http://worldcat.org/entity/work/id/435927526

Trade, migration and welfare the impact of social capital

January 1999 The South gains by freeing trade and the North by restricting immigration. The South should liberalize trade, and the North should impose an immigration tax. Despite the predictions of standard trade theory, countries in the North are not indifferent about free migration and free trade. Migration has become a major concern in some OECD countries. But is migration really a threat? If tree trade is optimal, shouldn't free migration be optimal as well? Why do so many countries advocate free trade but restrictions on international migration? Wellisch and Walz (1998) have shown that there is no inconsistency in advocating free trade at the same time as restricting migration under redistributive policies in the rich countries. Schiff argues that this holds in the presence of social capital as well. South-North migration affects social capital in both places. The movement of people differs from the movement of goods and services in that people create attachments with those with whom they share social capital (including norms, language, customs, values, and culture) and interact with them at lower cost. So migration generates externalities. Schiff identifies four types of externalities associated with migration. He examines the impact of trade and migration policies under alternative assumptions about internalizing these externalities and concludes that the South always gains by freeing trade and the North by controlling immigration. These policy recommendations improve the distribution of income by improving the welfare of labor relative to that of capital. Trade liberalization in the South results in higher wages (and social capital) and lower returns to capital. An immigration tax in the North has no impact on capital, but labor gains from collecting the tax (and from higher social capital). This paper-a product of Trade, Development Research Group-is part of a larger effort in the group to understand the links between migration and trade. The author may be contacted at [email protected].

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