Abstract:

This paper studies the impact of trade openness on welfare through alterations in workers' skill acquisition. Guided by empirical evidence, we integrate endogenous choices of learning investments into a multisector Eaton–Kortum model. Our model reveals that trade openness influences skill acquisition by two channels: (1) reallocating labor between sectors with varying skill intensities and on-the-job learning opportunities and (2) allowing producers in each country to source varieties from more cost-effective suppliers in other countries, thus reducing costs of material inputs for learning. Our quantification indicates that the gains in skill acquisition account for 5% of the total gains from trade.