Working Paper: NBER ID: w21274
Authors: Sebastian Galiani; Gustavo Torrens
Abstract: We explore the political economy of trade and migration policies in several models of international trade. We show that in a Ricardian world, free trade and no international labor mobility is a Nash equilibrium outcome, but free trade and free international labor mobility is not. The result holds under different assumptions about the set of goods, preferences and the number of countries. An analogous result also holds in multifactor economies such as: a version of the standard two-sector Heckscher-Ohlin model, the Ricardo-Vinner specific factors model, and a three-sector model with a non-tradeable sector. We also study three extensions of our model in which free trade and at least partial labor mobility is a Nash equilibrium outcome. One extension introduces increasing returns to scale. Another an extractive elite. Finally, we allow the recipient country to charge an immigration fee in the form of an income tax and distribute the proceeds among domestic workers, which induces a Pareto improvement for the global economy.
Keywords: No keywords provided
JEL Codes: F13; F22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Free Trade + No Labor Mobility (F16) | Nash Equilibrium (C72) |
| Free Trade + Free Labor Mobility (F16) | Not Nash Equilibrium (C72) |
| Domestic Workers Blocking Labor Mobility (J61) | Reduced Wages (J31) |
| Free Trade (F19) | Divergence in Wages (J31) |
| Immigration Fee (K37) | Free Trade + Free Labor Mobility as Nash Equilibrium (F16) |
| Trade Gains (F19) | Conflicting Interests Among Domestic Workers and Elites (J82) |
| Conflicting Interests Among Domestic Workers and Elites (J82) | Preference for Restricting Labor Mobility (J61) |