Trade Liberalisation in a Heckscher–Ohlin Model: Does Public Skill Formation Change the Conventional Results?

Standard trade theory suggests that trade liberalisation produces opposite effects on human capital accumulation in developed and developing countries, reducing the incentives to invest in education in skill-scarce countries. Would conventional wisdom be modified if we introduce public provision of education in the standard framework? This paper shows that when skill formation depends on public provision, trade liberalisation effects on human capital accumulation depends on the education technology relative to the economic structure. In contrast to the previous literature, this framework explains skills convergence or divergence in a standard framework; thus, it may help to improve its predictive power.