Faculty of Economics and Business Administration Publications Database

Why Do Rich Countries Prefer Free Trade over Free Migration? The Role of the Modern Welfare State

Wellisch, Dietmar
Volume: 42
Number: 8
Pages: 1595 - 1612
Month: September
ISSN-Print: 0014-2921
Link External Source: Online Version
Year: 1998
Keywords: Trade; Migration; Redistribution policy
Abstract: According to traditional trade theory (Heckscher—Ohlin), free trade and free migration are equivalent measures of economic integration leading both to an equalization of factor prices. This prediction is in sharp opposition to the observed preference of rich countries for free trade over free migration. We provide an explanation for this inconsistency: the redistribution policies in the countries. Social welfare in countries with a relatively small number of low-skilled native workers is higher with free trade than with free migration due to redistribution of income towards immigrating workers.