Kaldorian Disaggregation, Temporary Migration and Welfare: Theory and Calibration

In this paper we examine a four-good, four-factor model of trade with two agents: domestic residents and temporary migrants. This modelling framework has three important features: first, there are two tradable and two non-tradable goods; second, there exists Kaldorian disaggregation in consumption; third, the structure incorporates a combination of price adjustment. The results emphasize the influence of factor accumulation at constant traded goods prices on the variable prices of non-traded goods. We also analyse the impact of temporary migration and other structural parameters on domestic welfare. To highlight our results, our model is calibrated on a typical small open economy, Hong Kong, and a wide array of situations are presented when temporary migration and Kaldorian disaggregation can reduce domestic welfare in response to exogenous shocks.