Essays in international economics: The trade-creation effect of migration

Overview

Abstract (English)

My thesis consists of three chapters relating to topics in International Economics. My first two chapters study the effects of migration flows on the economic outcomes of stayers for both receiving and sending countries. In both these chapters I develop and calibrate two distinct general equilibrium (GE) models to study the quantitative effect of migration on the real income of workers. The third chapter empirically investigates the relationship between firm export behaviour and their composition of foreign-born workers. In my first chapter I develop a multi-country GE model where consumers choose where to reside, facing a trade-off between potentially earning a higher wage abroad but incurring a cost to migrating. The novel contribution in this paper is that estimating migration costs within a GE model allows me to quantify interesting policy experiments. In one experiment I consider the effects of an expansion of the European Economic Area (EEA), which allows free movement of labour for its member countries. I find that expanding the European Economic Area to include Turkey leads to a very small negative impact on the average wages in the rest of the member countries. I find the increase in migration from Turkey into the EEA is offset by a decrease in migration to EEA countries from other member countries. The empirical trade-literature has shown that members of migrant networks can reduce the information frictions that exist in bilateral trade costs and help firms increase exports to their country of origin. In my second chapter I utilize insights from this literature and add a new channel, a trade-creation effect, by which migrants affect economic outcomes across countries in a GE multi-country model with trade. In this setting the decision of workers on where to reside and the decisions of firms on which countries to export to are linked because where firms choose to sell their goods affects real income in a location which in turn affects a consumer’s decision to migrate. My results show that the trade creation effects are strong. It is particularly important in mitigating welfare losses for countries with large outflows in their population. For example, the average real income of a stayer in a net-emigration country is 1.4% higher due to the trade-creation effect. In my final chapter, which is joint work with Professor Ananth Ramanarayanan, we study the relationship between export behaviour and the foreign-born worker composition at Canadian manufacturing firms using unique Canadian administrative employer-employee tax data. We argue that if immigrants are lowering the informational, or language barriers to export to their home country, then we should see these effects at firms that employ these immigrants, and it should be evident at a country-specific level. Our results confirm this assertion; we find that firms have much higher export sales to a country if they employ immigrant workers from that country. The increase in export sales of these firms stems from the link between immigrant employment and a reduction in trade costs.

Abstract (French)

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