Dynamic Trade, Education, and Intergenerational Inequality

50 Pages Posted: 1 Oct 2019 Last revised: 30 Apr 2020

See all articles by Han Yang

Han Yang

Academia Sinica - Institute of Economics

Date Written: September 20, 2019

Abstract

To what extent does education alleviate income inequality induced by globalization? What are the corresponding intergenerational welfare implications? I incorporate human capital and capital accumulation into a dynamic multi-country general equilibrium model, and study the exact transitional path. Interactions between comparative advantage, capital accumulation, and endogenous education are the main driving forces of the inequality dynamics. These channels reflect ability to adjust factor supply at different stages of the transition. I parameterize the model for 40 countries, six sectors. Trade liberalization raises the skill premium, the skill share and the real wage for both skilled and unskilled workers in all countries in my model. Through decomposition, I find that education eliminates trade-induced inequality by 65% on average. My model also suggests that globalization can cause more intergenerational inequality. Because older and more educated people generally benefit relatively more from globalization.

Keywords: international trade, dynamic,education, inequality, skill premium

JEL Classification: F1, F4, F6

Suggested Citation

Yang, Han, Dynamic Trade, Education, and Intergenerational Inequality (September 20, 2019). Available at SSRN: https://ssrn.com/abstract=3457111 or http://dx.doi.org/10.2139/ssrn.3457111

Han Yang (Contact Author)

Academia Sinica - Institute of Economics ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

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