Education, the Distribution of Production and Trade: What’s the Relationship?

As world markets integrate, leaders around the world face heightened pressure to boost their countries’ global performance. One policy almost always advocated for achieving this goal stands out, both because it seems to make so much sense and because it is offered to every country: increase worker education. This paper extends standard trade theory to incorporate education and determine its relationship to the distribution of production and trade. It demonstrates that increases in secondary and tertiary education pull countries out of “undesirable” industries and pushes them into “desirable” ones in the manner prescribed by theory.