Faithful readers, I hope you’ll forgive the comparatively skimpy posts this early morning. I had to spend some time with a buddy who had just learned that one of his closest friends is dying.
Generally, I give trade economics a wide berth, because once you get past simple two-country, two factor models the discussion gets very technical. And from what I can tell, most free trade advocates’ understanding of trade fails to go beyond that simple model.
Mind you, I am not saying trade is bad per se. Quite the contrary. I like Italian shoes, Taiwan-built laptops, and Australian wine as much as the next guy. But having only a rarefied circle of experts understand how and under what circumstances open international markets is beneficial impedes the development of sound policy. After all, the system we have now is a long way from the ideal world of theory, and it isn’t simply due to trade barriers, but the structure of the economies themselves, the degree of labor and capital mobility, even the presence of scale economies (see here for a partial listing of some of the conditions required for free trade to produce favorable outcomes).
In keeping, Dani Rodrik (economics professor at Harvard’s Kennedy School) highlights a paper that argues that cross-border mobility of low skill workers does not increase productivity:
My friend and co-author Murat Iyigun points me to an interesting theoretical paper by Jess Benhabib and Boyan Jovanovic on optimal migration from a global perspective. Contrary to what comes out of textbook models, freedom of labor mobility does not maximize global output in their model. The reason is that low-skill workers are taken to exert a negative externality on average productivity in their host economy. From an output-maximizing perspective, it would then be optimal to geographically segregate low-skill labor completely–i.e. close off all international labor mobility. Only if we care about the global poor sufficiently, will the distributional considerations compel us to open our national borders.
Another reminder that economics is rarely as simple as its popularizers often make it seem.
