This study provides empirical evidence that trade increases on-the-job human capital accumulation by estimating the effect of home country openness on estimated returns to home country experience of U.S. immigrants. The positive effect of trade on on-the-job human capital accumulation remains significant when controlling for GDP, educational attainment, and institutional quality. It is not the result of self-selection, heterogeneity in returns to experience, English-speaking origin, or cultural background. The effect persists when restricting the sample to non-OECD countries, thereby resolving the theoretical ambiguity of whether trade increases or decreases learning-by-doing. The role of trade in generating economic growth is therefore likely to be more important than generally considered.

This study provides empirical evidence that trade increases on-the-job human capital accumulation by estimating the effect of home country openness on estimated returns to home country experience of U.S. immigrants. The positive effect of trade on on-the-job human capital accumulation remains significant when controlling for GDP, educational attainment, and institutional quality. It is not the result of self-selection, heterogeneity in returns to experience, English-speaking origin, or cultural background. The effect persists when restricting the sample to non-OECD countries, thereby resolving the theoretical ambiguity of whether trade increases or decreases learning-by-doing. The role of trade in generating economic growth is therefore likely to be more important than generally considered.

This study provides empirical evidence that trade increases on-the-job human capital accumulation by estimating the effect of home country openness on estimated returns to home country experience of U.S. immigrants. The positive effect of trade on on-the-job human capital accumulation remains significant when controlling for GDP, educational attainment, and institutional quality. It is not the result of self-selection, heterogeneity in returns to experience, English-speaking origin, or cultural background. The effect persists when restricting the sample to non-OECD countries, thereby resolving the theoretical ambiguity of whether trade increases or decreases learning-by-doing. The role of trade in generating economic growth is therefore likely to be more important than generally considered.

Excerpt from Competition and Human Capital Accumulation: A Theory of Interregional Specialization and Trade Marshall (1920) posits instead that the external economies arise from proximity to specialized inputs. As noted by Helpman and Krugman unless there is a natural comparative advantage for the production of these inputs in the region, this explanation is incomplete. The puzzle is simply rolled back to the previous production stage: Why do the producers of inputs locate in the region? Our theory is that the location decisions of the firms and their input suppliers are interdependent. Input suppliers find it advantageous to be located where they have several potential customers because competition among their downstream customers assures them a fair return. In the absence of such competition, the relatively immobile suppliers would be subject to the monopsony power of the downstream firms. Foreseeing that monopsony power would be used to drive down input prices, potential input suppliers would not choose to invest ex ante in the accumulation of the capital necessary to supply the inputs efficiently. This critical role of competition in securing a return to suppliers is one of the elements in Porter's (1989) broad treatise on regional agglomeration. For concreteness, the particular input we focus on is industry specific human capital which is costly for individuals to acquire, such as the specific hand-eye coordination needed to cut diamonds or the skills which facilitate the creation of a new chocolate concoction. If trained workers can choose among several potential employers, they will be paid as a function of their marginal product. By contrast, if there is only one potential employer, and it is impossible to write contracts that specify the level of training, there is no reason for this monopsonist to pay trained employees any more than untrained employees earn (in this industry or elsewhere). The hold-up problem described by Williamson (1975) arises. Confronted with the prospect of a single potential employer, workers do not find it worthwhile to accumulate human capital. Moreover, if entry by firms is costly, firms will themselves refrain from entering if they can expect to be the only firm in the industry. The industry can only exist with several closely located competitors. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.

This paper presents a multisector growth model where education enhances general human capital, which is essential for increasing or maintaining the mobility of workers across industries. The paper shows that education, combined with international trade, can affect growth positively in the long run by raising workers’ ability to adapt and move easily to industries with the greatest productivity in each period. Depending on the initial ratio of general-to-specific human capital stock, multiple equilibrium growth paths can exist, including a poverty trap. If the ratio is not substantially low, trade liberalization can allow an economy in a poverty trap to transform into one with continuous education and higher output growth.

The empirical literature on the contributions of human capital investments to economic growth shows mixed results. While evidence from OECD countries demonstrates that human capital accumulation is associated with growth accelerations, the substantial efforts of developing countries to improve access to and quality of education, as a means for skill accumulation, did not translate into higher income per capita. In this Element, we propose a framework, building on the principles of 'growth diagnostics', to enable practitioners to determine whether human capital investments are a priority for a country's growth strategy. We then discuss and exemplify different tests to diagnose human capital in a place, drawing on the Harvard Growth Lab's experience in different development context, and discuss various policy options to address skill shortages.

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