Migration and FDI: Reconciling the standard trade theory with empirical evidence

Hubert Jayet and Léa Marchal ()

No 2039, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: This article focuses on an apparent conflict between the standard trade theory and available empirical evidence on factor flows. Theoretically, labor and capital flows must be substitutes. However, empirical papers find migration and FDI to be either substitutes or complements, depending upon the skill content of migration. To reconcile the standard theory with these empirical results, we develop a two-country general equilibrium model. We consider three factors - capital, unskilled and skilled labor - and two internationally traded goods. Countries only differ in their factor endowments. The first country is a developing country amply endowed with unskilled labor; the second one is a developed country well endowed with skilled labor. Under imperfect factor mobility, we find that capital and unskilled labor flows are substitutes, while capital and skilled labor flows are complements.

Keywords: Capital flows; Migration; Skills; Standard trade theory (search for similar items in EconPapers)
JEL-codes: F11 F21 F22 J61 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int, nep-lab and nep-mig
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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https://www.econstor.eu/bitstream/10419/140903/1/859630714.pdf (application/pdf)

Related works:
Journal Article: Migration and FDI: Reconciling the standard trade theory with empirical evidence (2016)
Working Paper: Migration and FDI: Reconciling the standard trade theory with empirical evidence (2016)
Working Paper: Migration and FDI: Reconciling the standard trade theory with empirical evidence (2016)
Working Paper: Migration and FDI: Reconciling the standard trade theory with empirical evidence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2039

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