Efficient labor reallocation and the liability of localness: Unintended consequences of NAFTA and other commercial agreements

Purpose – The purpose of the paper is to explore the polarizing subject of immigration, from a business/economics perspective. Design/methodology/approach – The paper adds to the theoretical discussion the concept of “liability of localness”; a concept associated with the negative repercussions suffered by indigenous firms, after a regional free trade agreement takes place. Findings – The paper answers why despite the suggested net economic gains brought by immigrants, there is still a big negative sentiment regarding the issue of immigration. It is proposed that regional trade agreements force labor reallocation, and in so doing, negatively affect the unskilled labor force. Research limitations/implications – This paper does not consider other academic disciplines to explain the problem, as it would be beyond the scope and aim of this journal. Practical implications – The advanced proposition suggests the need to have mechanisms in place to mitigate the negative consequences brought about by reallocation pressures (suffered mostly by unskilled labor). Social implications – This paper has social/policy applicability as it deals with the negative effect brought to local communities by foreign communities (at time 2), who lost their way of life (at time 1) after the implementation of a free trade agreement (at time 0). Originality/value – In general, the negative consequences brought by free trade agreements do not garner the attention they deserve. By advancing the liability of localness concept into the immigration topic, this paper provides theoretical insights about the negative consequences originated by free trade agreements. Classification-JEL: R00, Z0