Optimal Education Policies and Comparative Advantage

15 Pages Posted: 11 Dec 2011

See all articles by Spiros Bougheas

Spiros Bougheas

University of Nottingham - School of Economics

Richard Kneller

University of Nottingham

Raymond G. Riezman

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

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Date Written: December 2011

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. When the economy trades with the rest of the world 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.

Suggested Citation

Bougheas, Spiros and Kneller, Richard and Riezman, Raymond G., Optimal Education Policies and Comparative Advantage (December 2011). Pacific Economic Review, Vol. 16, Issue 5, pp. 538-552, 2011, Available at SSRN: https://ssrn.com/abstract=1970731 or http://dx.doi.org/10.1111/j.1468-0106.2011.00563.x

Spiros Bougheas (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Richard Kneller

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

316 PBB
Iowa City, IA 52242
United States

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

GEP ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

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