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 twosector 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 im­ portant for the speed by which countries industrialise as well as for global efficiency. Our analysis support the idea that there are in­ stances that stalling trade liberalisation may serve poverty alleviation and global efficiency at the same time. *We would like to thank participants of the DEGIT X conference in Mexico City for their useful comments and suggestions. y Corresponding author. Please address all correspondence to: A. de Vaal, Nijmegen School of Management, Department of Economics, Radboud University Nijmegen, P.O. Box 9108, 6500 HK Nijmegen, the Netherlands. Email: [email protected].