Love Thy Neighbor: Trade, Migration, and Social Capital

In: European journal of political economy, Band 18, Heft 1, S. 87-107

Abstract

Standard international trade theory suggests indifference between free trade & free migration, as both can lead to factor price equalization. Rich countries, however, appear to prefer free trade to free migration. This paper explains this preference in terms of the concept of social capital. The movement of people differs from the movement of goods & services, because people create attachments with those with whom they share social capital, including norms, language, customs, values, & culture. Migration affects social capital in both the countries of emigration & immigration. In the paper, four types of externalities associated with migration are identified, & a model is developed to examine trade & migration policy (& changes in migration costs) under alternative assumptions about the internalization of these externalities. Irrespective of the degree of internalization of externalities, the countries that people emigrate from gain from trade liberalization & from preferential trade with richer countries to which immigration takes place, while the latter countries gain from immigration controls. The likelihood that the emigration countries gain from free migration increases with the degree of internalization of the externalities. 1 Figure, 43 References. Adapted from the source document.