53rd Congress of the European Regional Science Association: "Regional Integration: Europe, the Mediterranean and the World Economy", 27-31 August 2013, Palermo, Italy
We develop a two-country model with two industries: the smokestack manufacturing industry, which generates pollution, and the transboundary renewable resource industry. With no trade, migration occurs from the foreign country, with lower manufacturing productivity, to the home country. If the gap in pollution abatement technology, which is superior in the home country, dominates the productivity gap, both countries gain from migration. Under a free trade equilibrium, we also show that if the marginal harvest of the resource industry is lower (higher) than marginal damage of manufacturing in the home (foreign) country, migration still causes positive effects on the stock of renewable resources, which should improve both countriesf welfare.