Bilateral Migration and Multinationals

This paper starts by observing two novel facts. First, bilateral migration flows are pervasive across OECD countries, both for high-skilled and low-skilled workers. This fact goes against the common belief that migration merely reallocates cheap labor from poor to rich countries. Second, multinational corporations tend to hire a large number of migrant workers. In this paper I develop a general equilibrium model that is able to reproduce these facts. In the model, migration is bilateral because of imperfect substitutability between native and foreign workers, and the operations of multinational corporations. I calibrate the model to match aggregate data on multinational production and migration stocks between the United States and Canada in 2000. The calibrated economy is a laboratory to run counterfactual experiments on the joint effects of economic policies on welfare. Opening to migration alone does not necessarily benefit native workers, especially the low-skilled ones, while the interaction between migration and multinational corporations results in net positive effect on welfare. Migration quotas, if they are reciprocal, have negative effects on native workers' welfare. The experiment results lend supports to the view that greater openness to migration can bring mutual welfare gains. 1 Department of Economics, Boston University, 270 Bay State Road, Boston, Massachusetts, USA 02215. Email: [email protected], Website: http://people.bu.edu/chunkai/. I am deeply indebted to my main advisor, Stefania Garetto for her continuous encouragement and guidance. I am also grateful to Simon Gilchrist, Daniele Paserman, and Samuel Bazzi for their thoughtful comments and discussions. I thank to participants at Macroeconomics dissertation workshop in Boston University for useful comments, and Samuel Bazzi for sharing his STATA codes. All errors are my own.