The effects of trade liberalization on skill acquisition: a systematic review

• Pages: 74-95
• DOI: https://doi.org/10.1108/JITLP-08-2018-0036
• Published date: 14 May 2019
• Date: 14 May 2019
• Author: Sharon Zhengyang Sun,Samuel MacIsaac,Buck C. Duclos,Meredith B. Lilly
• Subject Matter: Strategy

The ef‌fects of trade

liberalization on skill acquisition:

a systematic review

Sharon Zhengyang Sun,Samuel MacIsaac,Buck C. Duclos and

Meredith B. Lilly

Norman Paterson School of International Affairs,

Carleton University, Ottawa, Canada

Abstract

Purpose –The benef‌its of tradeliberalization on upskilling and skill-basedwage premiums for high-skilled

workers have recently been questioned in policy circles, in part because of rising income inequality and

populist movements in developedeconomies such as the USA. The purpose of this paper is to determine the

effects of trade liberalizationon the relative supply and demand for skills.

Design/methodology/approach –Through the systematic review of the literature on trade and skill

acquisition,this paper isolates a total of 25 articles published overthe past two decades.

Findings –Key f‌indings demonstrate the importance of the relative development of the trading partner,

with more developed countries experiencing higher upskilling, while less developed countries experience

deskilling. Technology, geographic level of analysis, sector and gender were also found to be important

inf‌luenceson human capital acquisition associated with internationaltrade.

Originality/value –Overall, the authors f‌ind support for the idea that trade with developing countries

places pressure on low-skill jobsin developed countries but increasesthe demand for educated workers. The

implications of shifts in skills for public policy-making and in terms of the skill premium on wages are

discussed.

Keywords Trade, Skill acquisition, Relative demand for skills, Relative supply of skills,

Skill-biased technological change

Paper type Research paper

1. Introduction

The benef‌its of globalization offered by trade liberalization are increasingly being

questioned.From concerns over the purportedhollowing out of the middle classto the rise of

anti-tradeand anti-globalization populism, some are questioning the long-termconsequences

of trade on employment, wages and human capital in Western societies. While there is an

extensive literature on the effects of trade on labour market outcomes, much less is known

about how trade liberalization has impacted skill acquisition. How individuals make

educational choices to match the perceived demand for skillsby the market is crucial to our

understandingof how trade is impactingindividuals and theirhouseholds.

JEL classif‌ication –F14, F16, F66

The authors gratefully acknowledge research assistance from Fanny Siauw-Soegiarto who

contributed to the study design, data extraction and article assessment. The authors also gratefully

acknowledge assistance from Carleton University’s Research Support Services on the search strategy

for the systematic review, with additional assistance from Trish O’Flaherty. Finally, the authors

would like to thank the reviewers for their helpful comments and feedbacks.

JITLP

18,2

74

Received13 August 2018

Revised10 January 2019

26February 2019

Accepted26 February 2019

Journalof International Trade

Lawand Policy

Vol.18 No. 2, 2019

pp. 74-95

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-08-2018-0036

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1477-0024.htm

A thorough analysis of the effects of trade on domestic and international skill levels is

essential to appreciate the impacts across heterogeneous population segments and groups.

As the current US administration openly questions the value of trade, dissecting the

differential impacts of trade on domesticlabour markets are of an urgent concern. A deeper

understanding of both the benef‌its and costs of trade, isolatingit from other sectoral shifts

and technologicalchange, can shed light on future trade policy decisions.

As a country engages in increased trade, it should expect to incur shifts in the relative

demand for skills and educational attainment amongst its workers and f‌irms (Tolbert and

Sizer, 1996;Owen, 1999;Tsen,2007;Haq and Luqman, 2014;Autor et al.,2015;Atkin, 2016;

Greenland and Lopresti, 2016). Whetherthe opening of borders through trade liberalization

leads to more or less relative demand for skilled workers is, thus, an essential question in

addressing the relative supply of skilled labour.Of equal importance is the question of how

changes in trade openness may impact wage premiums when examining the scarce supply

of skilled labour.

The purpose of this article is to determinethe effects of trade, as opposed to those related

to technological change, on the relative supply and demand for skills. This article presents

the f‌indings of a systematic review of the peer-reviewed literature on the effects of trade

liberalization on the relative supply and demand for skills. The review addresses two sub-

questions:

Q1. How does trade liberalization alter skill acquisition through the relative supply of

skilled labour?

Q2. How does trade inf‌luence the relative demand for skills?

A systematic literature review lends itself well to situating this issue within the economic

literature and addressesthis still nascent policy topic.

To our knowledge, no systematic review exists on this subject and this article isthe f‌irst

to synthesize this body of research using this specif‌ic research methodology. Previous

studies focusing on inequality also tackle the issue of wage premium (Goldberg and

Pavcnik, 2007). However, the current systematic review focuses more narrowly on skill

acquisition in the empiricalliterature.

Given considerable heterogeneity across countries and economic sectors, in addition to

the complexity of disentanglingthe effects of trade from those of technology, understanding

the impacts of trade on human capital can be challenging.Not only are trade and technology

effects diff‌icult to isolate, but the potential interaction in developing countries between

technological spill-overs and capital-intensive imports complicates our research question.

Furthermore, the trade impacts alone vary across borders and sectors, with some

individuals upskilling to maximize their welfare and others deskilling where employment

reaps greater benef‌its. This article serves as a guide to reframe current debates on the

elements that have shaped the relative supply and demand for skills over the past decades

through a critical analysis of the literature. This article proceeds as follows. We brief‌ly

outline key theoretical issues underlying the debate and describe the methods applied to

address the research questions, followed by a synthesis of the results and policy

implications derivedfrom the interpretation of the f‌indings.

2. Theoretical framework

The seminal work by Findlay and Kierzkowski (1983) introduced a simple general

equilibrium model, which analyzedthe effects of human capital formation as a consequence

of both trade openness and tariff removal. Findlay and Kierzkowski’s model introduced a

The ef‌fects of

trade

liberalization

75