Trade,development, and poverty-induced comparative advantage

This paper deals with the relation between trade and development when poverty affects individual decision making. We develop a two-sector model that links production and schooling decisions under poverty with standard neo-classical trade analyses. The decision to either work or acquire skills depends on households having reached subsistence levels of income, implying that the income level of a country becomes important in establishing comparative advantages and trade patterns. Trade liberalisation is always allocative efficient, but its timing is important for the speed by which countries industrialise. Our analysis supports the idea that there are instances that stalling trade liberalisation may serve industrial development.