Migration versus Delocation:
The Neoclassical Approach
Cristina Procházková Ilinitchi
Department of World Economy
Faculty of International Relations
University of Economics, Prague
Email: [email protected]
General terms and ideas
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
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Migration: the displacement of a person
who leaves his/her place of
birth/residence for another place
Delocation: migration of companies
(capital)
Modelating migration: how and why?
• It is possible to deduct the main factors which
have a significant influence on migration flows
• These factors can be integrated within
miscellaneous (mathematical) models
• The conclusions can be used (mainly) by the
governments (migration policies, FDI, etc.)
Some of the main approaches
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Gravitation models
M ij 
f ( Ri , Aj )
g ( Dij )
• state that the volume of migration is inversely proportional to the
distance travelled and directly proportional to the relative size of the
origin and destination places
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Neoclassical approach
•
•
•
•

M ij  f (Wi , W j , C ij )
Wi - wages at place i; Wj – wages at place j, Cij - migration costs
wage differentials are the primary factors driving migration
prospective migrants maximize their income
In the Todaro model wages are replaced by expected incomes
Behavioral models
(B  B )  C
n
j
n
i
• in the 1980s research emphasis shifted from aggregate models to
behavioral models that focus on individuals
• an individual n at place i will migrate to place j if the net benefits from
migration exceed the migration costs
n
ij
The neoclassical approach –
fundamental assupmtions
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People are rational
Individuals and firms maximize utility
or profit
Individuals behave independently
and with full information
As a result, free markets usually
bring about an efficient allocation of
resources
Labour vs. capital mobility in the
neoclassical approach
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International migration is caused by geographical differences in the
supply and demand of labor
The wage differential will cause workers from the low-wage regions
to move to the high-wage region
low wage region
high wage region
LABOR
LABOR
CAPITAL


CAPITAL
As a result of the movement, the supply of labor will decrease and
wages will rise in the capital-poor region, while the supply of labor
will increase and wages will fall in the capital-rich region
If capital and labor are perfectly mobile, in the long run market
forces create a new equilibrium where wages have the same levels
in all regions
Labour vs. capital mobility in the
neoclassical approach
Countries A and
B have the same
Capital/Labor
ratio.
Capital increases
in the country A
(for ex. a big
investment
project). The
Capital/Labor
ratio in the
country A is
higher that in the
country B.
Work force will
migrate from the
country B to the
country A. Capital
in the country A
will decrease (will
move to the
country B or some
companies might
go broke).
In The country A
Capital will
decrease and
Labor will
increase. In the
country B Capital
can increase and
Labor will
decrease. The
Capital/Labor
ratios are equal
again.
↑
→
←
A
B
A
B
A
B
A
B
The evolution of net FDI inflows
and the impact on net migration
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Do FDI flows influence the migration
flows? – first basic empirical study
12000
10000
8000
6000
4000
2000
0
-2000
2000
2001
2002
2003
Net migration (2 years lag) (persons)
2004
2005
2006
2007
FDI net inflow (millions of EUR)
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Conclusions and further research
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The main goal is to show a possible
connection between delocation and
migration
Hypothesis: net FDI inflows are
negatively correlated with the
country’s net emigration (in the
Easthern Europe countries)
Further empirical research is to
confirm or to reject this assumption