Economic opening and the demand for skills in developing countries

Abstract

A policy reform such as trade liberalisation can accelerate structural change in an economy, causing an exogenous shift in relative factor demands. For some developing countries, the result may be an increase in skills demand associated with the adoption of newly available foreign technology and lower-cost imported capital goods. This demand shift may be permanent or only temporary, but in either case the skills supply should eventually increase in response to higher returns. One concern, however, is that with an initially highly skewed distribution of education the skilled labour supply adjustment may be prolonged; likewise any transitional increase in skill-based wage inequality.

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