Working Paper: CEPR ID: DP3739
Authors: Stephen Redding; Peter Schott
Abstract: Do workers in countries located far from global economic activity have lower incentives to accumulate human capital than workers near the centre? This Paper models the relationship between countries? distance from global economic activity, endogenous investments in education, and economic development. Firms in remote locations pay greater trade costs on both their exports and their imports of intermediate inputs, reducing the amount of value added left to remunerate domestic factors of production. As a result, the skill premium and incentives to accumulate human capital will be depressed if skill-intensive sectors have higher trade costs, more pervasive input-output linkages, or stronger increasing returns to scale. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment and that the world?s most peripheral countries are becoming increasingly remote over
Keywords: economic geography; international inequality; international trade
JEL Codes: F12; F14; O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| geographical remoteness (R12) | lower skill premium (J24) |
| higher trade costs (F12) | lower skill premium (J24) |
| geographical remoteness (R12) | lower incentives to invest in education (I21) |
| lower skill premium (J24) | lower incentives to invest in education (I21) |
| lower market access (D40) | lower levels of educational attainment (I24) |
| geographical remoteness (R12) | lower levels of educational attainment (I24) |