Human capital, quality and trade

This paper develops a simple general equilibrium model of international trade based on vertical product differentiation and sector semi-specific human capital. The consequences on production and factor markets of a terms of trade shock are analyzed. The framework incorporates the hypotheses that higher quality products require a higher content of skill and that human capital is imperfectly mobile between sectors. The model is capable of explaining some stylized facts that cannot be captured by the conventional theory, in particular it explains the evolution of the international specialization observed for some countries in which unskilled intensive sectors have not been retrenched by the increased competition from developing countries.