Trade, migration costs and asymmetric migration patterns

• Published date: 01 September 2019
• Author: Rajat Acharyya,Saibal Kar,Hamid Beladi
• DOI: http://doi.org/10.1111/twec.12832
• Date: 01 September 2019

World Econ. 2019;42:2629–2648. wileyonlinelibrary.com/journal/twec

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2629

© 2019 John Wiley & Sons Ltd

Received: 4 October 2018

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Revised: 9 May 2019

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Accepted: 22 May 2019

DOI: 10.1111/twec.12832

ORIGINAL ARTICLE

Trade, migration costs and asymmetric migration

patterns

RajatAcharyya1

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HamidBeladi2

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SaibalKar3,4

1Department of Economics,Jadavpur University, Kolkata, India

2University of Texas at San Antonio, San Antonio, Texas, USA

3Centre for Studies in Social Sciences, Calcutta, India

4IZA, Bonn, Germany

KEYWORDS

asymmetric emigration, migration cost, quotas, skill, trade

1

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INTRODUCTION

This paper examines the pattern of emigration of skilled and unskilled workers from a small open economy

liberalising its commodity trade with the external world. A number of earlier studies offered conditions

under which trade and migration of labour are complements rather than substitutes, at least in the short run

(i.e. Chau, 1997; Schiff, 1994; obtaining multiple steady state migration equilibria given variations in mi-

gration cost; Kugler & Rapoport, 2011; Lopez & Schiff, 1998; Marjit & Beladi, 2002; Narayan & Smyth,

2006; Schiff, 2006). This implies that trade liberalisation will temporarily lead to more migration, not less,

and create a short‐run migration hump, because trade could relax budget constraints facing potential mi-

grants, or that it could lead to unemployment of specific types of labour. 1

Interestingly, Brecher and Chen

(2010) showed that unemployment rates of skilled and unskilled labour go in opposite directions subject to

trade, migration and outsourcing between countries with non‐uniform unemployment benefits or other

differences. Similarly, a policy like outsourcing affects unskilled workers (in Europe) negatively or posi-

tively, based on a short‐run or long‐run time horizon (Egger & Egger, 2006). However, most of these

studies do not explore as to how trade affects flow of migration by skill types.

1 See Acharyaa and Kar (2014, Chapter 5) for a detailed review. In many earlier studies using the Harris–Todaro models with

surplus labour, emigration does not increase domestic wages. It has since been argued (see Beladi & Marjit, 1996; Marjit,

2003; Marjit & Beladi, 2003) that voluntary unemployment is not an option among poor workers in developing countries.

They populate the informal sector and emigration has wage effects in general equilibrium. Marjit (2003) also considers

heterogeneity of capital across industries and, with limited mobility, derives a condition for wage effects of trade reforms.

Saibal Kar thanks conference participants at the Western Economic Association Meeting held in Tokyo, and Sugata Marjit

for useful comments and the Centre for Training and Research in Public Finance and Policy (CTRPFP, CSSSC) for travel

grant. The authors duly thank an anonymous reviewer for insightful comments that substantially improved the earlier draft.

The usual disclaimer applies.

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ACHARYYA et Al.

Presently, this is a very contentious issue, attracting attention on both sides of the Atlantic

more than ever. Since many earlier evidence (e.g. Behrens & Sato, 2011, for the USA) shows

that immigration may have less positive externality and more negative endowment effect on

the recipient country, the controversy arising from managing immigration by skill type (such as

limiting H1B visas) goes unabated. Furthermore, with trade war between countries like the USA

and China assuming serious proportions, possible ramifications for the factor markets are rarely

being discussed. Indeed, Greenaway, Hine, and Wright (1999) had already established that labour

demand across a wide array of industries in the UK falls due to trade originating in the EU and

the USA, rather than in East Asia. While it is not discussed explicitly, but this could also imply

that growth in trade with developing countries might not trigger rapid emigration of unskilled

labour.

This paper investigates how the general trade‐to‐migration pattern shapes up across skill types.

Specifically, do skilled workers migrate at a higher rate than the unskilled workers when trade opens

up? In other words, is complementarity or substitutability between trade and emigration symmetric

across skill? By complex interactions of networks and relations (this is closest to Chau, 1997, in

spirit), emigration of one type may encourage (i.e. complement; see Marjit & Beladi, 2002; Markusen,

1983) or discourage (i.e. substitute; see Oslington & Towers, 2010, for a recent treatment) emigra-

tion of other types. The existing literature on trade and migration does not offer a very clear set of

answers to these questions. Fortunately, some sporadic evidence on emigrant skill composition is in

aid of motivating this complex phenomenon. For example, Figure 1 (Godinez, 2013) shows that

while more unskilled (H2A and H2B, vis‐à‐vis skilled, H1B‐, L‐ and TN‐type visas) workers mi-

grated from Mexico in 1996, by 2011 the pattern reversed itself completely such that the share of

skill emigration increased.2

Note that the formation of NAFTA in 1994 (recent estimates of effects

of trade with the USA and Canada on Mexican workers; see Mendez, 2015) and the setting up of

maquiladoras in Mexico around 1998 were both expected to arrest the inflow of (illegal) unskilled

immigrants to the USA. The ratio in favour of the unskilled immigrants was 58:42 in 1996, which

changed to 35:65 in 2011 (Figure 1). Trade liberalisation in skill‐intensive sectors can actually raise

unskilled wage eventually leading to above outcomes.3

For India, we find that a fall in the AHS sim-

ple average tariff rates for machines and electrical equipment, capital goods, and transport vehicles

and equipment has significant negative correlation with unskilled wage (Table A1 in Appendix 3).

Figures A2, A3,A4 (Appendix 3), respectively, display these negative relations. Thus, as tariff rates

on skill‐intensive manufactured goods in India were reduced gradually, the unskilled wage (repre-

sented by wages of textile sector workers in India) increased albeit in a non‐linear fashion. The yearly

average tariff rates are available from the World Integrated Trade Solution (WITS) country profile

database of the World Bank, while the nominal wages paid to workers for various years (1999–2017)

at the industry level are obtained from the Annual Survey of Industries, CSO, Government of India.

These commodities are usually capital‐intensive and skill‐intensive in production. We try to offer a

generalised theoretical basis for such relations.

2 This is different from earlier evidence in Feenstra and Hanson (1997).

3 We are indebted to an anonymous reviewer for suggesting this possibility, subsequently confirmed with evidence from India.