Simple, neoclassical economic models predict that prices should drive factors such as labor and capital across regions and countries toward their most valuable use. As this happens, developing countries, which are typically labor-rich and capital-scarce, should experience more rapid growth, higher income, and eventually convergence to industrial world levels of well-being. This process is happening slowly in some cases, but in other cases not at all. Do migration and trade speed this convergence? If so, how? If not, why?Emigration and immigration ; International trade ; Economic development ; Developing countries

James F. Hollifield

Pia M. Orrenius

Thomas Osang

English

Research Papers in Economics

Migration, Trade, and  
Development: An Overview
James.F..Hollifield,.Pia.M..Orrenius,.and.Thomas.Osang
M
igration  and  trade  are  more  prevalent  today  than  ever  before  in  the 
history  of  the  world.  The  United  States  is  the  recipient  of  about 
one-third of the world’s migrants and accounted for a quarter of the 
world’s  output  and  13  percent  of  the  world’s  trade  in  2005.  But  the global   
significance of the U.S. economy is slowly declining, and while the effects of 
migration and trade on the U.S. economy have been examined time and again, 
questions concerning the impact of migration and trade on development in low-
income countries are of growing importance.
Simple, neoclassical economic models predict that prices should drive factors 
such as labor and capital across regions and countries toward their most valuable 
use. As this happens, developing countries, which are typically labor-rich and 
capital-scarce, should experience more rapid growth, higher income, and eventu-
ally convergence to industrial world levels of well-being. This process is happen-
ing slowly in some cases, but in other cases not at all.
Do migration and trade speed this convergence? If so, how? If not, why? 
These questions are addressed from different perspectives in the following papers 
presented at the conference “Migration, Trade, and Development,” held in Dallas 
in October 2006.
The Migration, Trade and Development Nexus
While international migration and trade are often looked at in isolation in 
terms of their impact on development, this session looked at their individual as 
well as their joint roles for growth and development. 
The paper by Philip L. Martin of the University of California, Davis, opened 
the conference. First, Martin analyzed three major channels through which mi-
gration can affect development in the workers’ countries of origin: recruitment, 
	 3	 James F. Hollifield, Pia M. Orrenius, and Thomas Osang
remittances, and returns. The greatest benefits to migrants and their countries of 
origin arise from the emigration of unskilled workers, since they are most easily 
replaced at home and less likely to settle abroad. Remittances surpassed Official 
Development Assistance in the mid-1990s as a source of foreign exchange in 
developing countries and continue to grow. Conflicting views exist on the role 
played by return migrants. The optimistic scenario sees returning migrants as 
change agents, investing remittances and using skills acquired abroad to acceler-
ate development at home. The pessimistic scenario states that migrants who work 
abroad often return to rest and retire, limiting their impacts on economic develop-
ment. In the second part of his paper, Martin looked at the link between trade and 
migration. Since free trade agreements speed up economic and job growth in all 
participating countries, they tend to reduce unwanted migration into high-wage 
countries in the long run. However, trade agreements may trigger more migration 
in the short term, because freer trade can immediately speed up labor-displacing 
change, while time is required to generate new jobs. 
Southern Methodist University economics professor Thomas Osang present-
ed an empirical paper that examined the joint role of external (trade and migra-
tion) and internal (institutions and geography) development factors. He found 
that both internal and external determinants matter for development. The internal 
measures exhibited the expected signs: Good institutions have a positive impact, 
while proximity to the tropics hurts development. Among the external determi-
nants, trade is typically significant, with the expected positive impact on develop-
ment. The two migration measures used yielded conflicting results. The first, the 
foreign-born population share, matters positively for development. The second, 
remittances, appears to contribute little to development unless the sample is re-
stricted to countries with a relatively large remittance share in GDP.
Raymond Robertson of Macalester College surveyed the recent literature 
on the impact of North American integration on the Mexican labor market. Glo-
balization integrates labor markets through trade, capital flows, and migration. 
Focusing mainly on several of his own studies of Mexico’s manufacturing sector, 
Robertson showed that Mexico’s integration with the U.S. since NAFTA has po-
tentially positive implications for Mexican workers. In particular, rising trade has 
coincided with rising Mexican wages (relative to U.S. wages) and falling wage 
inequality within Mexico. The studies also indicate that Mexican and U.S. workers 
are complements rather than substitutes and that North America probably should 
be thought of as a unified market in terms of production. Migration, Trade, and Development: An Overview	 
The Politics of Migration and Trade
Throughout history, migration has been controversial. In the past, newcomers 
were often viewed as competing for scarce resources, typically land, and accused 
by natives of forcing up land prices and pushing down wages. With the expan-
sion of international trade in the past few decades, it too has been the topic of 
controversy. Critics have cast trade as a force that displaces workers and under-
cuts domestic production by bringing in cheaper goods. As a result, the politics 
of migration and trade are complex.
Marc Rosenblum of the University of New Orleans focused on the obstacles 
to cooperation between the U.S. and Mexico on the issue of immigration. He 
described the U.S.–Mexican migration relationship as one of complex interde-
pendence. Policymaking in this area is multidimensional, involving complicated 
rules and regulations governing entry and settlement in the U.S. and multiple 
actors and institutions. In this sense, the migration relationship is far more dif-
ficult politically than the trading relationship. Rosenblum laid out the history of 
Mexican migration to the U.S. from its beginnings in the nineteenth century to the 
present, sorting through the shifting interests of each state. The U.S., he argued, 
has traditionally viewed Mexican migration through an economic lens, whereas 
Mexico’s concern has been for emigration’s effects on sovereignty and indepen-
dence and for the rights of Mexican nationals in the U.S. The change in the stra-
tegic relationship that occurred under Salinas de Gortari ushered in a period of 
greater cooperation and less hostility between the two countries, especially with 
the passage of the North American Free Trade Agreement in the 1990s. But just 
when it appeared that there was an opening for greater cooperation on migration, 
the 9/11 attacks again altered the relationship, pushing security issues to the fore. 
Rosenblum delved into the domestic politics of migration in Mexico to explain 
why cooperation with the U.S. remains elusive. 
SMU professor Valerie Hunt explored the role public opinion plays in shap-
ing U.S. immigration policy. She pointed to the profound ambivalence Americans 
have had historically toward immigration—as a nation of immigrants, wanting 
to have a welcoming attitude toward foreigners, but at the same time fearful of 
the social, economic, and political consequences of high levels of immigration. 
She looked specifically at the impact of the 9/11 attacks on U.S. perceptions of 
the threat posed by immigration. The attacks heightened the awareness of im-
migration among Americans and further complicated the prospects for reforming 
immigration policy, introducing a new security dynamic into a debate that had 
been dominated by economic concerns. Hunt used the Pew and Tarrance Group 
surveys to document the rise of immigration in the public consciousness and 
as an electoral issue pre- and post-9/11. She outlined various immigration bills, 
documenting how public opinion is driving the reform process in Congress and 	 James F. Hollifield, Pia M. Orrenius, and Thomas Osang
the White House. The result, she argued, is that immigration has moved higher on 
the political agenda than at any time in recent American history. 
The Circulation Migration of the Skilled and Economic  
Development
Mark Rosenzweig, Yale University professor and conference keynote speak-
er, discussed one of the most pressing issues in migration and development: the 
effect of the brain drain. Within the framework of his skill-price model, Rosen-
zweig showed that the big puzzle in development economics is not so much the 
difference in skill levels between countries as variation in skill prices (wages). 
Higher skill prices slow out-migration, but higher schooling levels can speed it 
up. To retain skilled workers, developing countries must raise their skill prices by, 
among other things, acquiring new technology, raising investment, and improving 
institutional quality.
Migration and Development: The Role of Remittances
In his contribution, Dilip Ratha of the World Bank discussed how migrant 
remittances have become a major source of external development finance and 
play an effective role in reducing poverty. In a message to policymakers in home 
and host countries, Ratha wrote that because remittances are personal flows from 
migrants to their friends and families, they should not be taxed or directed to 
specific development uses. Instead, the focus should be on making remittance 
services cheaper and leveraging these flows to improve financial access of mi-
grants and their families in origin countries.
San Diego State University professor Catalina Amuedo-Dorantes provided 
an overview of her work on the effect of remittances on recipient households in 
Mexico, Central America, and the Dominican Republic. She discussed the char-
acteristics of remitters, the motives for remitting, and remittances’ effects on re-
cipient households. Remittances appear to increase well-being by increasing con-
sumption and reducing labor supply, at least among women, and also by raising 
spending on health. Amuedo-Dorantes also showed that some of the disruptive 
effects of migration, such as on children’s schooling, are offset by remittances.
J. Edward Taylor, professor at the University of California, Davis, presented 
a series of paradoxes and puzzles in the migration-trade-development nexus. He 
pointed out, for example, that brain drain can be good for the home country be-
cause it raises the incentives to go to school. He also made the point that the least 
skilled don’t migrate because they are poor and migration costs are prohibitive. Migration, Trade, and Development: An Overview	 
Consequently, in the short to medium term, development and income growth in 
less-developed countries are often positively—not negatively—correlated with 
migration. This result throws into question a common policy prescription for 
solving the immigration “problem,” namely, to invest in and develop the home 
country. 
The Historical Relationship Between Migration, Trade, 
and Development
Jeffrey Williamson, Harvard University professor, presented evidence show-
ing that in the first global century, up until 1914, trade and especially migration 
had profound effects on both low-wage, labor-abundant Europe and the high-
wage, labor-scarce New World. As labor migrated to the United States, working 
conditions improved in Europe and inequality declined. The opposite took place 
in America. Williamson argued that these developments eventually led to the 
U.S. high school revolution—intense investment in public schooling of American 
youth and a commensurate reduction in wage inequality. 
SMU professor James Hollifield asked why states risk migration in the ab-
sence of an international regime for migration, comparable to regimes for finance 
(International Monetary Fund), trade (World Trade Organization), and develop-
ment (World Bank). He explored the differences in the political economy of 
trade and migration and explained why it is so difficult for states to create an 
international migration regime. He looked at coordination problems from the 
perspective of three schools of thought: realism, globalization or transnationalism, 
and liberal institutionalism. He argued that an international regime for governing 
migration must deal with the issue of rights (status of foreign nationals) and can-
not be based purely on an economic logic. But he was not sanguine about the 
creation of such a regime in the near term. Receiving states are likely to remain 
trapped in what Hollifield called a liberal paradox for decades to come—the 
economic logic for migration is one of openness, while the political and legal 
logic is one of closure. As for many of the sending states, they have incentives to 
push for greater openness to reap the benefits of remittances and possible return 
migration. The nexus between trade, migration, and development remains tight; 
but the international politics surrounding each issue makes it unlikely that states 
will be able to overcome coordination problems. 
Gustav Ranis, professor at Yale, examined the costs and benefits for both or-
igin and destination countries, while differentiating between skilled and unskilled 
immigrants. The migration of unskilled workers represents the largest potential 
benefit to global welfare, even though the distribution of gains between ori-
gin and destination countries remains controversial. The origin country benefits 	 James F. Hollifield, Pia M. Orrenius, and Thomas Osang
from unskilled migration because the country receives remittances without losing 
much productive capacity. For the destination country, the costs and benefits are 
more complex. While consumers and social security systems benefit, domestic 
unskilled workers experience a wage decline. The impact of skilled worker mi-
gration on the origin country is equally complex. Although the country benefits 
from remittances and return migration, the loss of human capital is costly in the 
short run. In contrast, the destination country appears to benefit from skilled 
worker immigration due to a reduction in specific labor shortages and more en-
trepreneurial energy and technological change.
Conclusion
In the long run, economic forces should act to iron out, not exacerbate, inter-
national income differences and improve national incomes in all countries. Cross-
country interaction, be it through migration or trade, should help this process 
along and improve global well-being. Presenters at this conference examined the 
various dimensions in which trade and migration affect economic development, 
whether individually or jointly, through economic or political forces. Despite the 
public controversy over the free flow of goods and people, the message of the 
papers collected in this volume is simple and clear: The net benefits from open-
ing borders to foreign goods, services, and people are positive and substantial in 
most cases. However, not all benefits will materialize immediately as economies 
transition toward more open borders. Nevertheless, policymakers interested in 
advancing the national well-being ought to pursue those policies most likely to 
promote long-term economic growth and prosperity. Policies aimed at helping 
goods, services, and people overcome national borders are clearly among them. 

Migration, trade, and development: an overview

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