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Cost Shifting, Human Capital Accumulation and the Dynamic Effect of Trade
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TitleCost Shifting, Human Capital Accumulation and the Dynamic Effect of Trade  
AuthorHan Zhongliang  
OrganizationSchool of Economics, Peking University 
Key WordsCost Shifting; Human Capital Accumulation; Erosion Effect; Dynamic Effects of Trade 
AbstractIn this paper we combine the cost-shifting model from Han, 2011a and the theory of trade and endogenous growth to construct a new analytical framework towards the dynamic effects of trade, which is used to comprehensively investigate the evolution of the dynamic effects of trade in both developing and developed countries and analyze the corresponding difference between them from the perspective of the influence of trade and cost shifting on human capital accumulation. It is pointed out that cost shifting produced by developing countries in their participation of international trade significantly changes the impact path of human capital accumulation and its externalities. As the “erosion effect” of cost shifting on human capital accumulation becomes large enough, it might lead to the deterioration of the loss of dynamic welfare for developing countries and even the occurrence of the “tragedy of international trade”. Furthermore, the lower the level of factor endowments of a country is, the more likely it is to produce cost shifting and the corresponding tragic results. Thus, the research in this paper provides an effective tool for studying the effects of welfare of trade, enhancing factor endowments for a country and formulating the related trade policy to deal with cost shifting, all of which can help achieve the transformation of the development model for developing countries.  
Serial Numberwp158 
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