next Generation of the Penn World Table’, American Economic Review 105(10).

Ferriere, A., Navarro, G. and Reyes-Heroles, R. (2019), ‘Escaping the Losses from Trade: The Impact of Heterogeneity on Skill Acquisition’, Working Paper.

Findlay, R. and Kierzkowski, H. (1983), ‘International trade and human capital: a simple general equilibrium model’, Journal of Political Economy 91(6), 957–978.

Galle, S., Rodríguez-Clare, A. and Yi, M. (2017), ‘Slicing the Pie: Quantifying the Aggregate and Distributional Effects of Trade’, NBER Working Paper 23737.

Gollin, D. (2002), ‘Getting Income Shares Right’, Journal of Political Economy 110.

Gregory, V. (2019), ‘Firms as Learning Environments: Implications for Earnings Dynamics and Job Search’, Working Paper.

Harris, R. G. and Robertson, P. E. (2013), ‘Trade, wages and skill accumulation in the emerging giants’, Journal of International Economics 89(2), 407–421.

Head, K. and Ries, J. (2001), ‘Increasing Returns Versus National Product Differentiation as an Explanation for the Pattern of US-Canada Trade’, American Economic Review pp. 858–876.

Heckman, J., Lochner, L. and Taber, C. (1998), ‘Explaining Rising Wage Inequality: Explorations with a Dynamic General Equilibrium Model of Labour Earnings with Heterogenous Agents’, Review of Economic Dynamics 1.

Helpman, E., Itskhoki, O., Muendler, M.-A. and Redding, S. J. (2017), ‘Trade and Inequality: From Theory to Estimation’, Review of Economic Studies 84(1).

Herrendorf, B. and Schoellman, T. (2015), ‘Why is Measured Productivity so Low in Agriculture?’, Review of Economic Dynamics (18).

Hsieh, C., Hurst, E., Jones, C. I. and Klenow, P. J. (2019), ‘The Allocation of Talent and U.S. Economic Growth’, Econometrica 87(5).

Islam, A., Jedwab, R., Romer, P. and Pereira, D. (2018), ‘Returns to Experience and the Misallocation of Labor’, Working Paper.

Katz, L. and Murphy, K. (1992), ‘Changes in Relative Wages, 1963–1987: Supply and Demand Factors’, Quarterly Journal of Economics 107(1).

Lagakos, D., Moll, B., Porzio, T., Qian, N. and Schoellman, T. (2018), ‘Life-Cycle Wage Growth Across Countries’, Journal of Political Economy 126(2).

Lall, A. and Sakellariou, C. (2010), ‘Evolution of Education Premiums in Cambodia: 1997–2007’, Asian Economic Journal 24.

Li, B. (2018), ‘Export Expansion, Skill Acquisition and Industry Specialization: Evidence from China’, Journal of International Economics 114.

Lind, N. and Ramondo, N. (2017), ‘Trade with Correlation’, NBER Working Paper No. 24380.

Manuelli, R. E. and Seshadri, A. (2014), ‘Human Capital and the Wealth of Nations’, American Economic Review 104(9).

Monge-Naranjo, A. (2016), ‘Markets, Externalities, and the Dynamic Gains of Openness’, Federal Reserve of Bank St Louis Working Paper 2016-023A.

Moock, P. R., Patrinos, H. A. and Venkataraman, M. (1997), ‘Education and Earnings in a Transition Economy: The Case of Viet Nam’, Working Paper.

Mortensen, D. and Pissarides, C. (1994), ‘Job Creation and Job Destruction in the Theory of Unemployment’, Review of Economic Studies 61(3).

Pissarides, C. (2000), Equilibrium Unemployment Theory (2nd ed.), MIT Press.

Ramondo, N. and Rodríguez-Clare, A. (2013), ‘Trade, Multinational Production, and the Gains from Openness’, Journal of Political Economy 121.

Shimer, R. (2012), ‘Reassessing the Ins and Outs of Unemployment’, Review of Economic Dynamics 15.

Simonovska, I. andWaugh, M. E. (2014), ‘The Elasticity of Trade: Estimates and Evidence’, Journal of International Economics (92), 34–50.

Stole, L. and Zwiebel, J. (1996), ‘Intra-Firm Bargaining under Non-Binding Contracts’, The Review of Economic Studies 63(3).

Tombe, T. and Zhu, X. (2019), ‘Trade, Migration and Productivity: A Quantitative Analysis of China’, American Economic Review 109(5).