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GTAP Resource #949

"Relaxing Restrictions on the Temporary Movement of Natural Persons: A Simulation Analysis"
by Walmsley, Terrie and Alan Winters

While there has been an upsurge in bilateral and global agreements on trade in goods, the liberalisation of services and labour markets have proceeded much more slowly. Nearly twenty years ago Hamilton and Whalley (1984) suggested that the liberalisation of world labour markets could double world income and imply proportionately even larger gains for the developing countries. Thus allowing labour to move between countries would seem to be an important tool for growth and development. Far from seeking to exploit such opportunities, however, the developed world became less open to both migration and to temporary labour flows. Recently, however, the temporary movement of workers has moved back onto the agenda. It was recognised as one of four modes of delivering services abroad by the Uruguay Round’s General Agreement on Trade in Services (GATS), where it became known as ‘Mode 4’ liberalisation – the Temporary Movement of Natural Persons (TMNP). Even more recently, developed economies have begun to realise that they suffer from shortages of both skilled and available unskilled labour. Developing countries, as the largest potential suppliers of temporary labour, are intensely interested in the effects of such reforms on their own welfare.

Of course, agreements concluded under Mode 4 of the GATS relate only to the service sector, where restrictions on the movement of persons is seen as a barrier to exports, rather than an issue of migration per se. This is an important distinction when it comes to framing policy proposals, however, to the analysis of the effects of greater mobility on purely economic this distinction is of less importance, and thus to a first approximation may be viewed as inducing changes in labour endowments accompanied by some income transfers.

This paper conducts such an analysis in order to see who might benefit from increasing the TMNP, and by how much. The GTAP Model (Hertel, 1997) is developed to examine the effects of an increase in TMNP between developing and developed countries. The model captures the effects of temporary movement on wages, remittances, income and welfare, amongst other things, and takes account of differences in the productivities of the temporary workers and the resident workers.

We estimate that by increasing developed economies’ quotas on inward movements of both skilled and unskilled labour by just 3% of their labour forces, world welfare would rise by $US156billion – about 0.6% of world income. This figure is half as large again as the gains expected from the liberalisation of all remaining goods trade restrictions ($US104billion). In general, developing countries gain most from the increase in quotas, with higher gains from the increase in quotas on unskilled labour than on skilled labour. Developed economies generally experience falling wages, but their returns to capital and overall welfare increase in most cases. The relaxation of restrictions on unskilled labour is also found to be the more important component of TMNP for the developed economies. This is because it has widespread positive effects on production and hence on real GDP, whereas the benefits from skilled labour movements are felt primarily in specific service sectors.

Resource Details (Export Citation) GTAP Keywords
Category: GTAP Application
2002 Conference Paper
Status: Published
By/In: Presented at the 5th Annual Conference on Global Economic Analysis, Taipei, Taiwan
Date: 2002
Created: Walmsley, T. (3/22/2002)
Updated: Bacou, M. (7/16/2002)
Visits: 3,945
- Labor market issues

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