UNIVERSITÀ DI PISA
DIPARTIMENTO DI ECONOMIA E MANAGEMENT Master of Science in Economics
FINAL DISSERTATION
MODELLING INTERNATIONAL MIGRATION FLOWS IN A SIMPLE CORE-PERIPHERY MODEL:
THEORY AND APPLICATIONS
Candidate Supervisor
Nicola De Bellis Prof. Simone D’Alessandro
ABSTRACT
The present work attempts to provide a more realistic descrip-tion of internadescrip-tional labour migradescrip-tion within a simple core-periphery model à-la Fujita, Krugman and Venables (1999). The choice of this benchmark model is motivated by the key role it plays in the most recent and sophisticated dynamic spatial general equilibrium model, such as the Regional Holistic model (RHOMOLO) model developed by the European Commission (EC) for simulating policy scenario re-lated to the European Union (EU) cohesion policies and for evaluat-ing its implications on the economies of the Member States of the Union.
The first part of the work consists in a concise review of the relevant international trade theories and the main international mi-gration theories. In the second part, after a concise description of the simple 2-region core-periphery model developed by Fujita et al. (1999), the migration law à-la Krugman (1991a) is modified to in-clude other drivers, such as political instability and climate change in the less developed country. In the last part, the evolution of the key endogenous variables of the model will be simulated and some poli-cy implications of the model will be discussed.
This work shows that, although it has been used the simplest (and less complete) baseline model, the introduction of the sociopo-litical and the environmental driver for international migration plays a key role in the dynamic spatial general equilibrium approach.
INDEX
INTRODUCTION ... - 1 -
CHAPTER I: REVIEW OF THE LITERATURE ABOUT THE INTERNATIONAL TRADE THEORIES ... - 5 -
1.1 THE RICARDIAN COMPARATIVE ADVANTAGE THEORY. ... - 6 -
1.2 THE SPECIFIC FACTORS MODEL. ... - 8 -
1.3 THE HECKSCHER-OHLIN (HO) INTERNATIONAL TRADE THEORY. - 12 - 1.4 THE NEW TRADE THEORY (NTT). ... - 15 -
1.5 THE NEW ECONOMIC GEOGRAPHY (NEG). ... - 18 -
CHAPTER II: REVIEW ON THE INTERNATIONAL MIGRATION THEORIES ... - 22 -
2.1 SOME DATA ABOUT THE CURRENT ISSUES IN INTERNATIONAL MIGRATION RESEARCH. ... - 23 -
2.2 DRIVERS OF INTERNATIONAL MIGRATION. ... - 26 -
2.3 THE MAIN THEORIES ABOUT INTERNATIONAL MIGRATION. ... - 27 -
CHAPTER III: THE MODEL ... - 46 -
3.1 THE BENCHMARK MODEL: THE FUJITA ET AL. (1999)’S CORE-PERIPHERY MODEL. ... - 47 -
3.1.1. The Core-Periphery model. ... - 49 -
1.1.2. Normalizations ... - 50 -
3.1.4 The long-run equilibrium. ... - 56 -
3.2 MODELLING THE MIGRATION BEHAVIOUR. ... - 58 -
3.2.1. Economic migration. ... - 58 -
3.2.2. Environmental-driven migration. ... - 63 -
3.2.3 Social and political migration as a response to institutional inefficiencies in the poorer country. ... - 70 -
CHAPTER IV: SIMULATIONS AND POLICY IMPLICATIONS .... - 74 - 4.1. SIMULATIONS. ... - 75 -
5.1.1. Parameters selection. ... - 77 -
5.1.2 Initial equilibrium. ... - 79 -
5.1.3. The evolution of the equilibrium over time. ... - 80 -
5.2 SOME POLICY IMPLICATIONS. ... - 83 -
CONCLUSIONS ... - 94 -
- 1 -
INTRODUCTION
Since 1990, the New Economic Geography (NEG) has emerged as one of the most exciting areas of contemporary economics. It presents a new branch of spatial economics, which aims to explain the formation and the evolution of various forms of industrial agglomeration in geographical space through a general equilibrium framework, using sophisticated tools from different domains of the economic research, such as industrial organ-ization, international trade, and regional economics. The NEG theory em-phasises the role of clustering forces in generating an unequal distribution of economic activity and income across space, and it has been applied to urban economics, the emergence of regional disparities, and the origins of income inequalities. Furthermore, its importance includes its role in the designing of sophisticated models used by governments and international organization in creating and assessing new economic and regional policy strategies. The most striking example is the famous Regional Holistic model (RHOMOLO), a multi-regional and multi-sectoral dynamic general equilibrium model developed and tested for the Directorate-General for Regional Policy (DG Region) of the European Commission (EC) for
sim-- 2 sim--
ulating policy scenario related to the European Union (EU) cohesion poli-cy and for assessing its impact on the regions and the Member States of the Union.
In this regard, Fujita et al. (1999)’s book constitutes the first work in organizing and summarizing the main features of the New Economic Ge-ography theory; moreover, Fujita et al. (1999) present the first complete characterization and analysis of the well-known Core-Periphery (CP) model: a description of two-country/region economy where two sectors coexists, a constant returns to scale (CRS) agriculture and a manufactur-ing industry modelled on the Dixit and Stiglitz (1977) model of monopo-listic competition. The main result of this model is the explanation of why countries that are equal a priori have experienced different degrees of economic development.
The dynamics of this model is determined by the interregional mi-gration of the manufacturing (in most of the models, skilled) labour force from the poorer country (the ‘periphery’) to the more advanced country (the ‘core’). Unfortunately, all the NEG models fail in providing a com-plete explanation of the complex factors and mechanisms driving the in-ternational migration flows. In fact, according to the NEG tradition, peo-ple move only for economic reasons: the migration decision is the out-come of a cost-benefit calculation depending from the real wage
differen-- 3 differen--
tial between the receiving country and the sending country. Instead, in the real world, there exist many reasons why people decide or is forced to move abroad: war, famine, climate change and natural disasters, and so on.
Thus, the main purpose of this work is integrating a simple CP mod-el with a more complex and realistic international labour migration dy-namics. The Fujita et al. (1999)’s work is used as benchmark model, since it constitutes the basis for the following and more sophisticated NEG models.
The rest of the work is analysed as follows. Chapter 1 provides a concise but exhaustive description of the most important international trade theories. Specifically, it attempts to track the historical evolution of the economic thought about international trade. In Chapter 2, the main features and theories about international migration are presented, focusing on the main elements that will be used to characterize the equation gov-erning the migration equation in the next chapter.
After a brief description of the benchmark model, in Chapter 2 the CP model is modified in order to include a suitable and more realistic in-ternational labour migration equation including additional drivers rather than the simple economic one. In particular, the equation is enriched to include the environment-driven and socio-political migrations in the CP
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model. In the Chapter 4, this variant of the model is analysed through some simple numerical simulation in order to derive some qualitative conclusions. Moreover, the numerical simulations are used to formulate some interesting conclusions about the policy implications of the model.
This work will be concluded, presenting the potential shortcomings and limitations of the approach followed, a brief comparison with the re-search tradition in this field, and the further implementations that could be done.
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CHAPTER I: REVIEW OF THE LITERATURE ABOUT
THE INTERNATIONAL TRADE THEORIES
Summary: 1.1 The Ricardian comparative advantage theory. – 1.2 The specific factors model. – 1.3 The Heckscher-Ohlin (HO) international trade theory. – 1.4 The New Trade Theory (NTT). – 1.5 The New Econo-mic Geography (NEG).
In this chapter, the development of international trade theories from the seventeenth century through the first part of the twentieth century are examined. The historical approach is useful because it is a convenient way of introducing the concepts and theories of international trade from the simple to the more complex, introducing the elements that have been pro-gressively introduced to make the new theories more realistic.
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1.1 The Ricardian comparative advantage theory.
The first coherent international trade theory has been developed by Ricar-do (1817) in his Principles of Political Economy and Taxation, in which he has developed his famous law of comparative advantage. According to this theory, the basis of trade is constituted by the cross-country differ-ences in technology. In fact, this theory is substantially based on the as-sumption that labour is the only relevant production factor in the econo-my, and that is international immobile but perfectly mobile between in-dustries with the country. The essential idea in the Ricardian analysis is that of comparative advantage: a country is defined to have the com-parative advantage in producing a good if the opportunity cost of
produc-ing a good in terms of other goods is lower in that country rather than in the other countries.
The main conclusion is that international differentials in labour productiv-ity between industries determine the patterns of international trade. In fact, given the assumption of perfect competition in all input and output markets, the differentials in international prices reflect the international productivity differentials. Therefore, the comparative advantage theory means the comparison of relative price differentials between countries to explain the pattern of trade: comparing the relative price of a good in
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terms of another at home to the same relative price in the foreign economy in a hypothetical equilibrium with no trade (autarky) or restricted trade, then the country with the lower relative price of that good has a compara-tive advantage in that good.
The Ricardian international trade theory aims to explain how differences between countries give rise to trade between them and why this trade is mutually beneficial. The reason why international trade produces this in-crease in world output is that it allows each country to specialize in pro-ducing the good in which it has the comparative advantage. In fact, given the definition of comparative advantage, trade between two countries can
benefit both countries if each country exports the goods in which it has a comparative advantage.
The Ricardian international trade model illustrates the potential mutual benefits from trade for the countries involved in the trading process: trade leads to international specialization, with each country shifting its labour force from industries in which that labour is relatively inefficient to indus-tries in which it is relatively more efficient. Since the Ricardian model as-sumes that labour is the only production factor and that it is perfectly mo-bile between industries within each country, then individuals will not be hurt by the opening up the economy to trade. Thus, the Ricardian trade theory not only suggests that all countries benefit from globalization, but
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also that individuals are better off because trade does not affect the in-come distribution: in other words, international trade leads to a Pareto im-provement for each individual of the world economy.
1.2 The specific factors model.
According to the Ricardian theory, international trade is mutually beneficial for the nations engaged in the exchange process: in other words, globalization leads to a Pareto improvement outcome. However, in the real world, international trade affects the income distribution within each trading nation making the benefits from international trade often dis-tributed very asymmetrically. In particular, there are two main reasons why trade affects income distribution: (1) resources are not perfectly and costlessly mobile between industries (short-run consequence), and (2) in-dustries differ in the production factors they demand for: then, a shift in the mix of goods that a country produces will reduce the demand for some production factors and, contemporarily, raise the demand for others (long-run consequence). For these reasons, although a country may overall ben-efit from opening up to trade, significant groups of individuals within it may get worse off.
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Samuelson (1971) and Jones (1971) made a realistic analysis about the impact of international trade on income distribution. In particular, they examine the case where production factors cannot move without costs be-tween industries within a country: more formally, they assume that the sector-switching cost for some production factors is high enough to make such a switch possible in the short-run. Those immobile factors are de-fined to be specific to that particular sector. Therefore, a specific factor is defined to immobile between sectors in response to changes in market conditions.
Samuelson (1971) and Jones (1971) develop a model describing an economy in which two consumption goods are produced using two pro-duction factors, capital and labour, in a perfectly competitive framework. Capital is assumed to be the specific production factor (and hence it is completely immobile), while labour can freely and costlessly move be-tween industries. The production of each good requires labour and the in-dustry-specific capital. At last, this model assumes that there is a fixed endowment of sector-specific capital in each industry as well as a fixed endowment of labour (short-run consequence).
Samuelson (1971) and Jones (1971) show the effects on labour al-location, output levels and factor returns resulting from a change in prices. International differences are necessary to induce trade: in this framework,
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countries differ in the amount of specific factors used in each industry rel-ative to the total amount of labour.
Then, supposing that the price of one good rises as a consequence of trade liberalization, the industry whose price rises is the export sector. This increase triggers the following series of adjustments. First, the higher export prices would initially raise profits in the export sector since wages and rents may take time to adjust. The value of the marginal product in exports would rise above the current wage inducing firms to hire more workers to expand the production. However, to induce the labour migra-tion, the export firms will have to raise the wage they currently pay. Since labour is assumed to be homogeneous, the import-competing sector will have to raise their wage in step so as not to lose all of its workers. The higher wages will induce the expansion of output in the export sector (the sector whose price rises) and a reduction in the import-competing-sector. The adjustment process ends when the value of marginal product in both sectors is equalized.
The return to capital will vary across industries in response to the price changes. In the import-competing industry, the mix of lower reve-nues and higher wages reduces the return to capital in that sector, while in the export sector, the combination of greater output and higher prices raise the return to capital in that sector. The real effect of the price change on
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wages and rents is more difficult to explain but it is more important. Re-member that the absolute increases in the wage, or the rental rate on capi-tal, do not guarantee that workers (and capital owners) would be better off, since the price of one of the goods is rising. Thus, it is more important to consider the real returns to capital (real rents) in each industry and the real wages. Jones (1971) demonstrates the effects on the real rents and the real wages in response to changes in output prices, the magnification
ef-fect: when the price of an export good increases (and the import good
price decreases), then:
1. The real return to capital in the export industry will rise;
2. The real return to capital in the import-competing industry will fall; 3. The real wage in both industries will rise with respect to purchases of the import good and will fall with respect to purchases of the export good.
In terms of income (re)distribution: capital owners in the export in-dustry will benefit from free trade, while capital owner in import-competing industries will lose. Workers (who can freely mobile between industries) may gain or lose since the real wage in terms of exports rises while the real wage in terms of imports falls. If workers’ preferences change, then those individuals who have a relatively high demand for the
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export good will suffer a welfare lose, while those individuals who have a relatively strong demand for imports will benefit. Hence, the clear win-ners and losers are distinguishable by industry: the factor specific to the export industry benefits while the factor specific to the import industry loses.
1.3 The Heckscher-Ohlin (HO) international trade theory.
Heckscher (1919) and Ohlin (1933) develop their theory of international trade focusing on the relationship between the composition of countries’ factor endowments and commodity trade patterns. This theory is essential-ly based on the observation that countries differ in the composition of their factor endowments and that productive activities are distinguished by the different relative intensities with which factors are required.
The main result turns around the famous Heckscher-Ohlin (HO) theorem, according to which countries export those goods which require relatively
use of those resources for their production, which are abundant in that countries. As a result, trade allows each country to specialize, since each
country will export the good it is most suited to produce and will ex-change for products it is less suited to produce.
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Summing up, the HO trade theory can be reduced to four principal theo-rems: (i) the HO trade theorem, (ii) the factor-price equalization theorem, (iii) the Stolper-Samuelson theorem, and (iv) the Rybczynski theorem. The strict validity of each of these propositions has been seen to depend upon further specification of the technology, demand, or dimensionality.
The Heckscher-Ohlin theorem predicts the pattern of trade between countries: a country exports goods produced using its abundant
produc-tion factors intensively, and import goods that use its scarce factors inten-sively. This theorem shows that differences in resource endowments as
de-fined by national abundancies is one reason that international trade may occur.
The Stolper-Samuelson theorem describes the relationship between changes in output prices and changes in production factor prices. This theorem was originally developed to show how workers’ and capitalists’ incomes (i.e., the income distribution) within a country are affected by tariffs. However, it has interesting implications in trade liberalization: if
the price of the capital-intensive good rises (for whatever reasons), then the price of capital, the factor used intensively in that industry, will rise, while the wage rate paid to labour will fall. Similarly, if the price of the labour-intensive good rose, then the wage rate would rise while the rental rate would fall.
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The factor-price equalization (FPE) theorem claims that when the prices
of the output goods are equalized between countries, as when countries move to free trade, then the prices of the factors (capital and labour) will also be equalized between countries. This implies that free trade equalized
the workers’ wages and the capitalists’ rents throughout the world.
This theorem stems from the assumptions of the model, in particular from the assumption that countries share the same production technology and from the assumption of perfectly competitive markets.
As such a better interpretation of the FPE theorem applied to the real world is that free trade should cause a tendency for factor prices to move
together if some of the trade between countries is based on differences in factor endowments.
The Rybczynski theorem demonstrates the relationship between changes in national factor endowments and changes in the output of the final goods: an increase in a country’s endowment of a factor will cause an
in-crease in output of the good which uses that factor intensively, and a de-crease in the output of the other good. This theorem is useful in
address-ing issues such as investment, population growth, and hence labour force growth, immigration and emigration.
- 15 - 1.4 The New Trade Theory (NTT).
In the neoclassical world, the basis for international trade is constituted by the differences in autarkic prices due to differences in technology
(Ricard-ian trade theory), factor endowments (HO trade theory), and preferences.
All the neoclassical trade theories suggest that (a) different countries should trade more (i.e., international trade has a positive effect on all the countries involved in the trading process), and (b) different countries should specialize in different goods. Conversely, empirical evidence shows that (i) the bulk of world trade is between similar countries, and (ii) these countries tend to trade similar commodities.
The New Trade Theory (NTT) is essentially a reaction to the perceived failure of the previous neoclassical international trade theory. Specifically, the NTT introduces three innovative elements in the previous theories: 1)
economies of scale (specifically, increasing returns to scale), (2) product differentiation, and (3) imperfect competition.
Krugman (1979, 1980) and Lancaster (1980) introduce international trade into models of monopolistic competition with differentiated goods, dis-playing the possibility of gains from trade due to the prevision of greater varieties of similar goods rather than differences in comparative ad-vantage: the “intra-industry” trade. In particular, the pioneering work of
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Krugman (1979, 1980) presents a micro-founded general equilibrium model describing a 2-country economy in which consumers differ with re-spect to their preferences for different varieties of goods and in which economies of scale are introduced in the production side of the economy. However, the crucial role of IRS in international trade theory has only re-cently been examined, since it implies departures from perfect competi-tion: if markets were assumed to be perfectly competitive, all the monopo-ly profits would be competed away. Therefore, in presence of internal in-creasing returns to scale, large firms have an advantage over small firms, so that markets tend to be dominated by only one firm (monopoly) or by few firms (oligopoly).
Specifically, the production side of the Krugman (1979, 1980) model is grounded on the Dixit and Stiglitz (1977) model of Chamberlinian (1936) monopolistic competition: it describes a market made by a large number of firms, each producing a unique variety of a horizontally differentiated product in monopoly conditions, with freedom of entry and exit, and a representative consumer (in this context, the representative country) who benefits directly from the varieties produced and who always chooses to consume a strictly positive quantity of all the goods produced.
Then, given the presence of internal economies of scale in the production markets, it will be efficient to put on the market a smaller mix of varieties
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and a higher quantity of each single variety, although this contrasts with consumers’ preferences. Thus, international trade allows each country to specialize in the production of a limited combination of varieties, exploit-ing the economies of scale and, at the same time, allowexploit-ing consumers to get access to the varieties produced in other countries. The final outcome is a welfare gain for the consumers: more formally, international trade leads to a Pareto improvement for the consumers in the economy.
In his work, Krugman (1979, 1980) identify four main implications: (1) countries may export the same good to each other (intra-industry trade), (2) some countries may lose from trade, (3) there are more reasons for countries to gain from trade, and (4) new rationales for using policy to af-fect and restrict trade. Only the first three implications are briefly dis-cussed.
The first implication is related to the presence of various explanations for the existence of intra-industry trade. The first one is that the definitions of “industry” may include (a) different but similar products (e.g., cars pro-duced by Toyota and Volkswagen), and (b) goods at different stages of the production process (for example, auto and auto components). Moreo-ver, the same good can be sold in different locations. Third, the good is the same but it is promoted/advertised as differentiated (for example,
dif-- 18 dif--
ferent brands of jeans). At last, identical products could be sold by firms from different countries into each other’s market.
The second implication is the possibility that a country may lose from trade. This possibility is not contemplated in the traditional neoclassical trade theories, according to which welfare gains are mutually beneficial for the countries involved in the trading process. However, the possibility of economies of scale could imply that not all the countries benefit from trade: specifically, this could happen when international competition forc-es a small country to specialize in an industry with decreasing returns to scale.
At last, the third implication is the existence of more and broader reasons for countries to gain from trade, in particular: (a) costs are reduced in presence of economies of scale, (b) increases in market competition re-duce market distortions, and (c) consumers benefit for the access to a wid-er choice of varieties of consumption goods.
1.5 The New Economic Geography (NEG).
The New Economic Geography (NEG) is an analytical framework initiat-ed with the pioneering works of Krugman (1991a, 1991b) in order to
pro-- 19 pro--
vided explain the formation of a large variety of such economic agglom-eration in geographical space. Although the notion of space in economic theory has been already examined by von Thünen (1826) and other econ-omists, the NEG is the first rigorous international macroeconomic theory with very strong connection with several branches of economics, includ-ing industrial organization, urban economics, and new growth and devel-opment theories. It provides a complete general equilibrium approach with strong micro-foundations in which regional disparities may emerge endogenously, depending on the values of some structural parameters. The NEG constitutes the first successful attempt to explain why a priori similar regions do not experience the same level of economic develop-ment.
In particular, the (first generation) NEG models are grounded on four pil-lars: (i) general equilibrium modelling, (ii) increasing returns to scale, (iii) transport costs, and (iv) locational movements.
The core-periphery (CP) model presented by Krugman (1991a) is consid-ered the basic introductory framework for all the more sophisticated NEG models. It illustrated how the interactions among the increasing returns to scale at the firm level, transport costs and factor mobility can cause spatial economic structure to emerge and change over time. Specifically,
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Krugman (1991a) models a two-region economy, in which two production industries (agriculture and manufacturing) coexist.
The manufacturing sector produces a continuum of varieties of a horizon-tally differentiated product: each variety is produced by a separate firm with scale economies, using manufacturing workers as the only input. This characterization of the manufacturing industry is the result of the adoption of very specific models of imperfect competition, mainly the monopolistic competition model à-la Dixit and Stiglitz (1977). Instead, the agricultural industry produces a homogeneous good under constant re-turns to scale (CRS), using farmers as the only production factor. Only manufacturing workers are assumed to be freely international mobile, whereas farmers are immobile and distributed equally between the two regions. Finally, the trade of manufactures involves a positive transport cost which takes the form of the Samuelson (1952)’s iceberg form.
In this model, the immobility of farmers is a centrifugal force because they consume both types of goods. Since it involves a circular causation, the characterization of the centripetal force is more complex: if a larger number of firms locate in a region, then a greater number of varieties are produced there. Workers (who are consumers) in that region have a better access to a greater number of varieties in comparison with workers in the other region. Thus, ceteris paribus, workers in that region earn a higher
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real income, inducing more workers to migrate towards this region. This leads to an enlargement of the market, which in turn yield the Krugman (1980)’s home market effect. The presence of economies of scale works as an incentive to concentrate the production of each variety in only one re-gion: ceteris paribus, it is more profitable to concentrate the production in the region offering the widest ‘domestic’ market, and ship to the other re-gion. This implies the availability of even more varieties of differentiated goods in the considered region. In short, the centripetal force is generated through a circular causation of the incentive of workers to be move near the producers of the consumption goods (i.e., the forward linkages) and the incentive for producers to concentrate where the market is larger (i.e., the backward linkages).
If forward and backward linkages are strong enough to overcome the cen-trifugal force generated by the immobile peasants, the economy will end up in a core-periphery pattern where all manufactures tend to concentrate in one region. This pattern is likely to occur when one of these three con-ditions is satisfied: (i) the transport cost of the manufactures is low enough, (ii) varieties are sufficiently differentiated, or (iii) the expenditure on manufactures is large enough.
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CHAPTER II: REVIEW ON THE
INTERNATIO-NAL MIGRATION THEORIES
Sommario: 2.1 Some data about the current issues in international migra-tion research. – 2.2 Drivers of internamigra-tional migramigra-tion. - 2.3 The main theories of international migration.
In today’s increasingly interconnected world, international migra-tion has become a central issue for governments and non-governmental organizations (NGOs). Modern transportation has made international la-bour migration easier, cheaper and faster. At the same time, conflict, pov-erty, inequality and lack of decent jobs are powerful drivers for interna-tional migration.
Migration is considered a key element in contributing to inclusive and sustainable economic growth and development in both receiving and sending communities when it is supported by appropriate economic and social policies. However, migrants themselves often remain among the most vulnerable members of the society, because they are the first to lose
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their job in case of an economic downturn, they often work for lower wage, for longer hours, and in worse conditions. Furthermore, many mi-grants experience human rights violations, abuse and discrimination. Es-pecially, women and children are too often victims of human trafficking. Nevertheless, in many parts of the world, migration remains the only op-tion for people, in particular young people, to look for better job opportu-nities, and escape from poverty, unemployment, discriminations and vio-lence.
2.1 Some data about the current issues in international mi-gration research.
In order to monitor systematically levels and trends in international migration around the world, the Population Division of the Development of Economic and Social Affairs of the United Nations (UN) estimates the number of international migration stocks disaggregated by age, sex and place of origin for all countries and areas of the world.
International statistics indicates a continuous rapid growth in the number of international migrants in the last fifteen years: from 173
mil-- 24 mil--
lion in 2000, to 222 in 2010 and 244 million in 2015. Around two thirds of all international migrants live in Europe (76 million) or Asia (75 mil-lion), while Northern America hosts the third largest number of interna-tional migrants (54 million), followed by Africa (21 million), Latin Amer-ica and the Caribbean (9 million) and Oceania (8 million). In these fifteen years, international migration has contributed to the 42 per cent of the population growth in Northern America and 32 per cent in Oceania. In-stead, Europe has registered a decline in the size of the population due to the absence of positive net migration.
In 2015, around the 67 per cent of all international migrants were living in only twenty countries: about the 19 per cent (47 million) lived in the United States, 12 million in Germany and in Russian Federation, and 10 million in Saudi Arabia.
According to the estimates for the 2014, the total number of refu-gees in the world is 19,5 million. Turkey is the largest refugee-hosting country with 1,6 million refugees, followed by Pakistan (1,5 million), Lebanon (1,2 million), and the Islamic Republic of Iran (1 million). Inter-estingly, the 53 per cent of all refugees comes from just three countries: Syrian Arab Republic (3,9 million), Afghanistan (2,6 million), and Soma-lia (1,1 million).
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Empirical data about the gender distribution of international migra-tion shows that women comprise slightly less than half of all internamigra-tional migrants. In the period from 2000 to 2015, the share of female migrants has declined from the 49 per cent to the 48 per cent. The number of fe-male migrants exceeds that of men in Europe and Northern America, while in Africa and Asia, migrants are principally men.
In the last fifteen years, the median age of international migrants worldwide has increased from 39 years to 38 years. In contrast, in Asia, Latin America and the Caribbean, and Oceania, the median age has de-clined.
In 2015, the 43 per cent of international migrants (104 million) move from Asia, 62 million from Europe (25 per cent), 37 million from Latin America and the Caribbean (15 per cent), and 34 million from Afri-ca (14 per cent). In the same year, India has had the largest “diaspora” in the world (16 million), followed by Mexico (12 million). Other relevant diasporas have involved communities from Russian Federation (11 mil-lion), China (10 milmil-lion), Bangladesh (7 milmil-lion), and Pakistan and Ukraine (6 million).
- 26 - 2.2 Drivers of international migration.
The incentive for people to migrate may be described as the mix of several economic and demographic, social, environmental, and political push and pull factors. A push factor is defined as a force that force people to move away from a location, while the pull factor is what attracts people in a new location. Table 1 summarizes different motivations for migra-tion, divided among push and pull factors, and classified by the nature of the factor itself:
PUSH FACTORS PULL FACTORS
Economic and demo-graphic
• Poverty;
• Unemployment; • Low wages; • High fertility rates; • Lack of basic health and
education.
• Prospects of higher wages;
• Potential for improved living standard;
• Personal or profession-al development.
Environmental • Adverse environmental
conditions; • Natural disasters.
• Attractive
environ-ments (e.g. mountains and warm climates).
Political • Conflict, insecurity,
violence;
• Poor governance; • Corruption;
• Human rights abuses.
• Safety and security; • Political freedom.
Social and cultural • Discrimination based on ethnicity, gender, reli-gion, and the like.
• Family reunification; • Ethnic homeland; • Freedom from
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Table 1 – Push and pull factors for international migration divided by nature of the factor itself.1
All these factors are briefly analysed in the theories presented in the fol-lowing paragraph.
2.3 The main theories about international migration.
Neoclassical economics: macro theory.
The pioneering theory of international migration has been originally de-veloped with the aim of explaining the role played by labour migration in the economic development process. Starting from the pioneering works of Lewis (1954), Ranis and Fei (1961), Harris and Todaro (1970), and Toda-ro (1976), this theory claims that international movement is driven by the geographic differences in the supply of and demand for labour.
Since countries relatively labour abundant with respect to capital have a low equilibrium market wage, while labour-scarce countries have a high market wage, the resulting wage differential causes workers to move from
1 Adapted from Mansoor, A. M., and Quillin, B. (2006). Migration and remittances:
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low-wage countries toward the high-wage countries. This movement causes contemporarily a decline in the labour supply and an increase in wages in the capital-scarce countries, and an increase in the labour supply and a decline in wages in the capital-abundant countries: at the equilibri-um, the international wage differentials reflect only the pecuniary and physic international migration costs. Conversely, capital moves in the op-posite direction from capital-rich to capital-poor countries: the relative scarcity of capital in poor countries yields a higher rate of return than in-ternational standards, thereby attracting investment. By definition human capital is considered a form of capital, then skilled workers move from rich to poor countries to exploit their skills.
Thus, the international unskilled labour flow must be kept conceptually separated from the associated international flow of skilled workers: the heterogeneity of workers plays a crucial role in the aggregated macro-level international migration models.
Summing up, the neoclassical macro theory contains several propositions and assumptions:
1. The international worker migration is driven by differences in wage rates between countries. Therefore, the elimination of these wage differentials stops the migration process.
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2. Since high skilled workers are considered as human capital and in-ternational flows of human capital are driven by differences in the rate of return of human capital (which may differ from the overall wage rate), then the skilled workers’ migration patter may be oppo-site that of unskilled workers.
3. Labour markets are the main mechanisms by which international flows of labour are induced; other markets have not important ef-fects on international migration.
4. Governments can control migration flows regulating or influencing labour markets in sending and/or receiving countries.
Neoclassical economics: micro theory.
Sjaastad (1962), Todaro (1969, 1976, 1989), and Todaro and Maruszko (1987) develop the pioneering microeconomic model of individual choice used to analyse individual agent’s migration decision. In this approach, individual rational agents decide to move abroad because a cost-benefit calculation leads them to expect a positive net return (usually monetary) from movement. Therefore, international migration is considered as a form of investment in human capital: people move toward where they can be most productive, given their skills; but, before they could get the high-est (expected) wages associated to the greater labour productivity, they
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have to undertake certain investments, including material travelling costs, maintenance costs during the job search period, effort in learning a new language and culture, and so on.
As Borjas (1994) underlines, potential migrants compare their expected costs and benefits of moving to different locations and migrate where their expected net benefit is the highest. Net returns of migration are calculated by taking the observed earnings corresponding to the individual’s skills in the destination country and multiplying them by the probability of getting the probability of being employed there.
Summing up:
1. International movement is generated by international differentials in both earnings and employment rates.
2. Individual human capital characteristics that increase the likely re-muneration rate or the probability of employment in the destination relative to the sending country increases the likelihood of interna-tional movement, ceteris paribus. Conversely, individual character-istics that lower migration costs increase the net returns to migra-tion, and, then, increase the probability to move abroad. Given the-se facts, individuals within the same country may display very dif-ferent tastes to migrate.
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3. In the absence of international differences in earnings and/or em-ployment rates, migration does not occur. Migration occurs until expected earnings have been internationally equalized net of the migration costs, after that migration stops.
4. The size of the differential in expected returns determines the size of the international flow of migrants between countries.
5. Migration decisions stem from disequilibria or discontinuities be-tween labour markets; other markets do not directly influence the migration decision.
6. Governments control immigration primarily through policies that affect expected earnings in sending and/or receiving countries.
The new economics of migration.
A key insight of this new approach is that migration decisions are made by larger units of related people, typically families or households, that act collectively not only to maximize expected income, but also to minimize risks and to loosen constraints associated with a variety of market failures, apart from those in the labour market [Stark and Lewhari (1982), Stark (1984, 1991), Katz and Stark (1986), Lauby and Stark (1988), and Taylor (1986)].
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Specifically, households attempt to minimize risks to their economic well-being by diversifying the allocation of household resources, such as fami-ly labour. While some members may be appointed to economic activities in the local economy, others may be assigned to work in foreign labour markets where wages and employment conditions are negatively or weak-ly correlated with those in the local markets. In this way, in case of an economic downturn in the local markets, the household can rely on mi-grant remittances for support.
In advanced economies, risks to household income are generally mini-mized through private insurance markets or governmental programs, and credit markets are generally well-developed to enable families to finance new projects, such as the adoption of new production technologies. In contrast, in less developed countries, all these mechanisms are imperfect, absent, or inaccessible to poor families: in the absence of accessible pub-lic or affordable private insurance and credit programs, market failures create strong pressures for international movement.
Summing up, the main propositions and hypotheses constituting the “new economics” of migration, and their economic policy implications, are:
1. Families, households, or other culturally defined units of produc-tion and consumpproduc-tion are the appropriate units of analysis for mi-gration research.
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2. Households may have strong incentives to diversify risks through migration even in the absence of wage differentials.
3. There are strong incentives for households to engage in both mi-gration and local activities in order to minimize their risk. Thus, an increase in the returns to local economics activities may ampli-fy the attractiveness of migration as a means of overcoming capi-tal and risk constraints on investing in those activities. As a result, sending countries’ economic development may not reduce the pressures for international migration.
4. Since international wage differentials are not necessary condition for triggering international migration, it does not necessary stop when international wage differentials have been eliminated. 5. Moreover, the same expected gain in income for households at
different points in the income distributions will not have the same effect on their probability of migration.
6. Government can influence migration rates pursuing policies that shape influence insurance markets, capital markets, and futures markets. Specifically, public insurance programs, such as unem-ployment insurance, can significantly alter the incentives for in-ternational movement.
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7. Government policies that shape income distribution change the relative deprivation of some households and then modify their in-centives to move abroad. However, a change in the income distri-bution influence international migration independently from its effects on mean income. In fact, public policies raising the mean income in sending countries may strengthen the migration flow if relatively poor households do not benefit from the income gain. Conversely, policies may reduce migration if relatively rich households do not share in the income gain.
Dual labour market theory.
The neoclassical human capital theory and the new economics of migra-tion are essentially grounded on models of ramigra-tional choice. An alternative approach is the dual labour market theory, which claims that international migration is generated by the intrinsic labour demands of modern indus-trial societies. Specifically, Piore (1979) argues that international migra-tion is caused by a permanent demand for immigrant labour that is inher-ent to the economic structure of developed nations. Then, immigration is not caused by some push factors in the sending countries (such as low wages or high unemployment), but by some pull factors in receiving countries: a persistent and necessary need for foreign workers.
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This theory is built on four fundamental characteristics of advances indus-trial societies and their economies: (i) structural inflation, (ii)
motivation-al problems, (iii) economic dumotivation-alism, and (iv) the demography of labour supply. Summing up, the key predictions and hypotheses of the dual
la-bour market theory are:
1. International labour migration is largely demand-based and is trig-gered by the recruitment process in developed societies, or by gov-ernments acting on their behalf.
2. Since the demand for immigrant workers grows out of the structur-al needs of the economy and is expressed through recruitment prac-tices rather than wage offers, international wage differentials are neither a necessary condition nor a sufficient condition for activat-ing international labour migration.
3. Low-level wages in immigrant-receiving societies do not rise in re-sponse to a decrease in the supply of immigrant workers; they are held down by social and institutional mechanisms and are not free to respond to shifts in supply and demand.
4. Low-level wages may fall as a result of an increase in the supply of immigrant workers, since the social and institutional checks that keep low-level wages from rising do not prevent them from falling.
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5. Government are unlikely to influence international migration using policies that produce small changes in wages or employment rates; immigrants fill a demand from labour that is structurally built into modern, post-industrial economies, and influencing this demand requires major changes in economic organization.
World systems theory: Wallerstein (1974).
According to this theory, the penetration of a capitalist economic system into peripheral, non-capitalist societies creates a mobile population in-clined to migrate abroad.
Owners and managers of capitalist firms enter poor countries in search for raw materials, cheap labour, and new consumer markets, in order to in-crease their profits and wealth. In the past, colonial regimes assisted this market penetration for the benefit of economic interests in colonizing so-cieties, while, nowadays, this strategy is implemented by neo-colonial governments and multinational firms.
Therefore, according to the world systems theory, migration is the out-come of the natural disruptions and dislocations associated with capitalist development. As capitalism system has penetrated outside from its core in Western Europe, North America, Oceania, and Japan, ever-larger portions of the globe and growing shares of the human population have been
in-- 37 in--
corporated into the world market economy. As Massey (1989) argues, mi-gration flows are inevitably generated by the incorporation of production factors (e.g. land, raw material, and labour) within peripheral regions into the global market, some of which have always moved abroad.
Thus, world systems theory argues that international migration follows the political and economic organization of an expanding global market. This leads to six different hypotheses:
1. International migration is a natural consequence of capitalist mar-ket formation in the developing world: the penetration of the global economy into peripheral regions triggers the migration process. 2. The international labour flow follows the international flow of
goods and capital, but in the opposite direction.
3. The cultural, linguistic, administrative, and communication links between past colonial powers and their former colonies make the international migration more likely to be developed.
4. Capitalists countries’ governments implement several political and military strategies implemented with the aim of protecting their in-vestments abroad and to support foreign governments sympathetic to the expansion of the global market fail; when they fall, they pro-duce a refugee movement directed towards particular core coun-tries, and constituting another form of international migration.
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5. Finally, international migration is weakly correlated with interna-tional wage rates or employment differentials: it is the outcome of the dynamics of market creation and the structure of the global economy.
Network theory.
Migrant networks are defined as sets of impersonal bounds connecting migrants, former migrants, and non-migrants in origin and destination ar-eas through ties of kinship, friendship, and shared community origin. Network theory argues that these ties increase the likelihood of interna-tional movements because they lower the costs and risks of movement and increase the expected net returns of migration.
According to this theory, network connections constitute a form of social capital that people can use to gain an easier access to foreign labour mar-ket: when the number of migrants reaches a critical threshold, the expan-sion of networks reduces the costs and risks of movement, and then raises the probability for the members of the network to migrate. In turn, this causes additional movement, which further expands the networks, and so on.
This conceptualization of migration as a self-sustaining diffusion process has several implications and corollaries:
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1. International migration tends to expand over time until network connections have diffused so widely in a sending region that all people who wish to migrate can do so without difficulty; after, mi-gration begins to decelerate.
2. The size of the migratory flow between two countries is not strong-ly correlated to wage differentials or employment rates, since these variables are progressively overshadowed by the falling costs and risks of movement associated with the network growth.
3. International migration becomes progressively independent of the factors that originally triggered it as it becomes institutionalized through the formation and elaboration of networks.
4. The flow becomes less selective in socioeconomic terms and more representative of the sending community or society as networks grows and the costs and risks of migration fall.
5. Since the process of network formation lies outside the govern-ment’s control, it could be difficult to control flows once they have begun. The only effective immigration policies are those promoting the reunification between immigrants and their families abroad.
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As Massey (1990b) claims, international migration is a self-sustaining process. In other words, it makes additional movement progressively more likely over time, a process called cumulative causation by Myrdal (1957): each migration flow changes the social context within which subsequent migration decisions are made, typically in ways that make additional movement more likely. Social scientists have identified six socioeconomic factors potentially affected by cumulative migrations: (1) income
distribu-tion, (2) land distribudistribu-tion, (3) organization of agrarian producdistribu-tion, (4) culture of migration, (5) regional human capital distribution, and (6) so-cial labelling. Stark et al. (1986) and Taylor (1992) underline how
feed-backs through other variables are also possible, but they have not been systematically examined. Then, this dynamic theory of international gration argues that social, economic, and cultural changes caused by mi-gration in both sending and receiving countries allow households to better resist to easy control or regulation, because the feedback mechanisms of cumulative causation cannot be controlled by the government.
Migration systems theory.
All the previous theories suggest that migration flows acquire a measure of stability and structure over time and space, allowing for the identifica-tion of stable internaidentifica-tional migraidentifica-tion systems. These systems are
charac-- 41 charac--
terized by relatively intense exchanges of goods, capital, and people be-tween certain countries and less intense exchanges bebe-tween others. As Fawcett (1989) and Zlotnik (1992) underline, an international migration system generally includes a core receiving region, which may be a single country or group of countries, and a set of specific sending countries linked to it by unusually large immigrant flows. This theory leads to sev-eral fascinating hypotheses and propositions:
1. Countries within the same international migration system do not need to be geographically close since flows reflect political and economic relationships rather than physical ones. Obviously, geo-graphical contiguity obviously facilitates the international move-ment, and thus it plays a key role in international migration.
2. There could exist some multipolar systems, in which a set of dis-persed core countries receive immigrants from a set of overlapping sending countries.
3. Nations may belong to more migration systems, even if multiple memberships are more common among sending than receiving countries.
4. The evolution of each international migration system is related to the change of the political, social and economic conditions in both the receiving and sending countries. Then, the stability of the
sys-- 42 sys--
tem does not imply a fixed structure: countries may join or drop out of a system in response to social change, economic fluctua-tions, or political upheaval.
Linkages between environmental factors and migration.
The International Organization for Migration (IOM)2 proposes the follow-ing definition for environmental migrants: “environmental migrants are
persons or groups of persons who, for compelling reasons of sudden or progressive changes in the environment that adversely affect their lives or living conditions, are obliged to leave their habitual homes, or choose to do so, either temporarily or permanently, and who move either within their country or abroad”.
Barrett (2008), Cattaneo and Massetti (2015), Gray and Mueller (2012), and Foresight (2011) claim that, climate change may worse the ability to move abroad by decreasing the available resources; this implies that some vulnerable individuals may find themselves less mobile and less likely to migrate.
2 Laczko, F., and Aghazarm, C. (2009). Migration, environment and climate change:
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On the relationship between climate change and international labour mo-bility, two recent works can be judged relevant since they summarize the current state of the research: Beine and Parson (2015) and Cattaneo and Peri (2015).
Using a panel dataset of bilateral flows from 1960 to 2000, Beine and Par-sons (2015) examine natural disasters and long-run climatic factors as po-tential determinants of international migration. They find that long-run climatic factors have little or no direct effect upon long-run international migration; however, they find evidence of indirect effects of climatic fac-tors. Specifically, in countries already vulnerable to climate change, natu-ral disasters, epidemics and rainfall shortages in the sending country wid-en the wage gap betwewid-en the swid-ending and the receiving country.
In another work, Cattaneo and Peri (2015) study the relationship between global warming and international migration examining the effect of dif-ferential warming trends across countries on the probability of emigrating from the country or rural-urban migration. In particular, they use a panel data set from 1960 to 2000 (and for 116 countries) to empirically examine the impact of temperature on emigration and urbanisation rates in poor and middle-income countries. They find that increasing temperatures are associated with (1) lower emigration and urbanization rates in very poor
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countries, and (2) positive changes in emigration and urbanization rates in middle-income countries.
In conclusion, environmental change speeds the structural transformation and eventually increasing income per capita in middle-income countries, while the decrease in labour productivity due to the worsening of the envi-ronmental conditions aggravates the liquidity constraints and then slows the urbanization and emigration in poorer countries.
The relationship between temperatures, migration and economic growth has been examined by Dell and Olkien (2012): global warming-driven emigration is associated with a growth in the gross domestic product (GDP) per capita in middle-income countries, while the slowdown in the urbanization and emigration is correlated with lower average GDP per person in poorer countries. Thus, as Cattaneo and Peri (2015) remark, ur-banization and industrialization are crucial mechanisms for the economic growth.
Summing up, empirical research has shown that climate change has not a direct effect on international migration: especially in poorer country, peo-ple move from rural areas to urban areas within the country, and, only in a second moment, they decide to move abroad.
In addition, empirical evidence underlines how migration after natural disasters is essentially a temporary movement. That is why many
re-- 45 re--
searchers as Wood (2001), Black (2001) and Castles (2002) consider the term “environmental refugee” misrepresentative: migration is the result of a complex pattern of factors including political, social, economic and en-vironmental forces. Natural disasters are seen to cause a temporary movement. Indeed, if the migration after the natural disaster occurs, it is seen as the result of deficient responses of weak or corrupt states rather than the environment as expressed in the for of a natural hazard impact.
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CHAPTER III: THE MODEL
Index: 3.1 The benchmark model: the Fujita et al. (1999)’s core-periphery model. – 3.2 Modelling migration behaviour.
The main purpose of this chapter is to provide a more realistic de-scription of the (international) labour movements between rich and poor countries, and to assess how these flows impact on the economic activities of both the sending and the receiving countries. The benchmark model used is the core-periphery (CP) model presented in Fujita et al. (1999)’s book: it describes an economy made by two regions, each with an agricul-tural and a manufacturing industry. The agriculagricul-tural sector produces a sin-gle homogeneous commodity using a constant return to scale (CRS) pro-duction technology, while the manufacturing sector is described by the monopolist competition model à la Dixit and Stiglitz (1977).
In most economic geography model where agents are assumed to be myopic, the decision to migrate has been based on current available re-turns only. A direct consequence is that migration flows are positively correlated with spatial return differentials. However, as Krugman (1991b) agents are interested not only in current available returns, but also in the
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returns they expect in the future. These two major approaches have been used so far to deal with migration, but they fail in taking into account sev-eral drivers and mechanisms that influence agents’ migration decision.
3.1 The benchmark model: the Fujita et al. (1999)’s core-periphery model.
The CP model presented in this chapter share the same structure of virtually all the NEG models: it describes an economy made by two re-gions (indexed by j =1, 2) and two industries. The background
agricultur-al sector, A, produces a homogeneous good using a constant return to
scale (CRS) technology in a perfectly competitive environment. The only production factor used is agricultural workers (hereafter, farmers), whose wages are denoted by 𝑤". The agricultural outcome is assumed to be freely and costlessly traded among the two countries. At the end, house-hold devote a share 1 − 𝜇 of their expenditure on the agricultural com-modity.
Instead, the manufacturing sector, M, produces a horizontally dif-ferentiated good under increasing returns to scale (IRS) in a monopolisti-cally competitive environment framework as described by the Dixit and
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Stiglitz (1977) model. Manufacturing firms use manufacturing workers as the only production factor, whose wages are indicated by 𝑤&. The elastic-ity of substitution between any two varieties is denoted by 𝜎 > 1. In order to ship this good into the other region, some transportation costs have to be paid; those costs are assumed to take the Samuelson (1952)’s iceberg form: τ > 1 units need to be shipped so that 1 unit arrives at destination, the other 1 − τ units melt in transit. A share 0 < 𝜇 < 1 of their expendi-ture is spent by consumers on the composite manufacturing good.
Given all these elements, representative consumer’s tastes can be described by the following Cobb-Douglas function:
𝑈 = 𝐶"/01𝐶&1, 𝐶& = 7 𝑐 𝑖 /0//5𝑑𝑖 8 9:; / /0//5 , 0 < 𝜇 < 1 < 𝜎, (1)
where 𝐶" indicates the consumption of the agricultural commodity, and 𝐶& the (index) consumption of the manufacturing good. This manu-facturing composite good comes in 𝑛> different varieties indexed by i, while 𝑐 𝑖 indicates the quantity of the single i-th variety consumed. 𝑛> is determined at the equilibrium.
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Both regions are assumed to share a fixed amount of manufacturing workers, 𝐿&, with 𝜆 of them living in the region 1, and 1 − 𝜆 in country 2. 𝜆 constituted the endogenous variable of interest in this model. Moreover, these countries are supposed to share an exogenous labour workforce, 𝐿&, with 𝜙 denoting the portion of them living in country 2 and 1 − 𝜙 the share in country 1.
Summing up, the key variables are:
• 𝜇, the expenditure share on the composite manufacturing good M; • 𝑛>, the (equilibrium) number of available varieties of
manufactur-ing goods;
• 𝜎, the elasticity of substitution among any two varieties of the manufacturing good;
• 𝜆 ∙ 𝐿&, the number of manufacturing workers in region 1; • 𝜙 ∙ 𝐿", the number of farmers in region 2.
3.1.1. The Core-Periphery model.
In the Fujita et al. (1999)’s CP model, there are assumed to be two types of workers: mobile (manufacturing) workers and immobile peasants
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(or farmers). Each factor is specific to a different industry: the background sector uses farmers only, while manufacturing industry employs only manufacturing workers.
Given the assumption about the technology in the manufacturing industry, the cost function of the typical manufacturing firm takes the fol-lowing form:
𝐶 𝑥 𝑖 = 𝑤& ∙ 𝛼 + 𝛽 ∙ 𝑥(𝑖) (2) where 𝑥 𝑖 indicates the i-th firm’s output, 𝛼 the fixed cost in terms of labour, and 𝛽 the variable cost in terms of labour.
1.1.2. Normalizations
Following Fujita et al. (1999)’s approach, it is possible to make some normalization for the purpose of making the model more analytical-ly tractable. First, A is taken as the numéraire. Second, units are chosen so that:
• the variable cost in (2) is 𝛽 = 1 −/ 5; • the fixed cost in (2) is 𝛼 =1
5;
• the labour endowments are 𝐿" = 𝜇 and 𝐿& = 1 − 𝜇; and • agricultural sector labour-output requirement is 1.
