Dynamic Trade, Education and Intergenerational Inequality

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 using the World Input-Output Database. Trade liberalization raise 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

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This paper was published in Munich RePEc Personal Archive.

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