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Migration and FDI: Reconciling the standard trade theory with empirical evidence

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  • H. Jayet

    (Université de Lille, LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Léa Marchal

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, IC Migrations - Institut Convergences Migrations [Aubervilliers], UP1 - Université Paris 1 Panthéon-Sorbonne)

Abstract

This article focuses on an apparent conflict between the standard trade theory and available empirical evidence on factor flows. Theoretically, labor and capital flows must be substitutes. However, empirical papers find migration and FDI to be either substitutes or complements, depending upon the skill content of migration. To reconcile the standard theory with these empirical results, we develop a two-country general equilibrium model. We consider three factors – capital, unskilled and skilled labor – and two internationally traded goods. Countries only differ in their factor endowments. The first country is a developing country amply endowed with unskilled labor; the second one is a developed country well endowed with skilled labor. Under imperfect factor mobility, we find that capital and unskilled labor flows are substitutes, while capital and skilled labor flows are complements.

Suggested Citation

  • H. Jayet & Léa Marchal, 2016. "Migration and FDI: Reconciling the standard trade theory with empirical evidence," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-04126147, HAL.
    • Handle: RePEc:hal:cesptp:halshs-04126147
    DOI: 10.1016/j.econmod.2016.06.019
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    Cited by:

    1. Chen, Lin & Cheng, Chen, 2023. "Emigration and outward FDI in China: Key role of institutional quality," Finance Research Letters, Elsevier, vol. 51(C).
    2. Mihi-Ramirez, Antonio & Sobierajc, Janusz & Garcia-Rodriguez, Yolanda, 2019. "Interaction of emigration and immigration with foreign direct investment, international trade and remittances," Economics Discussion Papers 2019-63, Kiel Institute for the World Economy (IfW Kiel).
    3. Florenca Gjorduni, 2023. "Diaspora Impact on Foreign Direct Investment: State Institutions on Diaspora Engagement," European Journal of Marketing and Economics Articles, Revistia Research and Publishing, vol. 6, January -.
    4. Paul Comolli, 2018. "Migration, FDI, and Welfare," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 46(2), pages 179-188, June.
    5. Luigi Benfratello & Davide Castellani & Anna D'Ambrosio, 2024. "Migration and the location of MNE activities: Evidence from Italian provinces," Journal of Regional Science, Wiley Blackwell, vol. 64(2), pages 428-461, March.
    6. Groizard, José L. & Martín-Montaner, Joan, 2023. "Migrants, regulations, and trade," Economic Modelling, Elsevier, vol. 120(C).
    7. Huiying Zhang & Yikang Liu, 2022. "Do Foreign Direct Investment and Migration Influence the Sustainable Development of Outward Foreign Direct Investment? From the Perspective of Intellectual Property Rights Protection," Sustainability, MDPI, vol. 14(9), pages 1-18, April.
    8. Rémi Odry, 2020. "Academic Convergence and Migration: the effect of the BolognaProcess on European Mobility," EconomiX Working Papers 2020-24, University of Paris Nanterre, EconomiX.

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    More about this item

    Keywords

    Capital flows; Migration; Skills; Standard trade theory;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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