Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?
41 Pages Posted: 16 Jan 2003 Last revised: 26 Oct 2022
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Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?
Distance, Skill Deepening and Development: Will Peripheral Countries Ever Get Rich?
Date Written: January 2003
Abstract
This paper models the relationship between countries' distance from global economic activity, endogenous investments in education, and economic development. Firms in remote locations pay greater trade costs on both exports and intermediate imports, reducing the amount of value added left to remunerate domestic factors of production. If skill-intensive sectors have higher trade costs, more pervasive input-output linkages, or stronger increasing returns to scale, we show theoretically that remoteness depresses the skill premium and therefore incentives for human capital accumulation. Empirically, we exploit structural relationships from the model to demonstrate that countries with lower market access have lower levels of educational attainment. We also show that the world's most peripheral countries are becoming increasingly remote over time.
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