The Political Economy of Trade and Labor Mobility in a Ricardian World

66 Pages Posted: 10 Jun 2015 Last revised: 8 Mar 2016

See all articles by Sebastian Galiani

Sebastian Galiani

University of Maryland - Department of Economics

Gustavo Torrens

Indiana University

Multiple version iconThere are 2 versions of this paper

Date Written: March 2016

Abstract

We explore the political economy of trade and labor mobility in a Ricardian world. We combine a Ricardian economy with a simple international political economy model as a basis for the determination of trade and labor mobility policies. We show that free trade can induce partial convergence, divergence or even a reversal of fortune in terms of the well-being of workers in every country, while free trade and free labor mobility lead to full convergence. We also show that free trade and no labor mobility is a Nash equilibrium of the political game, but free trade and free labor mobility is not. Thus, in a Ricardian world, the lack of convergence in levels of well-being across countries can be attributed to an international political equilibrium that blocks free labor mobility. We verify our main results under several variants of a Ricardian economy, including different assumptions about the set of goods, preferences and the number of countries involved. We also study two extensions of our model in which free trade and at least partial labor mobility is a Nash equilibrium of the political game. One extension introduces increasing returns to scale while the other an extractive elite.

Keywords: International Trade, Labor Mobility, Trade Policy, Migration Policy, Covergence

JEL Classification: D78, F13, F22

Suggested Citation

Galiani, Sebastian and Torrens, Gustavo, The Political Economy of Trade and Labor Mobility in a Ricardian World (March 2016). Available at SSRN: https://ssrn.com/abstract=2616473 or http://dx.doi.org/10.2139/ssrn.2616473

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

Gustavo Torrens

Indiana University ( email )

Wylie Hall, 100 S Woodland Ave
Bloomington, IN 47405-7104
United States
8128568131 (Phone)

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