Kaldorian Disaggregation, Temporary Migration and Welfare: Theory and Calibration

Abstract

In this paper we examine a four‐good, four‐factor model of trade with two agents: domestic residents and temporary migrants. This modelling framework has three important features: first, there are two tradable and two non‐tradable goods; second, there exists Kaldorian disaggregation in consumption; third, the structure incorporates a combination of price adjustment. The results emphasize the influence of factor accumulation at constant traded goods prices on the variable prices of non‐traded goods. We also analyse the impact of temporary migration and other structural parameters on domestic welfare. To highlight our results, our model is calibrated on a typical small open economy, Hong Kong, and a wide array of situations are presented when temporary migration and Kaldorian disaggregation can reduce domestic welfare in response to exogenous shocks.