Migration and the skill composition of the labour force: the impact of trade liberalization in LDCs

In this paper we add four features to the standard Heckscher-Ohlin model: skilled and unskilled labour, international labour mobility, migration costs, and financing constraints. We show that migration of unskilled, financially constrained workers increases, while migration of skilled workers is unaffected by trade liberalization in a developing country with stable population. That is, trade and migration of unskilled workers are complements, with trade liberalization resulting in a smaller and more skilled labour force. Comparing two identical countries except for their trade regimes, we find that the country with lower tariffs has a larger emigration of unskilled workers (trade and migration of unskilled workers are complements) and a smaller emigration of skilled workers (trade and migration of skilled workers are substitutes), resulting in a more skilled labour force and in an ambiguous effect on the size of the labour force. The same result holds in the case of a trade reform within a country, with population growth replacing the migrants in the pre-reform situation.