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Trade, migration, and welfare : the impact of social capital

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Author Info
Schiff, Maurice

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Abstract

Despite the predictions of standard trade theory, countries in the North are not indifferent about free migration and free trade. Migration has become a major concern in some OECD (Organization for Economic Cooperation and Development) countries. But is migration really a threat? If free trade is optional, shouldn't free migration be optimal as well? Why do so many countries advocate free trade but [put]restrictions on international migration? Wellisch and Walz (1998) have shown that there is no inconsistency in advocating free trade at the same time as restricting migration under redistributive policies in the rich countries. The author argues that this holds in the presence of social capital as well. South-North migration affects social capital in both places. The movement of people differs from the movement of goods and services in that people create attachments with those with whom they share social capital (including norms, language, customs, values, and culture) and interact with them at lower cost. So migration generates externalities. The author identifies four types of externalities associated with migration. He examines the impact of trade and migration policies under alternative assumptions about internalizing these externalities and concludes that the South always gains by freeing trade and the North by controlling immigration. These policy recommendations improve the distribution of income by improving the welfare of labor relative to that of capital. Trade liberalization in the South results in higher wages (and social capital) and lower returns to capital. An immigration tax in the North has no impact on capital, but labor gains from collecting the tax (and from higher social capital).

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2044.

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Date of creation: 31 Jan 1999
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Handle: RePEc:wbk:wbrwps:2044

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Related research
Keywords: Voluntary and Involuntary Resettlement; Economic Theory&Research; Human Migrations&Resettlements; Public Health Promotion; Banks&Banking Reform; Voluntary and Involuntary Resettlement; Economic Theory&Research; Banks&Banking Reform; Human Migrations&Resettlements; Health Monitoring&Evaluation;

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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.:
  1. Paul Cashin & Ratna Sahay, 1995. "Internal Migration, Center-State Grants and Economic Growth in the States of India," IMF Working Papers 95/66, International Monetary Fund.
  2. Davis, D.R. & Weinstein, D.E., 1997. "Does Economic Geography Matter for International Specialization?," Papers 591, Harvard - Institute for International Development.
    Other versions:
  3. Borjas, George J, 1992. "Ethnic Capital and Intergenerational Mobility," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 123-50, February. [Downloadable!] (restricted)
    Other versions:
  4. Ruffin, Roy J., 1984. "International factor movements," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 5, pages 237-288 Elsevier. [Downloadable!] (restricted)
  5. Ramón López & Maurice Schiff, 1998. "Migration and the Skill composition of the Labor Force: The Impact of Trade Liberalization in LDCs," Canadian Journal of Economics, Canadian Economics Association, vol. 31(2), pages 318-336, May.
  6. Schaeffer, Peter V, 1995. "The Work Effort and the Consumption of Immigrants as a Function of Their Assimilation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 625-42, August. [Downloadable!] (restricted)
  7. Faini, Riccardo & Venturini, Alessandra, 1993. "Trade, aid and migrations: Some basic policy issues," European Economic Review, Elsevier, vol. 37(2-3), pages 435-442, April. [Downloadable!] (restricted)
  8. Baldwin, Richard & Venables, Anthony J, 1994. "International Migration, Capital Mobility and Transitional Dynamics," Economica, London School of Economics and Political Science, vol. 61(243), pages 285-300, August. [Downloadable!] (restricted)
  9. Edward J. Balistreri, 1997. "The Performance of the Heckscher-Ohlin-Vanek Model in Predicting Endogenous Policy Forces at the Individual Level," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 1-17, February. [Downloadable!] (restricted)
  10. Galor, Oded & Stark, Oded, 1990. "Migrants' Savings, the Probability of Return Migration and Migrants' Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May. [Downloadable!] (restricted)
  11. Wellisch, Dietmar & Walz, Uwe, 1998. "Why do rich countries prefer free trade over free migration? The role of the modern welfare state," European Economic Review, Elsevier, vol. 42(8), pages 1595-1612, September. [Downloadable!] (restricted)
  12. Andreoni, James, 1995. "Cooperation in Public-Goods Experiments: Kindness or Confusion?," American Economic Review, American Economic Association, vol. 85(4), pages 891-904, September. [Downloadable!] (restricted)
  13. Barro, Robert T. & Sala-I-Martin, Xavier, 1992. "Regional growth and migration: A Japan-United States comparison," Journal of the Japanese and International Economies, Elsevier, vol. 6(4), pages 312-346, December. [Downloadable!] (restricted)
  14. Dani Rodrik, 1988. "Imperfect Competition, Scale Economies, and Trade Policy in Developing Countries," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 109-144 National Bureau of Economic Research, Inc. [Downloadable!]
  15. Panagariya, Arvind & Schiff, Maurice, 1994. "Can revenue maximizing export taxes yield higher welfare than welfare maximizing export taxes?," Economics Letters, Elsevier, vol. 45(1), pages 79-84, May. [Downloadable!] (restricted)
  16. repec:fth:michin:403 is not listed on IDEAS
  17. Zimmermann, Klaus F, 1995. "Tackling the European Migration Problems," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 45-62, Spring. [Downloadable!] (restricted)
  18. Francois, Joseph F, 1994. "Global Production and Trade: Factor Migration and Commercial Policy with International Scale Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 565-81, August. [Downloadable!] (restricted)
  19. Helpman, Elhanan, 1984. "Increasing returns, imperfect markets, and trade theory," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 7, pages 325-365 Elsevier. [Downloadable!] (restricted)
  20. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, vol. 85(5), pages 1029-46, December. [Downloadable!] (restricted)
  21. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  22. Venables, Anthony J., 1985. "International Trade, Trade and Industrial Policy and Imperfect Competition: A Survey," CEPR Discussion Papers 74, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Stephen Drinkwater & Paul Levine & Emanuela Lotti & Joseph Pearlman, 2003. "The Economic Impact of Migration: A Survey," Department of Economics Discussion Papers 0103, Department of Economics, University of Surrey. [Downloadable!]
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