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Skill Acquisition and the Gains from Trade: A Cross-country Quantitative Analysis

Author

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  • Ma, Xiao
  • Nakab, Alejandro
  • Zhang, Yiran
Abstract
This paper studies the impact of trade openness on welfare through alterations in workers' skill acquisition. We integrate endogenous choices of learning investments into a multisector Eaton-Kortum model. In the model, workers can opt to become skilled through education and further enhance their human capital via on-the-job training. Both education and on-the-job training entail time and material costs. Our model reveals that trade openness influences skill acquisition by: (1) reallocating labor between sectors, as skill intensities and on-the-job learning opportunities vary across sectors; and (2) allowing producers in each country to source varieties from more cost-effective suppliers in other countries, thus reducing unit costs of material inputs and raising real wage rates. Our calibrated model indicates that the gains in skill acquisition account for 20% of the total gains from trade. We also find that the gains in skill acquisition primarily stem from increased real wage rates that encourage skill acquisition.

Suggested Citation

  • Ma, Xiao & Nakab, Alejandro & Zhang, Yiran, 2023. "Skill Acquisition and the Gains from Trade: A Cross-country Quantitative Analysis," MPRA Paper 117808, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:117808
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    References listed on IDEAS

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    More about this item

    Keywords

    gains from trade; education; on-the-job learning;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor

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