International Migration and Remittances in a Two-country Temporary Equilibrium Model

Open economy macroeconomic models generally overlook the effects of international migration and remittances on income and welfare. A two-country temporary equilibrium model is presented which incorporates trade theoretic elements of international migration and remittances. In the model, an expansionary incomes, or a trade, policy by the host country induces migration, while expansionary demand policies in the source country discourage migration. In all cases, however, when some degree of international migration exists, potential income and welfare gains to both countries induced by such policies exceed the equivalent policy gains where international migration and remittances are absent.