Trade, migration, and environment: a general equilibrium analysis, Chapter 2.3

Abstract

Two major trends in the world economy are international migration and environmental degradation. The object of the paper is to analyze the connection between these two trends, which have generally been analyzed in isolation. Here we represent a world economy in which the exploitation of natural resources as well as the migration of labor have a global character. We discuss the welfare impact of migration and exploitation of natural resources and policies to address these issues. The main results of the paper are as follows. Migration is prompted by wage differentials as technology is different across countries. We show that migration from the South induces a decrease in the exploitation of the resource in the South. This increases the welfare of the South but can decrease that of the North. Migration can lead to higher prices ofresources in the North and in the South, setting up a process of induced technical change in the North and better terms of trade for the South, altogether a positive outcome. As is intuitively obvious, migration reduces the wage differential between North and South in a model where, contrary to Heckscher-Ohlin assumptions, technologies differ between countries. Finally, we show that it is possible that a tax on the use of the resource in the South induces an increase in its extraction rather than a decrease. Trade policies could have a positive impact on resource extraction, could reduce the wage gap and therefore decrease the economic incentive to the mobility of labour.general equilibrium; migration; international trade; environment; labor migration; wage differentials; resource extraction; welfare; policy