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Emigration and Wages in an Open Economy: Some Evidence from Pakistan

  • Zafar Mahmood

    (Pakistan Institute of Development Economics, Islamabad.)

This paper examines the impact of labour emigration on the wages of both the skilled and unskilled workers. The paper is based on a 3 X 3 trade-theoretic model, where a subset of the goods produced are traded at internationally fixed prices. The results of the model hinge crucially on the intensities of the factors used 'within' the traded goods sectors of the economy. Using the Pakistani data, it is found that unskilled labour is used extremely intensively in the agriculture sector (exportable), skilled labour is used extremely intensively in the manufacturing sector (importable), and capital is used as the middle factor in both the traded goods sectors. Moreover, capital is used significantly less intensively in the construction (non-traded) sector relative to both the traded sectors. Based on the estimated relative factor intensities, the model predicts that emigration of either skilled or unskilled workers from Pakistan, in the long run, would benefit (in nominal as well as real terms) both the skilled and unskilled workers and hurt the owners of capital. The results suggest that the higher wages to both the skilled and unskilled workers must be compensated by a reduction in the rate of returns to capital if export-oriented and import-competing sectors in Pakistan are to remain internationally competitive.

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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 30 (1991)
Issue (Month): 3 ()
Pages: 243-262

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Handle: RePEc:pid:journl:v:30:y:1991:i:3:p:243-262
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  1. Bhagwati, Jagdish & Hamada, Koichi, 1974. "The brain drain, international integration of markets for professionals and unemployment : A theoretical analysis," Journal of Development Economics, Elsevier, vol. 1(1), pages 19-42, April.
  2. Djajic, Slobodan, 1986. "International migration, remittances and welfare in a dependent economy," Journal of Development Economics, Elsevier, vol. 21(2), pages 229-234, May.
  3. Ruffin, Roy J., 1981. "Trade and factor movements with three factors and two goods," Economics Letters, Elsevier, vol. 7(2), pages 177-182.
  4. Rivera-Batiz, Francisco L., 1982. "International migration, non-traded goods and economic welfare in the source country," Journal of Development Economics, Elsevier, vol. 11(1), pages 81-90, August.
  5. Jones, Ronald W & Scheinkman, Jose A, 1977. "The Relevance of the Two-Sector Production Model in Trade Theory," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 909-35, October.
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