How does skill distribution shape comparative advantage across industries? Theory and evidence

Abstract This paper revisits the role of skill distribution in shaping regional comparative advantage. Theoretically, we show that it is the relative skill dispersion between exporters and importers, rather than the absolute skill dispersion of exporters, that matters for the pattern of international trade. Using industry-level data on Chinese provincial export flows, we demonstrate that regions with a more dispersed skill distribution relative to their trading partners export more goods produced by sectors with lower skill complementarity. Exploring the potential mechanisms, we further find that the trade-promoting effect from relative skill dispersion probably operates through improving product quality and diversity.