Rekindling New Economic Geography in Times of COVID-19: Labor Mobility Responses to Health Shocks in Central and North America

Abstract

This paper evaluates the potential responses of international labor mobility to the recent COVID-19 health shocks, using a New Economic Geography model inspired by recent events in Central and North America. The model suggests that the restraining impact of COVID-19 on migratory flows may retain potential emigrants in Mexico and Central America, enlarge the home market in the region, attract foreign and local businesses, and increase real wages. Moreover, this prediction unveils opportunities for the future from the opening of new, regular migratory pathways between Central America and Mexico. These would concentrate population and industry in Mexico, raise the market potential in the area and boost real wages in Mexico – and possibly in Central America as well – despite the partial deindustrialization of the Central American hinterland.