Trade, Firm Structure, and Migration of Talent

Maroula Khraiche
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Maroula Khraiche: University of Connecticut

No 2009-35, Working papers from University of Connecticut, Department of Economics

Abstract: Throughout economic history there have been episodes in which the liberalization of trade has been accompanied by a positive flow of migrants. Such phenomena are notable because they contradict the basic Heckscher-Ohlin conclusion that trade and labor mobility are substitutes. Also notable is the fact that migrants to the U.S. have been largely skilled rather than unskilled. This paper links these two phenomena by pointing out the simple fact that increased trade can involve different types of firm structures and different types of goods being traded, which in turn have different effects on skilled and unskilled labor. The interaction between different frictions that impact labor movements, specifically the interaction between capital adjustment costs and trade costs, has a significant effect on the gap between the returns to labor in the South and North. Although the decrease in trade costs and increase in trade dampens labor movements, the existence of asymmetric capital adjustment costs in the North and South increases it. To show these results formally, this paper calibrates and solves a two-country, two-sector model of trade and migration, in which countries differ in skill endowments and capital adjustment costs and sectors differ in structures and capital intensities. Empirical analysis is then provided, with results supporting the main qualitative implications of the model.

Keywords: International migration; multinational firms; capital adjustment cost. (search for similar items in EconPapers)
JEL-codes: F16 F22 F23 E2 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-int and nep-mig
Date: 2009-10

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Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2009-35

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