International Migration and the Global Economic Order:An Overview
42 Pages Posted: 20 Apr 2016
Date Written: November 2001
Global capitalism, vintage 21st century, is less friendly to the international migration of unskilled people than were previous waves of globalization (such as that of the late 19th century). A freer regime for international migration could help to reduce global economic inequality, improve the allocation of world resources, and ease labor shortages during periods of rapid growth. But the flight of human capital, talent, and entrepreneurs can be detrimental for developing countries.
Global capitalism, vintage early 21st century, favors the movement of goods and capital across national borders more than it does the movement of people. It was not always this way. The first wave of globalization, in the second half of the 19th century and the early 20th, came with massive international migration. Around 60 million people migrated from Europe to the countries of the New World (Argentina, Australia, Brazil, Canada, and the United States) over a period of 40 years or so. In a sense, current globalization has a smaller degree of "cosmopolitan liberalism" in the dimension of international migration.
While there is consensus on the benefits of an open trade regime and relatively liberal capital movements, that consensus rarely extends to the free movement of people. Solimano examines this difference in the "freedom to become global" by looking at both standard trade theory, basically the Mundell theorem of trade and migration as substitutes, and the ensuing analytical developments and empirical evidence around the Mundell result. He then looks at this asymmetry in today's global economic order from the perspective of freedom, individual rights, and transnational citizenship, as well as the potential of international migration to reduce global inequality.
Preventing factor (labor or human capital) movements from lower- to higher-productivity activities (countries) may entail a global welfare loss in terms of forgone world output (although the distributive consequences for sending and receiving countries vary). International migration tends to reduce income disparities across countries. But it can increase inequality within labor-scarce receiving countries by moderating the growth of wages, because of the associated increase in the supply of labor. In contrast, in sending countries emigration can have an equalizing effect by reducing the supply of labor and raising wages.
Still, international migration is bound to have a positive effect on long-run growth in receiving countries by keeping labor costs down, increasing the profitability of investment, and raising national savings. For sending countries, the impact on growth depends on the pool of labor and human resources that emigrate. In labor-abundant developing countries with chronic unemployment (or labor surplus), the growth-depressing effects of emigration can be small (compensated in part by labor remittances). Nevertheless, the emigration of highly educated people, professionals, and national investors can have a detrimental effect on long-run income levels and growth rates for sending countries.
From a global perspective, however, world output would be expected to increase if people could freely move across the planet from areas of low labor productivity to areas of high labor productivity. From the viewpoint of global economic freedoms, the result would be equally positive.
This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the process of globalization and its links with economic development. The author may be contacted at email@example.com.
Suggested Citation: Suggested Citation