“Skill Distributions, Effective Endowment and Trade” by Xiaoping Chen
Nanyang Techological University
This paper revisits the effect of skill distributions on comparative advantage using a variant of the Heckscher-Ohlin model with multidimensional skills and team production. Trade equilibrium is characterized by the "effective endowment", the part of skill endowment that is actually utilized in production. Effective endowment depends on the team formation and specialization within each team. I then show that: (1) The correlation between skill dimensions, as well as the skill dispersion in each country, matters for the pattern of trade; (2) There are new gains from trade, attributed to adjustments of the effective endowment upon trade liberalization; (3) Different skill distributions also generate diverse wage structures across countries; (4) Institutions may have effect on trade by shaping a country's skill distribution.