Skill Acquisition, Credit Constraints and Trade

This paper looks at the effect of credit constraints on skill acquisition when agents have heterogeneous abilities and wealth. We use a two factor general equilibrium model and assume credit markets are absent. We explore the effects of trade on factor earnings as well as the evolution of the distribution of income in small and large economies. Our work suggests that developed countries need to ensure access to education when liberalizing trade to ensure they reap the potential gains from trade. 1We are grateful to participants of the NBER winter meetings at Palo Alto, at the ERWIT workshop of the CEPR, at the Otago Workshop in International Trade, and participants at seminars at the World Bank and Drexel University for comments on earlier drafts.