A Study of Trade Liberalisation and Factor Mobility with a CGE Model of Australia and New Zealand.

Abstract

Given the global trends of growing international economic integration and growing international migration flows, the possible linkages between these phenomena are of interest. Trade liberalisation is often seen as a means to reduce international migration pressures. However, such a view is based on the assumption that trade and migration are substitutes. Instead, many theoretical situations can be described where migration and trade are complements. This paper briefly summarises the main theories on this relationship and then moves on to the empirical evidence for Australasia.Australia and New Zealand have close historical, cultural and economic ties. Citizens can move freely between the two countries. Trade between the two countries has also grown rapidly, particularly since the implementation of a 1983 free trade agreement. The impact of further removal of trade barriers vis-a-vis third countries on trans-Tasman trade and factor mobility, production sectors and the labour markets of both countries is assessed by means of simulations with a two-country multi-sectoral Computable General Equilibrium (CGE) model. The simulations show that removal of trade barriers at the Australasian border will lead to microeconomic adjustments which encourage labour migration from Australia to New Zealand, but professional worker migration and capital flows in the opposite direction. However, the impact of the sectoral and labour market adjustments on inter-country factor mobility is likely to be small and could be outweighed by the impact of concurrent macroeconomic policies and business cycle fluctuations.

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