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Emigration and Economic Theory: Missing the Boat in Mexico and Ecuador

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Abstract

The impact of orthodox, free market reforms on emigration was contested by two schools of thought. Following the standard comparative advantage argument, the dominant school maintained that trade, capital, and labour market liberalization would serve as substitutes for emigration, especially as capital flows complemented abundant and ‘flexible’ labour endowments. Another school argued that liberalization would generate short-run frictions, causing a temporary emigration increase or ‘hump’ until it assumed greater efficiency and growth diminished migrant flows. Using Mexico and Ecuador as case studies, it is argued that both schools were incorrect. Instead, the productive modes and stabilization policies that accompanied market reforms assured labour market failures and persistent emigration from both countries.

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