Abstract
The paper develops a North-South model which is driven by scale economies in the modern sector. The model predicts that skilled and unskilled labor migrate from South to North and capital migrates from North to South. Migration of skilled labor and capital exhibits complementarity with trade while migration of labor may exhibit complementarity or substitutability. If the terms of trade effects are ignored, small movements of all factors affect the welfare of the population in South negatively and of that in North positively. The effects of migration on the terms of trade are ambiguous in general.
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