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Reconciling the Pattern of Trade with the Pattern of Migration

  • James E. Rauch

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3605.

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Date of creation: Jan 1991
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Publication status: published as The American Economic Review, Vol. 81, No. 4, pp. 775-796, (September 1991)
Handle: RePEc:nbr:nberwo:3605
Note: ITI LS IFM
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  1. Grossman, G.M. & Helpman, E., 1989. "Endogemour Product Cycles," Papers 10-89, Tel Aviv.
  2. Calvo, Guillermo A & Wellisz, Stanislaw, 1980. "Technology, Entrepreneurs, and Firm Size," The Quarterly Journal of Economics, MIT Press, vol. 95(4), pages 663-77, December.
  3. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  4. Grossman, G.M. & Helpman, E., 1989. "Endogenous Prduct Cycles," Papers 144, Princeton, Woodrow Wilson School - Public and International Affairs.
  5. George J. Borjas, 1987. "Self-Selection and the Earnings of Immigrants," NBER Working Papers 2248, National Bureau of Economic Research, Inc.
  6. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April.
  7. Bowen, Harry P, 1983. "Changes in the International Distribution of Resources and Their Impact on U.S. Comparative Advantage," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 402-14, August.
  8. Greenwood, Michael J & McDowell, John M, 1986. "The Factor Market Consequences of U.S. Immigration," Journal of Economic Literature, American Economic Association, vol. 24(4), pages 1738-72, December.
  9. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  10. Balassa, Bela, 1979. "The Changing Pattern of Comparative Advantage in Manufactured Goods," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 259-66, May.
  11. Findlay, Ronald & Kierzkowski, Henryk, 1983. "International Trade and Human Capital: A Simple General Equilibrium Model," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 957-78, December.
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