November 10, 2024

Profit maximization and mobility are two common assumptions in economic analysis that yield important insights and policy implications. It leads to what economists call an integrated global economy where the rates of return for a specific factor are the same anywhere in the world, and the price of a particular commodity is the same across markets. These insights are widely accepted, but there are others that are easily derived by adding some reasonable assumptions commonly used in economics. The important insight is that factor mobility leads to the equalization of the final products even when the products do not trade across the national markets. Under these conditions, migration is a substitute for free trade as far as factor returns and product prices in the global economy are concerned. These two assumptions, when applied to the topic of interstate migration , international migration and international trade yield some interesting implications and insights. The simple framework sheds light on these issues and in the process shows how tax rates and tariff differentials impact the migration and trade flows and suggest that President Trump tariff proposal may not be too far-fetched as his critics argue.

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