ABSTRACT:
Recent years have witnessed a world-wide increase in service trade, with a large part of it driven
by high-tech service offshoring from developing countries. I present a new quantitative spatial equilibrium framework to study how the rise of high-tech service offshoring changed the pattern of education acquisition in developing countries. The general equilibrium
setting of the model provides a tractable tool to analyze how the changing patterns of education, in turn, affect sectors of production and service off-shoring. The connection between sectors of production and fields of education is that each sector differs
in its demand for workers with particular training and skill levels. For example, workers with an electrical engineering degree is more valuable in the Information Technology (IT) sector than in the Pharmacy sector. Existing spatial equilibrium models have
ignored the connection between industry growth fueled by sector-specific trade shocks and the heterogeneous effects
of these shocks on different fields of education. Using the model, I study how the rise in IT industry in India, fueled by off-shoring demand from abroad, changed India’s educational outcomes, employment and wages across regions.