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Reconciling the Pattern of Trade with the Pattern of Migration

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  • James E. Rauch

Abstract

Empirical studies have consistently found that skilled-labor abundant countries tend to export skilled-labor intensive manufactured goods. Yet these countries also have higher wages for skilled workers, causing them to be net importers through migration of skilled labor from unskilled-labor abundant countries (the "brain drain"). A new explanation is presented for this combination of comparative and absolute advantage in skilled-labor abundant countries: if only skilled (educated) individuals can become managers, then given the same underlying distribution of managerial talent the country that is more poorly endowed with skilled labor must use a less talented manager at the margin in order to fully employ its work force. This causes wages for unskilled workers and skilled individuals who choose to become employees to be lower in the unskilled-labor abundant country while incomes of skilled individuals talented enough to become managers are lower (for a given talent level) in the skilled-labor abundant country. The consequences of the resulting migration of unskilled and skilled employees to the skilled-labor abundant country and managers to the unskilled-labor abundant country are then examined. There are several surprises: for example, migration of unskilled labor to the skilled-labor abundant country leads to a fall in the wages of both unskilled and skilled workers there and a rise in the wages of both unskilled and skilled workers in the country of origin.

Suggested Citation

  • James E. Rauch, 1991. "Reconciling the Pattern of Trade with the Pattern of Migration," NBER Working Papers 3605, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:3605
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    Cited by:

    1. Silva, André C., 2010. "Managerial ability and capital flows," Journal of Development Economics, Elsevier, vol. 93(1), pages 126-136, September.
    2. Spiros Bougheas & Douglas R. Nelson, 2012. "Skilled Worker Migration and Trade: Inequality and Welfare," The World Economy, Wiley Blackwell, vol. 35(2), pages 197-215, February.
    3. Commander, Simon & Kangasniemi, Mari & Winters, L. Alan, 2003. "The Brain Drain: Curse or Boon?," IZA Discussion Papers 809, Institute for the Study of Labor (IZA).
    4. Schmitt, Nicolas & Soubeyran, Antoine, 2006. "A simple model of brain circulation," Journal of International Economics, Elsevier, vol. 69(2), pages 296-309, July.
    5. Baruch, Yehuda & Budhwar, Pawan S. & Khatri, Naresh, 2007. "Brain drain: Inclination to stay abroad after studies," Journal of World Business, Elsevier, vol. 42(1), pages 99-112, March.
    6. Andreas Hatzigeorgiou & Magnus Lodefalk, 2016. "Migrants’ Influence on Firm-level Exports," Journal of Industry, Competition and Trade, Springer, vol. 16(4), pages 477-497, December.
    7. Giannetti, Mariassunta, 2003. "On the mechanics of migration decisions: skill complementarities and endogenous price differentials," Journal of Development Economics, Elsevier, vol. 71(2), pages 329-349, August.
    8. Iranzo, Susana & Peri, Giovanni, 2009. "Migration and trade: Theory with an application to the Eastern-Western European integration," Journal of International Economics, Elsevier, vol. 79(1), pages 1-19, September.
    9. Rauch, James E., 2010. "Development through synergistic reforms," Journal of Development Economics, Elsevier, vol. 93(2), pages 153-161, November.
    10. Weel, Bas ter, 1999. "Investing in Knowledge: On the Trade-Off between R&D, ICT, Skills and Migration," Research Memorandum 024, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    11. Hatzigeorgiou, Andreas & Lodefalk, Magnus, 2017. "Anti-Migration as a Threat to Internationalization?," Ratio Working Papers 302, The Ratio Institute.
    12. Hatzigeorgiou, Andreas & Karpaty, Patrik & Kneller, Richard & Lodefalk, Magnus, 2016. "Do Immigrants Spur Offshoring? Firm-Level Evidence," Working Papers 2016:7, Örebro University, School of Business.
    13. M.A.B. Siddique, 2006. "Immigration and Trade: How Important is the link? Evidence from Australia," Economics Discussion / Working Papers 06-08, The University of Western Australia, Department of Economics.
    14. Dunlevy, James A. & Hutchinson, William K., 2001. "The Pro-Trade Effect of Immigration on American Exports During the Late Nineteenth and Early Twentieth Centuries," IZA Discussion Papers 375, Institute for the Study of Labor (IZA).
    15. Ariel T. Burstein & Alexander Monge-Naranjo, 2009. "Foreign Know-How, Firm Control, and the Income of Developing Countries," The Quarterly Journal of Economics, Oxford University Press, vol. 124(1), pages 149-195.

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