Trade and the Distribution of Human Capital
Raymond G. Riezman
University of Iowa - Henry B. Tippie College of Business - Department of Economics; GEP; CESifo (Center for Economic Studies and Ifo Institute)
University of Nottingham - School of Economics
CESifo Working Paper No. 1475
We develop a two-country, two-sector model of trade where the only difference between the two countries is their distribution of human capital endowments. We show that even if the two countries have identical aggregate human capital endowments the pattern of trade depends on the properties of the two human capital distributions. We also show that the two distributions of endowments also completely determine the effects of trade on income inequality. Then, we prove that there are long-term gains from trade if the marginal utility of income is constant or as long as losers from trade are compensated by winners. Finally, we look at a simple majority voting model. It turns out depending on the distribution of human capital, autarky and free trade with and without compensation may be the outcome of majority voting.
Number of Pages in PDF File: 33
Keywords: patterns of trade, income distribution, welfare, political economy
JEL Classification: F1
Date posted: September 8, 2009
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