Working Paper: NBER ID: w13631
Authors: Susana Iranzo; Giovanni Peri
Abstract: Two prominent features of globalization in recent decades are the remarkable increase in trade and in migratory flows between industrializing and industrialized countries. Due to restrictive laws in the receiving countries and high migration costs, the increase in international migration has involved mainly highly educated workers. During the same period, technology in developed countries has become progressively more skill-biased, increasing the productivity of highly educated workers more than less educated workers. This paper extends a model of trade in differentiated goods to analyse the joint phenomena of migration and trade in a world where countries use different skill-specific technologies and workers have different skill levels (education). We calibrate the model to match the features of the Western European countries (EU-15) and the new Eastern European members of the EU. We then simulate the effects of freer trade and higher labor mobility between the two regions. Even in a free trade regime the removal of the restrictions on labor movements would benefit Europe as a whole by increasing the GNP of Eastern and Western Europe. Interestingly, we also find that the resulting skilled migration (the so-called "brain drain") from Eastern European countries would not only benefit the migrants but, through trade, could benefit the workers remaining in Eastern Europe as well.
Keywords: migration; trade; technological differences; eastern european integration; western european integration
JEL Codes: F16; F22; J31; J61; O52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| removal of restrictions on labor movements (J61) | increase GNP of both Eastern and Western Europe (O52) |
| skilled migration from Eastern Europe to Western Europe (F22) | benefits for migrants and remaining workers in Eastern Europe (J68) |
| skilled migration from Eastern Europe to Western Europe (F22) | productivity gains in the West (O49) |
| migration (F22) | lower prices for consumers in both regions (P22) |
| increased competition from Eastern immigrants (J69) | negative impact on highly educated workers in the West (F66) |
| migration (F22) | changes in wage structures and consumption patterns in both regions (F61) |