Friday, April 4, 2008

The Gains from Trade and Migration

I've always told my class that the gains from trade are large, about ten years ago (dating myself here) people were estimating the welfare costs of trade restrictions in the United States to be about $55,000 per job saved, assuming that the short run job losses literally vanish … forever… It puts a little perspective on the trade gains and welfare losses from restricting trade.

I've always believed the gains from migration to be smaller, but still positive. For example, some studies estimate the per capita gains for native US citizens to be about 0.25%, and a fair argument could be made that migration to the US is much more disruptive to the distribution of income than trade is. What's left out of this calculus is the huuuuuuge benefit per capita to the world on the whole, and to developing countries in particular.

Last week's Economist discusses this issue, citing an article by Kym Anderson and L. Alan Winters. What surprised me was that they estimate the global gains from migration to be much larger than the global gains from trade. The authors cite models that have predicted the gains from trade to be around $300billion per year worldwide. Similar techniques estimate the gains from just 3% of the worlds workforce migrating across borders to be about $675billion per year by 2025. These numbers are mind-boggling, especially if you consider the fact that just 3% of the world population currently resides in a country other than the one in which they were born – with existing controls and restrictions on immigration. So, taking the combined gains from trade and migration, we're basically looking at welfare gains of about a trillion, or about $150 per person per year – a sum that's far from trivial for the 60% of the world's population living on less than $2 a day.

Not only that, but the article mentions that the gains from trade of $300billion may be understating things. Computational models estimate the global cost of trade restrictions to be as high as $2.5 trillion.

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