Why are a Third of People Indian and Chinese? Trade, Industrialization and Demographic Transition

This research argues that international trade has played a significant role in the timing of demographic transitions across countries and has thereby been a major determinant of the distribution of world population and a prime cause of sustained differences in population growth and income levels across countries. In industrial economies international trade enhanced the specialization in the production of skilled-intensive goods and stimulated technological progress. The rise in the demand for skilled labour induced an investment in the quality of the population, expediting the demographic transition, stimulating technological progress and further enhancing the comparative advantage of these industrial economies in the production of skilled intensive goods. In non-industrial economies, in contrast, the specialization in the production of unskilled-intensive goods that was brought about by international trade reduced the demand for skilled labour and provided limited incentives to invest in population quality. The demographic transition was therefore delayed, increasing further the abundance of unskilled labour in these economies and enhancing their comparative disadvantage in the production of skilled intensive goods. International trade has therefore widened the gap between the technological level as well as the skill abundance of industrial and non-industrial economies, enhancing the initial patterns of comparative advantage and generating sustained differences in income per capita across countries.