Optimal Education Policies and Comparative Advantage

Bougheas, Spiros; Kneller, Richard; Riezman , Raymond G.

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Optimal Education Policies and Comparative Advantage

CESifo Working Paper Series No. 2631

31 Pages Posted: 29 Apr 2009

See all articles by Spiros Bougheas

Spiros Bougheas

University of Nottingham - School of Economics

Aarhus University - Department of Economics and Business Economics; University of California, Santa Barbara (UCSB) - Department of Economics; University of Iowa - Henry B. Tippie College of Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); GEP; Aarhus University - School of Business and Social Sciences

There are 2 versions of this paper

Date Written: April 2009

Abstract

We consider the optimal education policies of a small economy whose government has a limited budget. Initially, the economy is closed and the government chooses its education policy to maximize welfare under autarky. Then the economy trades with the rest of the world. Lastly, the government chooses a new education policy that maximizes welfare under trade. Is it ever optimal for the government to choose its new policy so that it reverses the economy’s comparative advantage? We find that if the budget stays fixed when it is optimal to "move up the skills chain" it is not feasible. In such a case a foreign loan is welfare improving. A move in the opposite direction can be optimal and when it is optimal it is also feasible.

Keywords: patterns of trade, education policy, welfare

JEL Classification: F11, O15

Suggested Citation: Suggested Citation

Bougheas, Spiros and Kneller, Richard and Riezman, Raymond G., Optimal Education Policies and Comparative Advantage (April 2009). CESifo Working Paper Series No. 2631, Available at SSRN: https://ssrn.com/abstract=1396611