Chapter 12: Trade Openness and Skill Formation: Some Theoretical Issues in Relation to Less Developed Economy

This chapter is intended to investigate the ramifications of foreign trade regime on the technological front in relation with the impact of between trade liberalization on the process of skill formation in dual economy setting and thereby, the wage dynamics facing the skilled and unskilled labor. The ideation toward this end is owed to the seminal literature concerning the connection between free trade and economic dualism, general and the implication of such nexus on skilling process, in particular. Hence, based on the above dispensation, it may be possible to analyze the consequence of free trade on knowledge economy (wherein, the knowledge essentially purports to technical skill, proficiency in various aspects of work and perhaps, to some extent, the case of innovation) and additionally, what it impinges on welfare and economic development for less developed countries. The theoretical underpinning of the baseline model is based basically on the dualistic structure of the economy with regional specifications of the factors. In this framework, it has been examined that under the condition liberal trade policy in a less developed country, featured by reduced tariff, how it makes up for the formation of knowledge capital in the presence of technology-intensive export sector employed skilled and, in such process, if wage inequality gets exacerbated or otherwise. This is further drawn to investigating the implicit change in the propensity of rural–urban migration of unskilled labor, consequent upon the escalation openness to foreign trade; in what holds out significantly as regards the persistence of economic dualism, in general and balanced growth phenomenon between urban and rural sectors, in particular.