MIGRATION AND TRADE · A welfare comparison between trade and migration: Local public goods, redistributive policies, and housing markets

A welfare comparison between trade and migration: Local public goods, redistributive policies, and housing markets

The research project has as general objective to compare the welfare consequences between freeing trade in goods and freeing migration. A complementary objective is to provide a general framework for the discussion of migration policies. The 'gains from trade' theorem was first stated by Samuelson (1939) and claims that free trade is potentially Pareto superior to autarky. The word 'potentially' means that there could be some redistribution mechanism that would make possible the attainment of a Pareto gain through compensation of the 'losers' from trade by the 'winners' from trade. This theorem and its followers have motivated an intellectual support of the idea that free trade is good. The main objective of this project can be stated in terms of: - Do we have a similar theorem for trade in labour supply services? - What are the significant differences between proving a 'gains from trade' theorem and proving a 'gains from migration' theorem? As surveyed in Borjas (2002), important United States (US) policy measures regarding immigration, have been inspired by the concerns that migrants can become public charges, and also to avoid the US public welfare to become an immigration magnet. These issues are also the concern of the European Union (EU) policymakers, especially as Western European countries are characterized by stronger welfare systems than the US. Therefore one of the important differences between proving a 'gains from trade' theorem and proving a 'gains from migration' theorem can be the existence of public goods that could be congested. The project presents a general equilibrium model in which migration decisions are explicitly modelled and in which endogenously determined local public goods can be congested by inhabitants. In this model, it is considered what would be the optimal allocation of public goods and it is assumed the existence of a market for residence permits that depend on the congestion characteristics of the inhabitants of each country. Then it is showed the existence of equilibrium and its optimality properties. Then, by comparing a status quo without migration with a situation with free migration, it is showed the existence of potential Pareto gains from the liberalisation of international migration. There are several social consequences of this theoretical result, even though it is analysed a first best economy as a reference point. A first consequence of the results are that if appropriate regulatory measures are available, policies could be designed in order to avoid the potential efficiency gains from liberalising labour markets to be destroyed by the externalities caused by changes in the congestion levels of public goods. This means that in first best economies there is not a theoretical reason to have a preference to freer trade over freeing migration. Secondly, it is proposed a residence permits market as the optimal migration regulatory mechanism. The residence permits market does not exist in actual European economies. A second best solution to migration regulation also discussed in the project is the use of a system of migration permits combined with housing requirements. Another second best regulatory mechanism that could be evaluated in the general model designed in the project is the recent proposal in Spain and other countries (proposal that was originally discussed in the US) of giving the legal residence to people buying a house, as prices of houses rise with rising congestion levels of certain public goods. References: Borjas, G. (2002), 'Welfare Reform and Immigrant Participation in Welfare Programs,' International Migration review 36, 1093 - 1123. Samuelson, P. (1939), 'The gains from international trade,' Canadian Journal of Economics 5, 195 - 205.

Data: CORDIS, © European Union