International Trade and MIgration: A Quantitative Framework

Goods trade and international mobility of labor are typically analyzed separately. While there is excellent research in both fields, far less is known about the interrelationships between international migration and international trade. This paper provides a first structurally estimable model of international trade with endogenous international migration choices of workers which can be used for model-based counterfactual predictions. Using bilateral trade and migration data for 33 OECD countries we find that quantitative welfare predictions vastly change: investigating reasonable changes in the costs of factor and goods mobility across borders in this unified framework almost doubles the predicted welfare effects compared to established models. Our results sensitize policy makers who seek ex-ante evaluations of international trade agreements and migration policies.