Emigration & Prices

M2R Thesis Economie de la MondialisationSupervisors: Biagio Speciale/ Mathilde Maurel

Georgette A. Fernandez Laris

Agenda

Revisiting research question and model specification

Database construction

Empirical Strategy & First results

General Question:

- Examine the impact of Mexican emigration on goods prices.

Benchmark Paper:

“The Effect of Low Skilled Immigration on U.S. Prices: Evidence from CPI Data”

Cortes, Patricia. 2008. “The Effect of Low Skilled Immigration on U.S. Prices: Evidence from CPI Data” Journal of Political Economy 116 (3): 381-422

Research Question RevisedQuestion What is the impact of Mexican emigration on good’s prices?

Motivation: - Fill-in research gap:

- Vast literature on U.S – Mexico Migration- Destination country focus: impact on the labor market outcomes of local or native U.S

workers- Source country focus: concentrating on emigration’s impact on remittances, labor market

participation and network effects.

- No earlier attempts to examine the impact of emigration on Mexican prices

Relevance: Possibility to test new mechanisms through which emigration impacts the unequal distribution of standards of living across Mexico .Examine new ways in which emigration can affect the real purchasing power of Mexicans who stay.

Labor Market

Participation rates at source

Remittances

EducationEntrepreneurship

Health

Model SpecificationPrice Regression (8 different categories)

= ) + + +

() xj:municipality

i: city agglomerate, composed of many representative municipalities (i=1, 2,..., 45)j: municipality (j=1, 2,…, 475)t: time period (t=1, 2)

- First time period 1995-2000- Second time period 2005-2010

Benchmark (Cortes’)

Database ConstructionI. Prices II. Emigration

Source: Mexican Central Bank (Banco de Mexico) & National Institute of Statistics and Geography (INEGI) http://www.banxico.org.mx; http://www.inegi.org.mx/sistemas/bie

- Dependent Variable ConstructionConsumer Price Indexes for eight product categories classified by object of expenditure

= ) + + +

Specific goodijk-----Ex: Cereal brand X, 400g sold at store Y Generic goodjk-----Ex: Cereal in flakesSubindexk----Ex: Food, beverages and tobacoINPC= CPI

I. PricesII. Emigration

- Instrument Data

Source: Woodruff and Zenteno’s Historic State Migration rates (1955-1960)Fraction of each Mexican state’s population that migrated to the United States over period.

- Main Explanatory Variable: municipal level data on emigration Source: National Council of Population (CONAPO) & National Institute of Statistics and Geography (INEGI)http://www.conapo.gob.mx; http://www.inegi.org.mx/sistemas/bie

=

= ) + + +

Matching

Percentage of households with emigrants to U.S by municipality, 2010

Trends & Stylized Facts

Aggregation Level % Hhds with

remittance receits % Hhds with

emigrant % Hhds with

circular migrants % Hhds with

return migrants

National Average

2000 4.47 3.95 0.97 0.87

2010 3.63 1.94 0.92 2.19

State Average

2000 4.93 4.19 1.08 1

2010 4.06 2.02 1 2.46

Municipality Average

2000 6.65 6.04 1.24 1.19

2010 6.5 3.81 1.2 3.45

Biased OLS estimates likely due to:- Omitted Variables EndogeneityUnobserved economic factors and shocks affect prices and emigration rates simultaneously.

Negative economic unobserved factors related to lower economic conditions across regions might also induce greater emigration rates (negative correlation of error with main explanatory variable)

Negative economic shocks, for example 1995 economic crisis, caused increase in contemporaneous emigration and lagged effects on prices

Both make it hard to disentangle true effect of emigration on prices- Reverse Causality EndogeneityFeedback effects from prices to emigration:

Very high costs of living induce higher emigration in region (perhaps due to larger marginalization of population), leads to spurious positive correlation between emigration and prices.

Main Empirical Strategy Challenge:= ) + + +

Model Specification

Own Construction

In practice:

Cortes’ Instrument

Proportion of immigrants to U.S from source country j settling in city i in 1970

Total immigrants to U.S from source country j at decade t

i: U.S destination cityj: source country of origint: time decade (1980, 1990, 2000)

Interpretation:If 1/3 of Mexican immigrants in 1970 in Los Angeles, instrument allocates 33% of all 1990’s Mexicans immigrants to Los Angeles.

IV Solution: Imputed Emigration Rates - Non-experimental approach based on Corte’s instrument construction & using historic state emigration rates

() x

∑𝑗

h𝐻𝑜𝑢𝑠𝑒 𝑜𝑙𝑑𝑠 𝑗𝑡𝑒𝑚𝑖𝑔

Author provided historic emigration ratesSource: Woodruff & Zenteno’s

𝐼𝑛𝑠5559=[1+(𝑚𝑖𝑔5559 𝑥∑𝑗

h𝐻𝑜𝑢𝑠𝑒 𝑜𝑙𝑑𝑠❑𝑒𝑚𝑖𝑔

𝑗𝑡❑ )]

Price Regressions (5 year average prices)

    

(OLS 1)1 (IV 1)

2 (OLS 2) (IV 2)

3 (OLS 3) (IV 3)

4 (OLS 4)

  (IV 4)

 

CategoryDescription

FoodBeverages & Tobacco

 p_cat1_av

Clothing Shoes & Accessories

 p_cat2_av

Housing  

p_cat3_av

Domestic Accessories:Furniture, appliances, utensils

 p_cat4_av

 Dependent Variable

                 l_hhemig -0.00118 0.0176*** 0.00189 0.0593* 0.0177*** 0.00122 0.0109 0.0706**  (0.00167) (0.00644) (0.00802) (0.0327) (0.00334) (0.0162) (0.00692) (0.0309)

 

Municipality Yes Yes Yes Yes Yes Yes Yes Yes 

Year  

Yes Yes Yes Yes 

Yes Yes Yes Yes

Observations 946 946 946 946 946 946 946 946R-squared 0.998 0.998 0.951 0.946 0.992 0.992 0.966 0.957

 

All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses

 *** p<0.01, ** p<0.05, * p<0.1

Results: Instrument

Price Regressions (5 year average prices)

    

(OLS 5)5 (IV 5)

6(OLS 6)

  (IV 6)

7

(OLS 7)

  (IV 7)

8 (OLS 8)

  (IV 8) 

Category Description

Health &Personal Care

p_cat5_av

Transportation: Public & Private

p_cat6_av

Education &Entertainment

 p_cat7_av

 

Other Services

  p_cat8_av 

Dependent Variable

                 

l_hhemig 0.00730 0.127*** 0.00803*** 0.0374*** 0.0145*** 0.145*** 0.0136*** 0.0815***

  (0.00518) (0.0370) (0.00291) (0.0128) (0.00456) (0.0372) (0.00519) (0.0193)  

Municipality Yes Yes Yes Yes Yes Yes Yes Yes 

Year Yes Yes Yes Yes Yes Yes Yes Yes 

Observations 946 946 946 946 946 946 946 946

R-squared 0.988 0.973 0.996 0.995 0.993 0.979 0.985 0.981 

All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses

 *** p<0.01, ** p<0.05, * p<0.1

Justifying the Instrument Use of Historic State Emigration rates: - Based on literature’s findings:

Strong historical persistence in regional migration behavior in Mexico

- How does it work?

- Assessing Instrument Relevance (Strength)- First-Stage F-statistic

Early historic patterns

Migrant networks

(Social Capital)

Make migration more feasible

Lower migration costs

More emigration

to U.S1920’s railroad & 1950’s Bracero Program

(guest worker program)

Prob > F = 0.0000 F( 1, 945) = 20.18Angrist-Pischke multivariate F test of excluded instruments: Prob > F = 0.0000 F( 1, 945) = 20.18F test of excluded instruments:

Justifying the Instrument Assessing Exogeneity: Cannot directly test exogeneity because I have 1 endogenous regressor and 1 instrument

Does instrument fulfill exclusion restriction?

Concern JustificationHistoric emigration rates might affect current prices through channels other than more recent emigration rates:

• Long history of emigration at community level might induce different patterns of economic development & wellbeing in community which in turn might affect prices.

- Basket of goods used to construct current CPI’s is considered at national level and it has changed a lot uniformly across regions and through time.

- Effects of long history of emigration on current prices get diluted with other general equilibrium effects for tradables

Development of the railroads in certain states and communities ushered in their subsequent development---- unleashing series of factors affecting economic conditions and commercial activity

We control for this using linear fixed effects

* Regional rainfall shocks, as instruments would be much more likely to affect prices through channels other than emigration itself (even using lagged rainfall rates)

Price Regressions (5 year average prices)

    

(OLS 1)1 (IV 1)

2 (OLS 2) (IV 2)

3 (OLS 3) (IV 3)

4 (OLS 4)

  (IV 4)

 

CategoryDescription

FoodBeverages & Tobacco

 p_cat1_av

Clothing Shoes & Accessories

 p_cat2_av

Housing  

p_cat3_av

Domestic Accessories:Furniture, appliances, utensils

 p_cat4_av

 Dependent Variable

                 l_hhemig -0.00118 0.0176*** 0.00189 0.0593* 0.0177*** 0.00122 0.0109 0.0706**  (0.00167) (0.00644) (0.00802) (0.0327) (0.00334) (0.0162) (0.00692) (0.0309)

 

Municipality Yes Yes Yes Yes Yes Yes Yes Yes 

Year  

Yes Yes Yes Yes 

Yes Yes Yes Yes

Observations 946 946 946 946 946 946 946 946R-squared 0.998 0.998 0.951 0.946 0.992 0.992 0.966 0.957

 

All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses

 *** p<0.01, ** p<0.05, * p<0.1

Results: Price effects

Price Regressions (5 year average prices)

    

(OLS 5)5 (IV 5)

6(OLS 6)

  (IV 6)

7

(OLS 7)

  (IV 7)

8 (OLS 8)

  (IV 8) 

Category Description

Health &Personal Care

p_cat5_av

Transportation: Public & Private

p_cat6_av

Education &Entertainment

 p_cat7_av

 

Other Services

  p_cat8_av 

Dependent Variable

                 

l_hhemig 0.00730 0.127*** 0.00803*** 0.0374*** 0.0145*** 0.145*** 0.0136*** 0.0815***

  (0.00518) (0.0370) (0.00291) (0.0128) (0.00456) (0.0372) (0.00519) (0.0193)  

Municipality Yes Yes Yes Yes Yes Yes Yes Yes 

Year Yes Yes Yes Yes Yes Yes Yes Yes 

Observations 946 946 946 946 946 946 946 946

R-squared 0.988 0.973 0.996 0.995 0.993 0.979 0.985 0.981 

All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses

 *** p<0.01, ** p<0.05, * p<0.1

What lies ahead…

- Possible Robustness checks- Examining division of Tradables vs Non-tradables- Examining channels

What are the main channels through which the price effect mechanism runs?

Q & AThank You