Social cohesion and governance. The impact of foreign trade on wage differentials and the accumulation of human capital under different paradigms of integration

Abstract

This paper analyzes the impact of international trade, on both, wages differential between skilled and unskilled workers, and human capital accumulation, under alternative integration paradigms–i.e. Open regionalism, and New regionalism. Under the assumption that trade driven by integration, changes the relative return to skills, we show a model where based on wage differential (among other things), non skilled workers make decisions to accumulate human capital, leading to changes in social cohesion, that in turn, impacts gobernability, both within and between countries. The model is contrasted empirically, confirming the theoretical conclusions.