Arguments Of Migration Flows

Migration flows are a crucial cause and consequence of globalisation and deeply affect the functioning of global markets. International labour mobility, though, is a particularly contentious issue. Traditional international economic theory maintains that the elimination of the barriers to labour mobility would lead to the equalisation of wages across countries and would thus contribute to economic efficiency. Classical liberalism supported this analysis and succeeded to influence policy makers in many countries to adopt its prescriptions. Smith emphasised that a free market requires the free movement of people. In the chapter X of the first book of tThe Wealth of Nations, Smith’s sharp criticism of the Elizabethan Poor law of 1601 makes clear

The process of globalisation has made obsolete Ricardo’s assertions on the mobility of capital taking into account that trade and foreign direct investment motivate a small percentage of global capital flows as compared with rapidly growing financial flows. In addition, the Second Globalisation shifted the balance between financial flows to support the real economy and those to earn speculative gains in favour of the latter. While still in the early 1980s foreign direct investment constituted the 90 % of cross border capital flows, this percentage has become less than 10 % in consequence of the amazing growth of speculative flows.

A crucial feature of traditional free trade theory is that it ignores financial flows across countries that are so important in the financial globalisation of the last decades. The trouble is that in traditional theory comparative advantages depend on the fact that countries face different costs for producing goods. Therefore, if prices do not reflect correctly these costs, the market mechanism is bound to produce distortionary

A growing number of economists share this opinion but they are still a minority in the profession. This raises the puzzling question of why most economists are such enthusiastic supporters of free trade, despite the arguments in its favour are so weak. In my opinion, this depends on the deep-seated rooting of the free trade doctrine in the typical vision of most economists. It seems obvious that any free act of trade is bound to advantage all the traders for the simple reason that the agreement to trade is voluntary and traders are in general not masochist. If this is true for any single act of trade, why should it not be true for a sum of them? Or, indeed, the sum of all of them? Unfortunately, for all its intuitive appeal, this apparent truism is strongly misleading because it does not take into account three insidious pitfalls: the fallacy of composition, the distributive effects of trade and market