Environmental Economics & Policies; Economic Theory & Research; Banks & Banking Reform; Free Trade; Health Monitoring & Evaluation
Labor Markets & Employment
Summary: In the standard Heckscher-Ohlin model, trade and migration are substitutes (that is, migration decreases with trade liberalization). The authors add four factors to the standard Heckscher-Ohlin model: labor skill levels (skilled or unskilled), international labor mobility, migration costs, and financing constraints. They examine two types of simulation. Case one applies to countries in the post-demographic transition stage, with a stable population. This includes countries of Eastern Europe and the former Soviet Union. Case two applies to countries with rapidly growing populations, such as Egypt, El Salvador, Mexico, and Morocco. In case one, trade liberalization raises emigration of the unskilled (and has no effect on emigration of the skilled), while greater protection raises emigration of the skilled (and has no effect on emigration of the unskilled). That is, any change in trade policy raises total emigration, but trade liberalization improves the average skill level of the labor force and increased protection lowers it. In case two, trade liberalization raises emigration of the unskilled and reduces emigration of the skilled. That is, the average skill level rises and the net effect on total emigration is ambiguous. The opposite occurs with increased protection. In both cases, the average skill level of the population falls when protection increases in the presence of international migration, high migration costs, and financing constraints. Under the same circumstances, the skill level rises under trade liberalization.
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