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

  • Schiff, Maurice

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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  1. 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.
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  4. 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.
  5. Paul Cashin & Ratna Sahay, 1996. "Internal Migration, Center-State Grants, and Economic Growth in the States of India," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 123-171, March.
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  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. Andreoni, James, 1995. "Cooperation in Public-Goods Experiments: Kindness or Confusion?," American Economic Review, American Economic Association, vol. 85(4), pages 891-904, September.
  12. 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.
  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.
  14. 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.
  15. Klaus F. Zimmermann, 1995. "Tackling the European Migration Problems," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 45-62, Spring.
  16. George J. Borjas, 1991. "Ethnic Capital and Intergenerational Mobility," NBER Working Papers 3788, National Bureau of Economic Research, Inc.
  17. 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.
  18. 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.
  19. Robert S. Chirinko, 1990. "Altruism, Egoism, And The Role Of Social Capital In The Private Provision Of Public Goods," Economics and Politics, Wiley Blackwell, vol. 2(3), pages 275-290, November.
  20. 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.
  21. 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.
  22. Edward P. Lazear, 1995. "Culture and Language," NBER Working Papers 5249, National Bureau of Economic Research, Inc.
  23. 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.
  24. 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.
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