with Axelle Ferriere and Gaston Navarro

Investing in education serves as a margin of adjustment for future workers given the relative negative impact that trade can have on low-skill jobs. However, not all future generations of workers may have the resources to make such investments. In this paper, we exploit variation in exposure to import penetration shocks across space in the United States to show that greater import penetration increases college enrollment and that this increase is driven by future workers in richer households. To analyze the welfare implications of the effects of trade openness on college enrollment, we propose a dynamic multi-region model of international trade with heterogeneous agents. The model features incomplete credit markets and costly endogenous skill acquisition. We calibrate the model to match changes in aggregate trade data for the United States and differential import exposure across U.S. regions. Lower import barriers generate an increase in college enrollment and welfare gains for all workers in the long run. However, these gains are concentrated on workers with a college education, whose welfare gains are twice as large as those of non-college workers. Increasing college enrollment for new cohorts over time plays a crucial role in allowing new generations of workers to escape the potential welfare losses from trade. Poor dynasties take the longest to acquire skills and are therefore the last to experience positive gains from trade openness. An entire generation may not realize any gains within a life-time.

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