2002 Reports

Technological superiority and the losses from migration

Davis, Donald R.; Weinstein, David E.

Two facts motivate this study. (1) The United States is the world's most productive economy. (2) The US is the destination for a broad range of net factor inflows: unskilled labor, skilled labor, and capital. Indeed, these two facts may be strongly related: All factors seek to enter the US because of the US technological superiority. The literature on international factor flows rarely links these two phenomena, instead considering one-at-a-time analyses that stress issues of relative factor abundance. This is unfortunate, since the welfare calculations differ markedly. In a simple Ricardian framework, a country that experiences immigration of factors motivated by technological differences always loses from this migration relative to a free trade baseline, while the other country gains. We provide simple calculations suggesting that the magnitude of the losses for US natives may be quite large- $72 billion dollars per year or 0.8 percent of GDP.