International migration

and growth

Giovanni Facchini

University of Nottingham, University of Milan and CEPR

Motivation

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50

100

150

200

250

1965 1975 1985 1990 2000 2010 2013

Inte

rnat

ion

al M

igra

nt

Sto

ck

Mill

ion

s

Year

AFRICA ASIA EUROPE LATIN AMERICA AND THE CARIBBEAN NORTHERN AMERICA OCEANIA

Stock of migrants by major area. Source: United Nations

Motivation

Migrant’s stock as share of the total population, 2010. Source: WDI

Motivation

Educated immigrants as a share of total immigrants (Artuc et al 2013)

Outline

• Understanding the gains from international

migration

• Estimating the actual gains from international

migration

• Estimating the gains from fully liberalizing

migration

• What are the main channels at play?

• Discussion and conclusions

6

The static gains from migration

• Pioneering contribution: Berry and Soligo (1969)

• Consider migration from a low wage country (e.g. Turkey) to a high wage country (e.g. Germany)

• How will migration affect wages and national income in the two countries?

• Assumptions – One good

– Two factors of production, labor and capital

– Only labor is mobile between countries

– All factors are fully employed (can relax this)

– Wage equals marginal revenue product

7

Demand for Labor in Germany

W

LG

PG*MPLG

8

Demand for Labor in Turkey

W

LT

PT*MPLT

9

Global Supply of Labor

W

← LT LG →

L

10

Labor Market Equilibrium without Labor Mobility

W

← LT LG →

PG*MPLG PT*MPLT

WG

L0G

L0T

WT

11

Labor Market Equilibrium with Labor Mobility

W

← LT LG →

PG*MPLG PT*MPLT

1

W1

L1G L1

G

12

Labor Market Equilibrium with Labor Mobility

W

← LT LG →

PG*MPLG PT*MPLT

WG

L0G

L0T

WT

W1

Immigrants

13

Labor Market Equilibrium with Labor Mobility

W

← LT LG →

PG*MPLG PT*MPLT

WG

L0G

L0T

WT

W1

Immigrants

A B

C

E

D F

14

Wage and Income Effects of Migration

• German natives – Loss in labor income = A

– Gain in capital income = B

– Gain in GNP = B

– Gain in GDP = B+C+D+E

• Turkish natives – Gain in labor income (migrants) = C+D

– Gain in labor income (non-migrants) = F

– Loss in capital income = D+F

– Gain in GNP = C

– Loss in GDP = D+E

– Gain in global GNP = B+C

Actual gains from migration

• Borjas (1995, 2014). The focus here is on the actual (and not potential) gains from observed migration.

• Given a share of migrants in the US labor force of about 15% (2013), the actual gains from migration are small – in the order of 0.24% of GDP.

• Similar results have been obtained for the UK by Dustmann, Frattini and Preston (2013)

Actual gains from migration

• Di Giovanni, Levchenko and Ortega (2015).

• Global assessment of welfare effects of migration taking explicitly into account the role of trade and remittances

• It explicitly allows for different levels of workers productivity, which varies by skill level, country of origin and country of residence

• Heterogeneous firms model a la’ Melitz (2003)

• The key mechanism through which migration impacts welfare is through changes in market size and in the number of product varieties.

Actual gains from migration

• An inflow of immigrants will increase the number

of product varieties available domestically and for

trade

• Distinction btw short run and long run: in the long

run the number of possible projects change in

equilibrium

• The welfare comparison involves moving from

the currently observed migration levels to autarky.

• The migration decision is not explicitly modelled.

Main results (di Giovanni et al. 2015)

Distributional effects (di Giovanni et al. 2015) • Long run: similar for all groups • Short run: effects among different groups are bigger

Potential gains from migration

• Hamilton and Whalley (1984). One of the first papers to study the effects of liberalizing migration.

• Builds a simple general CGE model with two production factors (capital and labor), capital is fixed by region

• The world is divided up in seven regions: – EEC

– US

– Japan

– Other developed

– OPEC

– NIC

– LDC

• Focus is on the effect of moving from autarky to free labor mobility.

Potential gains from migration

Source: Hamilton and Whalley 1984

Potential gains from migration

Source: Hamilton and Whalley 1984

Allowing for adjustments

Potential gains from migration

• Benhabib and Jovanovic (2012). Static macro model, with one output good, localized spillovers, no capital flows and no international transfers (aid)

• Optimal (world welfare maximizing) migration policy would involve substantially larger flows of migrants from poor people than those actually observed

• Under reasonable parameter estimates an equalitarian social planner would design a policy involving the migration of 1.8-2.5 billion people from poor to rich countries – i.e. 10 times as many migrants as those actually observed.

Potential gains from migration

• Docquier et al. (2015)

• Interesting paper. Provides a framework to account for the existence of “incompressible migrations costs” that might explain why we observe relatively small migration flows even when labor mobility is free (like w/in the EU)

• Idea: use data from the Gallup World Survey on migration intentions to obtain estimates of the number of potential (bilateral) migrants; use then these figures to estimate both the legal and “incompressible” migration costs, i.e. those costs that cannot be affected by changes in policies.

Source: Docquier et al. 2015

Potential gains from migration

• The result of the analysis is that taking into

account incompressible migration costs leads

to a drastic reduction in the world gains from

migration.

• Various scenarios are considered, with the

change in world GDP at 7-18 %, with a focal

point at 12%.

Channels

• What are the channels through which the gains

from migration come about?

• Several have been considered in the literature:

– Labor market

• Goods market

– Innovation

– Effects on productivity

– Institutional changes

Labor Market Channel

• Very large literature. Two main approaches: – Spatial correlations. Exploits the variation in the

distribution of immigrants across regions/geographic areas within a country

– National labor markets: Exploits the variation in the distribution of migrants across different skill levels (education x labor market experience)

• Limited effects

• Some papers have investigated the effect of migration on the price of non-tradable goods in destination countries, finding a negative effect (Cortes 2008, Frattini 2009)

Innovation

• Several papers have investigated the impact of immigration on innovation activity, and the analysis has been carried out using mainly US data

• We will consider two examples:

– Hunt and Gauthier Lauselle (2010)

– Kerr and Lincoln (2010)

Immigration and innovation

• Hunt and Gauthier-Lauselle (2010) The variable of interest is the number of US patents per capita.

• Two main data sources: National Survey of College Graduates for 2003 and data from the US Patent and Trademark Office, combined with Census data for the period 1940-2000

• Stylized fact: immigrants invent more than natives; in 2003 they account for 24% of the patents, but they represent only 12% of the population. The difference is explained by the over-representation of immigrants in STEM fields

Immigration and innovation

Immigration and Innovation

• To assess the possible presence of crowding out or crowding in effects for natives, a systematic analysis is carried out using state level data, and an instrumental variable approach.

• Results: (Some) evidence of positive spillovers, i.e. an increase in the number of migrants makes it more likely for natives to file a patent application in a US state.

• Similar results using the same methodology have been obtained for Europe by Bosetti et al. (2012).

Immigration and innovation

• Kerr and Lincoln (2010)

• Focus on ethnic inventors

• Analysis is carried out at various levels of disaggregation (state, city, firm) and using various data sources, including the number of Labor certification applications filed by employers to apply for an H1B visa.

• [Similar results for the UK, see Nathan 2015]

Ethnic inventors in the US

Effect of H1B visas on US ethnic inventions; city level evidence Source: Kerr and Lincoln 2010

Effect of H1B visas on US ethnic inventions; firm level evidence Source: Kerr and Lincoln 2010

Productivity

• Peri (2012) estimates the impact of immigration

on state level productivity in the US

• Production function approach, with an IV

methodology to address the potential endogeneity

of migration

• Positive impact of immigration on total factor

productivity

• Immigration promotes techniques that are more

unskilled labor efficient (see also Lewis 2013)

IV estimates of the impact of migration Source: Peri 2012

Productivity

• Peri, Shih and Sparber (2015)

• Builds on Peri (2012), using a similar

identification strategy, but focuses on the impact

of STEM workers on total factor productivity

growth and on skill biased technological change

• Results suggest that STEM workers contributed

significantly to TFP growth across US cities, and

to a lesser extent to growth in the technology’s

skill bias.

Source countries

• Up to now, the focus has been on the effect of migration on destination countries.

• As for source countries, there is a huge literature highlighting several potential channels:

– Brain drain vs brain gain (e.g. Docquier and Rapoport 2012)

– The role of remittances (Yang 2011)

– Entrepreneurship of return migrants (Saxenian 2002)

– Transfer of norms (Spilimbergo 2009, Docquier et al. 2015)

Conclusion

• Immigration is increasing, but still restricted by

most destination countries

• Large efficiency gains are up for grabs (Clemens

2011 “Trillion dollars left on the sidewalk)

– possibly smaller than that?

• Multiplicity of channels at work e.g. innovation,

productivity etc.

• More work needed on the channels at work in the

source countries