SMU SOE Seminar Series (March 15, 2024, 2pm - 3.30pm): Trade Liberalization, Educational Choice, and Income Distribution

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TOPIC:

TRADE LIBERALIZATION, EDUCATIONAL CHOICE, AND INCOME DISTRIBUTION

ABSTRACT Recent empirical studies reveal that trade liberalization affects people's educational attainment differently for different skill groups. This paper constructs an overlapping generations model with heterogeneity in agents' learning ability to examine the dynamic impacts of trade liberalization on individuals' educational choices and income distribution. Our focus is on a developing economy that has a comparative advantage in the low-skill-intensive, agricultural sector, since it is far from obvious whether opening to trade induces the development of industries that serve as an engine of growth and give incentives to citizens to acquire human capital in those countries. Our theoretical model illustrates that in the short run, an export expansion of the agricultural sector will increase the low-skilled wage relative to the high-skilled, which discourages individuals from getting educated. In the long run, however, trade induces capital accumulation and hence raises the wage rate for high-skilled workers who engage in capital-intensive manufacturing industries. As a result, more individuals will receive tertiary education, despite that the pool of the uneducated also expands as a direct consequence of the expansion of the agricultural sector. The income gap between the low-skilled and the medium-skilled shrinks, while that between the medium-skilled and the tertiary-educated, high-skilled expands. We also illustrate transitional dynamics that follow trade liberalization and examine the impact of trade on different groups of individuals in different generations. Click here to view the CV.
		PRESENTER Taiji Furusawa University of Tokyo
		RESEARCH FIELDS International Trade Applied Microeconomics
		DATE: 15 March 2024 (Friday)
		TIME: 2pm - 3.30pm
		VENUE: Meeting Room 5.1, Level 5 School of Economics Singapore Management University 90 Stamford Road Singapore 178903

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