Download PDF - Vox

Open to goods, closed to people?Paola Conconi, Giovanni Facchini, Max F Steinhardt, andMaurizio ZanardiUniversité Libre de Bruxelles (ECARES) and CEPR; Erasmus University Rotterdam,Universita’ degli Studi di Milano ,and CEPR; Hamburg Institute for InternationalEconomics; Université Libre de Bruxelles (ECARES)To policymakers in most nations, there is a world of difference between trade andmigration policies. The theoretical literature in economics, by contrast, has focused ontheir similarities (Mundell 1957). In standard trade models, liberalising trade in goodsand removing barriers to labour (or capital) mobility is beneficial for world welfare– when goods move freely across borders, countries can gain by exporting what theyproduce more efficiently and importing what other nations produce at a lower price.Likewise, all countries can gain if migration barriers are removed between them, so thatworkers from low-pay nations can move and earn higher wages, and employers in thehigh-wage country can hire foreign workers at a lower cost.More specifically, the theory argues that if the only difference between countries liesin their relative labour abundance, commodity trade and labour mobility are substitutes(Razin and Sadka 1997). Freer trade should lead poorer countries to specialise in theproduction of labour-intensive goods. In turn, this should lead to a rise in wages ofunskilled workers, decreasing their incentives to move abroad. Trade liberalisationshould then decrease the need for labour migration. This argument was often raisedduring the negotiations of the North American Free Trade Agreement (NAFTA).Policymakers argued that the agreement would allow Mexico to export “goods and notpeople” (Fernández-Kelly and Massey 2007).135