Growth gains from trade and education

A multi-sector general equilibrium model is presented where education enhances general human capital, which is essential for increasing or maintaining the mobility of workers across industries. The paper shows that international trade, combined with education, can have a positive growth effect by allowing workers to move easily to, and specialize in, the industry with the greatest productivity in each period, which enables an economy to grow in the long run at the growth rate of the industry with the most rapid technical progress. Depending on the initial ratio of general-to-specific human capital stock, multiple equilibrium growth paths can exist including a poverty trap, and trade liberalization can allow an economy in a poverty trap to transform into one with continuous education and higher output growth.