11 april 2002wto-wb symposium1 the economic implications of liberalising mode 4 trade l alan winters...
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11 April 2002 WTO-WB Symposium 1
The Economic Implications of Liberalising Mode 4 Trade
L Alan Winters
University of Sussex
11 April 2002 WTO-WB Symposium 2
Approaches to TMNP
• The polar forms:– International trade models– International migration models
• Intermediate approaches:– sectoral studies– business plan model
11 April 2002 WTO-WB Symposium 3
Trade Models
• scale• specialisation• technology• competition
• high barriers• threat to competition• pervasiveness of
services• size of services
11 April 2002 WTO-WB Symposium 4
Trade and Factor Rewards
• factor price equalisation
• trade and migration are substitutes
• BUT wage differences could persist:– productivity– scale– taxes– more factors than goods; complete
specialisation; factor intensity reversals
11 April 2002 WTO-WB Symposium 5
Migration Models
• TMNP is NOT permanent migration
• but labour forces change similarly
• especially in ‘revolving door’ TMNP
11 April 2002 WTO-WB Symposium 6
Wages before Mobility
WB
WA
MPLA
MPLB
OB OAL0
11 April 2002 WTO-WB Symposium 7
Wages after Mobility
WB
WA
MPLA
MPLB
OB OAL0
a
b
c
W
L1
11 April 2002 WTO-WB Symposium 8
Winters
WN
WS
M0 M1
1/4
LN
11 April 2002 WTO-WB Symposium 9
Quantifying the Barriers
• wage in S
• additional costs of supply:– transport, accomodation, visas, registration– ‘QRs’
• excessive regulation
• immigration controls
• price comparisons - difficult even under easier conditions
11 April 2002 WTO-WB Symposium 10
Business Plan Model
WN
WS+C
WS
M0 M1 LN
11 April 2002 WTO-WB Symposium 11
Business Plan Model
WN
WS+C
WS
M0 M1 LN
11 April 2002 WTO-WB Symposium 12
Intersectoral Mobility
• wages across sectors are either
• (a) rigidly related – because of perfect mobility
• (b) quite independent– because refer to quite separate factors
• for long run (a) is pretty good
• search is for intermediate position
11 April 2002 WTO-WB Symposium 13
Walmsley and Winters
• standard CGE model - GTAP
• perfect competition, no externalities
• modify for TMNP
11 April 2002 WTO-WB Symposium 14
Temporary and Permanent Workers
Host CountryHome Country
LFm PLm
TM TW
PLs LFs
Allocation
Module
11 April 2002 WTO-WB Symposium 15
Allocation of Temporaries
PoolSupply of
Temporary Migrants
= Demand
for Temporary
Workers
Home region N
Host region N
Home region 1 Host region 1
Sector JSector 1
11 April 2002 WTO-WB Symposium 16
The Experiment
• quotas increased by 3% of host work force– skilled and unskilled separately
• supplied by labour exporters pro rata to work forces
• Table 1 gives flows– USA: +2.7m unskilled; +2.4m skilled– China: -2.4m unskilled; -.5m skilled
11 April 2002 WTO-WB Symposium 17
Host vs Home ConceptsLabour Flow from A to B
IncomeSource
HostConcept
HomeConcept
PLB B BKB B BTLB retained BT AT
TLB remitted A APLA A AKA A A
11 April 2002 WTO-WB Symposium 18
Table 3: Economic Welfare
IIWelfare oftemporaryWorkers
IIIWelfare oftemporaryMigrants
IVWelfare ofpermanentresidentsb
VWelfareby homeregionIII + IV
VIWelfareby hostregionII + IV
Dev’edCo.s
175960 68577 6982 75559 182942
Dev’ingCo.s
-5002 98984 -20685 78301 -25688
11 April 2002 WTO-WB Symposium 19
Table 4: Percentage Changes
II% change
in RealWage ofSkilledLabour
III% change
in RealWage of
UnskilledLabour
IV% Changein RentalPrice ofCapital
V% Change
in RealGDPc
VI% Changein Termsof Trade
Dev’edCo.s
-1.02 -0.61 0.78 1.05 -0.24
Dev’ingCo.s
5.13 0.12 -0.52 -0.91 0.53
11 April 2002 WTO-WB Symposium 20
Table 5: Skilled vs Unskilled Liberalisation
IIWelfare ofpermanentworkers
(unskilled)
IIIWelfare ofpermanentworkers(skilled)
IVWelfare oftemporarymigrants
(unskilled)
VWelfare oftemporarymigrants(skilled)
VIWelfare of
homeregion
(unskilled)II + IV
VIIWelfare of
homeregion
(skilled)III + V
Dev’edCo.s
6,860 121 50,587 17,989 57,447 18,111
Dev’ingCo.s
13,097 -33,781 37,676 61,309 50,773 27,528