Working Paper: NBER ID: w9447
Authors: Stephen Redding; Peter K. Schott
Abstract: 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 exports and intermediate imports, reducing the amount of value added left to remunerate domestic factors of production. If skill-intensive sectors have higher trade costs, more pervasive input-output linkages, or stronger increasing returns to scale, we show theoretically that remoteness depresses the skill premium and therefore incentives for human capital accumulation. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment. We also show that the world's most peripheral countries are becoming increasingly remote over time.
Keywords: No keywords provided
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 |
|---|---|
| remoteness (R39) | skill premiums (J31) |
| skill premiums (J31) | human capital investment (J24) |
| remoteness (R39) | human capital investment (J24) |
| agricultural productivity/resource abundance (Q11) | manufacturing development (O14) |
| manufacturing technology transfer (O33) | output per capita (E23) |
| manufacturing technology transfer (O33) | human capital accumulation (J24) |