Factor Mobility and Migration Models

The chapter introduces the theory of factor mobility between regions or countries. After an introduction defining terms and motives for movements of factors in space it explains the basic factor mobility model assuming perfect competition and full factor price flexibility. Particular emphasis is given to the welfare results: who are the winners and losers if factors are allowed to move, and under what conditions does free mobility increase overall efficiency? We show how factor allocations deviate from an efficient outcome if markets do not work perfectly. After studying factor mobility in a static framework, we extend the analysis to a dynamic framework. It is needed because investment decisions are forward looking. Investors compare present expenditures with present values of future returns. The same holds true for migration because migrants invest into human capital when they expend migration cost today in order to earn a higher income in the future. Finally, the chapter also studies factor mobility in the New Economic Geography and briefly points to the role of the public sector for the analysis of factor mobility. A concluding section points to further research topics not dealt with in this chapter.