Dynamic Trade, Education, and Intergenerational Inequality
50 Pages Posted: 1 Oct 2019 Last revised: 30 Apr 2020
Date Written: September 20, 2019
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: Suggested Citation