U.S. - Mexican economic linkages: A general equilibrium model of migration, trade, and capital flows

The focus of this thesis is the impact of migration, trade and capital flows on production, earnings, and welfare in Mexico and the United States. The analysis is motivated by the failure to consider the economic implications of immigration policy in general, and the Immigration Reform and Control Act of 1986 (lRCA) in particular.;Migration in the model takes place in response to real wage differentials between unskilled labor in the two countries. Major differences exist between this work and other models of U.S.-Mexican undocumented migration. The scope is broader, including issues of trade and investment policy as well as migration policy. The three-factor model accurately describes the segmentation of the U.S. economy from the perspective of the undocumented migrant, who is a close substitute in production for only a small subset of U.S. labor. The high wage/low wage decomposition also permits differential impacts of policy changes on the upper and the lower classes in each country to affect the distribution of income. The migration decision is modeled as a utility comparison, rather than imposing partial equilibrium elasticities on general equilibrium results.;For a wide range of assumptions, the level of undocumented immigration from Mexico peaks at or around the year 1996 at which time employment creation in Mexico catches up to labor force growth. The robust shape of the migration path indicates that migration is a temporary phenomenon.;Welfare gains exceeding those usually predicted by GE models accrue to policies that bring together U.S. capital and Mexican labor on either side of the border. IRCA appears to be a movement away from economic efficiency, lowering migration levels at a significant cost to high wage labor and capital owners in the U.S. and Mexico.;Migration policy cannot be addressed in isolation. There are linkages between migration, trade, and capital flows that complicate the analysis, and policies aimed at one area may have substantial and unforeseen impacts in other areas. General equilibrium analysis is required to model the full range of interrelationships. A multi-period approach is used to capture the evolution of demographics and development in both countries through labor force growth, capital accumulation, and technological advances.