Trade, FDI, and Migration

Empirical work in this area is hampered by the lack of data. Therefore, a dataset combining trade, mode IV flows, and FDI in the service sectors will be created, as one element in the analysis of links between trade, FDI and migration.

Migration incentives in the context of regional trade/FDI agreements

A first project will explore migration incentives in the context of regional trade/FDI agreements, especially between rich and poor countries, dealing with agglomeration and the international location of economic activity. NAFTA has created a large economic zone where goods and capital can move freely, but labor cannot. Similarly, while the EU in theory includes movement of goods, services, capital, and persons, the most recent enlargement has seen restrictions placed on labor movements.

The project will examine the implications of restricting labor movements while allowing free movement of goods and capital. The impact on relative wages, and hence the impact on incentives for illegal migration, will also be highlighted as part of this exercise.

Interaction between trade/FDI restrictions in services and incentives for, implications of migration

A second project will explore the interaction between trade/FDI restrictions in services and the incentives for and implications of labor migration. Cross-border service transactions are likely to involve a mix of several modes of supply as defined in the GATS.

The issues to be explored analytically include interaction between FDI restrictions on the one hand, and the incentives for movement of persons and cross-border trade on the other. A second issue to explore is a mechanism that is not defined by the GATS where, as in the recent explosion of back office activity, firms engage in outward FDI (in Southern India for example) to facilitate the importation of services back to the home market (Southern California for example). Here, FDI interacts with skilled services trade in a way that makes inward FDI restrictions a barrier to the export of services. As such, inward FDI restrictions by service exporters may then drive skilled-labor migration, as may outward FDI restrictions by importers.

Javorcik, Ozden and Spatareanu investigate the linkages between migration and FDI flows using data on migration into the US and FDI by US firms abroad. They find that outflows of US FDI to a specific country, measured by volume of sales, total assets or number of employees, are significantly influenced by migrant stocks in the US of previous periods in that specific sector from that specific country. This paper identifies the importance of network effects and informational concerns for FDI flows.