The Political Economy of Trade and International Labor Mobility
98 Pages Posted: 29 Aug 2018
Date Written: August 13, 2018
We explore the political economy of trade and migration policies in several models of international trade. We show that in a Ricardian world, free trade and no international labor mobility is a Nash equilibrium outcome, but free trade and free international labor mobility is not. The result holds under diﬀerent assumptions about the set of goods, preferences and the number of countries. An analogous result also holds in multifactor economies such as: a version of the standard two-sector Hercksher-Ohlin model, the Ricardo-Vinner speciﬁc factors model, and a three-sector model with a non-tradeable sector. We also study three extensions of our model in which free trade and at least partial labor mobility is a Nash equilibrium outcome. One extension introduces increasing returns to scale. Another an extractive elite. Finally, we allow the recipient country to charge an immigration fee in the form of an income tax and distribute the proceeds among domestic workers, which induces a Pareto improvement for the global economy.
Keywords: International Trade, Labor Mobility, Trade Policy, Migration Policy
JEL Classification: D78, F13, F22
Suggested Citation: Suggested Citation