Impact of Trade Liberalization on International Movement of Labor Using Global Trade Analysis Project (Revisiting Mundell’s Theorem in Iran)

Increasing economic integrity and expansion of trade across countries have caused international movement of production factors in order to achieve higher income. According to Mundell's theory (1975) and based on traditional theories of trade, unequal and different endowment of factors of production in countries cause the establishment of trade and the movement of factors, until reaching the equalized factor endowment. In other words, factors movement is a substitute for trade, although in most cases the empirical evidence reveals different and sometimes contradictory results to Mandell's theory. The present study investigates the effect of trade liberalization on the international movement of skilled and unskilled labor in Iran. Accordingly, trade liberalization is stimulated through four scenarios of import tariffs reduction of 5%, 10%, 25% and 50% in agricultural, industrial and the whole imported goods by using Global Trade Analysis Project. The findings of this research indicate that there is a complementary relationship between the liberalization of industrial and all imported goods with the mobility of skilled and unskilled labor. However, trade liberalization in the agricultural sector and skilled labor mobility are a complement, they are substitutes in terms of the unskilled labor movement.