Trade and Divergence in Education Systems

Abstract

This paper presents a theory on the endogenous choice of education policy and the two-way causal relationship between trade and education systems. A country's education system determines its talent distribution and comparative advantage; the possibility of trade by raising the returns to the sector of comparative advantage in turn induces countries to further differentiate their education systems and reinforces the initial pattern of comparative advantage. Specifically, the Nash equilibrium choice of education systems by two countries interacting strategically are necessarily more divergent than their autarky choices, and yet less than what is socially optimal for the world.JEL Classification: F16, I20, J24.

Increasing Resistance to Globalization: The Role of Trade in Tasks

“…Chang and Huang (2014) andChaterjee (2017) analyze strategic education policies in a two country setting, emphasizing that divergence in education systems might be an equilibrium outcome in such an environment. Blanchard and Willmann (2016a) consider a setting with many industries and a continuous set of human capital choices in which education policy shapes the pattern of comparative advantage.…”