Throughout economic history there have been episodes in which the liberalization of trade has been accompanied by a positive flow of migrants. Such phenomena are notable because they contradict the basic Heckscher-Ohlin conclusion that trade and labor mobility are substitutes. Also notable is the fact that migrants to the U.S. have been largely skilled rather than unskilled. This paper links these two phenomena by pointing out the simple fact that increased trade can involve different types of firm structures and different types of goods being traded, which in turn have different effects on skilled and unskilled labor. The interaction between different frictions that impact labor movements, specifically the interaction between capital adjustment costs and trade costs, has a significant effect on the gap between the returns to labor in the South and North. Although the decrease in trade costs and increase in trade dampens labor movements, the existence of asymmetric capital adjustment costs in the North and South increases it. To show these results formally, this paper calibrates and solves a two-country, two-sector model of trade and migration, in which countries differ in skill endowments and capital adjustment costs and sectors differ in structures and capital intensities. Empirical analysis is then provided, with results supporting the main qualitative implications of the model.
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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number
2009-35.
Length: 36 pages Date of creation: Oct 2009 Date of revision: Handle: RePEc:uct:uconnp:2009-35
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Find related papers by JEL classification: F16 - International Economics - - Trade - - - Trade and Labor Market Interactions F22 - International Economics - - International Factor Movements and International Business - - - International Migration F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business E2 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Paul R. Bergin & Robert C. Feenstra & Gordon H. Hanson, 2007.
"Outsourcing and Volatility,"
NBER Working Papers
13144, National Bureau of Economic Research, Inc.
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Bergin, Paul & Feenstra, Robert & Hanson, Gordon, 2006.
"Outsourcing and Volatility,"
Working Papers
06-28, University of California at Davis, Department of Economics.