Gains from Trade versus Gains from Migration: What Makes Them So Different?

Authors


  • Peter J. Hammond, Department of Economics, Stanford University, CA 94305-6072 (peter.hammond@stanford.edu). Jaume Sempere, C.E.E., El Colegio de México, Camino al Ajusco 20, Pedregal de Santa Teresa, 10740 México D.F., México (jsempe@colmex.mx).

  • The authors should disclose that they are themselves migrants, as natives and citizens of the United Kingdom and Spain, respectively. In fact, for displaying great tolerance of ourselves as temporary or “permanent” immigrants, we are grateful to the citizens of Italy, where our collaboration began, and to those of the countries where we now work. In addition, Hammond owes similar gratitude to the citizens (and often the taxpayers) of Australia, Germany, Belgium, Israel, Japan, Austria, France, and Norway, who have supported his extended visits of at least one month to their respective countries.

  • Earlier versions of the paper were presented to the Latin American Meeting of the Econometric Society in Rio de Janeiro, August 1996; to the first Conference of the Latin American and Caribbean Economic Association (LACEA) in Mexico City, October 1996; to the European Workshop in General Equilibrium Theory at CORE in May 1997; to the Meeting of the European Economic Association in Toulouse, August 1997; to the Conference of the Association for Public Economic Theory in Tuscaloosa, May 1998; to the Graz–Udine Workshop in Economic Theory, June 1999; and to the Southern California Economic Theory Conference in Santa Barbara, March 2000. For their comments and interest, our gratitude to the audiences there and in seminars at the Universities of Western Ontario, Rome (La Sapienza), California at Riverside, Graz, Oslo, Tokyo, Lausanne, Osaka, Kobe, and Alicante, as well as UCLA, El Colegio de México, ITAM, Keio, and Stanford Universities, and the National University of Singapore. Our special thanks to Douglas Nelson, who, during a visit to Graz in 1996, drew Hammond's attention to much of the background literature in international economics, and also to Shinsuke Nakamura of Keio University for noticing some errors and prompting an improved formulation.

Abstract

Would unrestricted “economic” migration enhance the potential gains from free trade? With free migration, consumers' feasible sets become non-convex. Under standard assumptions, however, Walrasian equilibrium exists for a continuum of individuals with dispersed ability to afford each of a finite set of possible migration plans. Then familiar conditions ensuring potential Pareto gains from trade also ensure that free migration generates similar supplementary gains, relative to an arbitrary status quo. As with the gains from customs unions, however, wealth may have to be redistributed across international borders.

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