Trade, FDI and Migration

Abstract

This article provides a theoretical synthesis of the New Economic Geography to analyse the links between trade, FDI and migrations. We find that liberalizing from high trade costs, a country can attract both capital and labour – the bifurcation pattern is a gradual peripheral exodus of worker associated with capital flight from the periphery – but after a threshold of trade costs, opening trade generates return migration toward the periphery while capital remains agglomerated in the core. The model is built on the assumption that factors are sector specific. By relaxing this assumption and by providing a second model where workers are mobile between industries (vertically linked) but also between countries we confirm this result.

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