Trade and the allocation of talent with capital market imperfections

► We develop a model of trade liberalization with optimal talent allocation. ► Trade affects occupational choices by affecting agents' participation and credit constraints. ► This triggers a compositional change in the skilled and unskilled labor force. ► We show that trade may increase the skill premium in a skill‐scarce country. ► This can help explaining the impact of trade on wage inequality in the 1980s and 1990s.