DP1198 Trade Liberalization, Employment and Migration. Some Simulations for Morocco

Author(s): Jaime de Melo , Riccardo Faini

Publication Date: August 1995

Keyword(s): Migration , Trade Liberalization

JEL(s): F2 , O5

Programme Areas: Human Resources , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP1198.asp

We assess the impact on emigration flows of trade liberalization in a sending country. The paper adopts a case study approach focusing on Morocco, which is well suited for the purpose in hand as it has been a substantial provider of migrants to Europe and has recently undergone a fairly comprehensive trade liberalization. We develop a simple macroeconometric model to assess how trade liberalization affects employment, output and income; the fundamental determinants of migrant supply in the sending countries in the short to medium run. We find that trade liberalization will free pent-up demand for imports and induce a real exchange rate depreciation. In turn, a lower real exchange rate will depress output and employment on the one hand, but boost labour-intensive exports and labour demand on the other. Our simulations suggest that the latter effect dominates so that trade liberalization is found to promote employment creation and through this channel, discourage migrations even in the short run. If trade liberalization is supported from abroad through a foreign grant, however, our results show that the real exchange rate will depreciate less, export expansion will be more limited and migrations may even increase.