Economics and Emigration

7/31/2019 Economics and Emigration

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Journal o Economic PerspectivesVolume 25, Number 3Summer 2011Pages 83106

W hat is the greatest single class o distortions in the global economy? Onecontender or this title is the tightly binding constraints on emigrationrom poor countries. Yet the e ects o these distortions are little studiedin economics. Migration economics has ocused elsewhereonimmigration , how the movement o people a ects the economies that receive migrantswhile thee ects o emigration go relatively neglected.

Vast numbers o people in low-income countries want to emigrate rom thosecountries but cannot. The Gallup World Poll fnds that more than 40 percent o adults in the poorest quartile o countries would like to move permanently toanother country i they had the opportunity, including 60 percent or more o adultsin Guyana and Sierra Leone (Pelham and Torres, 2008; Torres and Pelham, 2008).Emigration is constrained by many orces, including credit constraints and limitedin ormation at the origin (Hatton and Williamson, 2006). However, policy barriersin the destination countries surely play a major role in constraining emigration. Thesize o these constraints is apparent in the annual U.S. Diversity Visa Lottery, which

allocates permanent emigration slots mainly to developing countries. In fscal year2010, this lottery had 13.6 million applications or 50,000 visas (U.S. Department o State, 2011)272 applicants per slot. Many other potential destinations, such as Japan, restrict migration more than the United States.

How large are the economic losses caused by barriers to emigration? Researchon this question has been distinguished by its rarity and obscurity, but the ew estimates we have should make economists jaws hit their desks. When it comes

Economics and Emigration:Trillion-Dollar Bills on the Sidewalk?

Michael A. Clemens is a Senior Fellow, Center or Global Development, Washington, D.C.,and a Visiting Scholar, Department o Economics and the Wagner School o Public Policy,New York University, New York, New York. His email address is [email protected] .doi=10.1257/jep.25.3.83

Michael A. Clemens
mailto:[email protected]:[email protected]


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84 Journal o Economic Perspectives

to policies that restrict emigration, there appear to be trillion-dollar bills on thesidewalk. The frst section o this paper reviews existing estimates o the global gains

rom the reduction o migration barriers. The gains to eliminating those barriersamount to large ractions o world GDPone or two orders o magnitude largerthan the gains rom dropping all remaining restrictions on international ows o goods and capital. These estimates are sensitive to assumptions, and in the ollowingsections I discuss the (limited) available research on our kinds o assumptions that underlie these estimates: how migrants a ect nonmigrants, the shape o labordemand, the e ect o location on productivity, and the easibility o greater migra-tion ows. These kinds o questions are not the primary ocus o the traditionalresearch agenda in migration economics; at the end o the paper, I speculate about why, and propose a new research agenda.

Estimates o the Gains From Reducing Migration Barriers

Researchers have built models o the world economy to estimate the gains romeliminating various barriers to trade, capital ows, and migration.Table 1summa-rizes several recent estimates or policy barriers to trade, and (to my knowledge) allexisting estimates or barriers to capital ows and migration. Even without delvinginto the details o these studies, the overall pattern is unmistakable and remarkable:The gains rom eliminating migration barriers dwar by an order o a magnitude

or twothe gains rom eliminating other types o barriers. For the elimination o trade policy barriers and capital ow barriers, the estimated gains amount to lessthan a ew percent o world GDP. For labor mobility barriers, the estimated gains areo ten in the range o 50150 percent o world GDP.

In act, existing estimates suggest that even small reductions in the barriersto labor mobility bring enormous gains. In the studies o Table 1, the gains romcomplete elimination o migration barriers are only realized with epic movementso peopleat least hal the population o poor countries would need to move torich countries. But migration need not be that large in order to bring vast gains. A conservative reading o the evidence inTable 2,which provides an overview o e fciency gains rom partial elimination o barriers to labor mobility, suggests that the emigration o less than 5 percent o the population o poor regions would bringglobal gains exceeding the gains rom total elimination o all policy barriers tomerchandise trade and all barriers to capital ows. For comparison, currently about 200 million people3 percent o the worldlive outside their countries o birth(United Nations, 2009).

Should these large estimated gains rom an expansion o international migra-tion outrage our economic intuition, or a ter some consideration, are they at least plausible? We can check these calculations on the back o the metaphorical envelope.

Divide the world into a rich region, where one billion people earn $30,000 per year,and a poor region, where six billion earn $5,000 per year. Suppose emigrants romthe poor region have lower productivity, so each gains just 60 percent o the simple


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Michael A. Clemens 85

earnings gap upon emigratingthat is, $15,000 per year. This marginal gain shrinksas emigration proceeds, so suppose that theaverage gain is just $7,500 per year.I hal the population o the poor region emigrates, migrants would gain $23 tril-lionwhich is 38 percent o global GDP. For nonmigrants, the outcome o such a wave o migration would have complicated e ects: presumably, average wages wouldrise in the poor region and all in the rich region, while returns to capital rise in therich region and all in the poor region. The net e ect o these other changes couldtheoretically be negative, zero, or positive. But when combining these actors withthe gains to migrants, we might plausibly imagine overall gains o 2060 percent o global GDP. This accords with the gasp-inducing numbers inTables 1and 2.

This calculation suggests a di erent kind o sanity check on the global estimates:comparing the price wedges caused by di erent types o international barriers. I the gains rom eliminating barriers to labor mobility are greater than all remaining

Table 1E fciency Gain rom Elimination o International Barriers(percent o world GDP)

All policy barriers to merchandise trade 1.8 Goldin, Knudsen, and van der Mensbrugghe (1993)4.1 Dessus, Fukasaku, and Sa adi (1999)a 0.9 Anderson, Francois, Hertel, Hoekman, and Martin (2000)1.2 World Bank (2001)2.8 World Bank (2001)a 0.7 Anderson and Martin (2005)0.3 Hertel and Keeney (2006, table 2.9)

All barriers to capital fows 1.7 Gourinchas and Jeanne (2006)b

0.1 Caselli and Feyrer (2007)All barriers to labor mobility

147.3 Hamilton and Whalley (1984, table 4, row 2)c 96.5 Moses and Letnes (2004, table 5, row 4)c 67 Iregui (2005, table 10.3)c,d

122 Klein and Ventura (2007, table 3)e

a These studies assume a positive e ect o trade on productivity; the othertrade studies assume no e ect.b Change in consumption rather than GDP.c Assumes two actors o production, immobile capital, and no di erencesin total actor productivity. Estimates rom Hamilton and Whalley and romMoses and Letnes cited here assume no di erences in inherent productivity o migrants and nonmigrants. Some much smaller estimates in Moses andLetnes assume that poor-country emigrants at the destination are1/5 asproductive as nonmigrants at the destination, which (as the authors note intheir ootnote 12) is certainly extremely conservative.d Computable general equilibrium (CGE) model.e Assumes three actors o production and international di erences in total

actor productivity in a dynamic growth model.


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gains rom eliminating barriers to trade and capital ows, we should expect to seeproportionately greater international price wedges between di erent labor marketsthan between di erent goods and capital markets. In act, this pattern is exactly what we see. Typical international trade costs, up to and including the bordernot just policy barriers but all barriers, including distance, language, currency, and in or-mationare the rough equivalent o a 74 percent ad valorem tari , according to Anderson and van Wincoop (2004, p. 692)1; price wedges between the same goodsin di erent national markets are also o this magnitude ( or example, Brad ord andLawrence, 2004). For identical fnancial instruments, Lamont and Thaler (2003)fnd that the price rarely di ers across the globe by more than 15 percent. Boththese wedges look small next to the global price wedges or equivalent labor. InClemens, Montenegro, and Pritchett (2008), we document gaps in real earnings or

1 This includes only international trade costs and excludes domestic distribution and retailing costsbehind the border.

Table 2 E fciency Gain rom Partial Elimination o Barriers to Labor Mobility

Removal o barriers Net emigration rate

(% origin-region population) E ciency gain (% world GDP)

Moses and Letnes (2004, 2005) Complete 73.6 96.5Partial 29.3 54.8Partial 10.3 22.0

Iregui (2005) Complete 53 67Partial 24 31

Klein and Ventura (2007) Complete > 99 122Partial 14.8 20

Partial 7.3 10 Walmsley and Winters (2005) Partial 0.8 0.6

Partial 1.6 1.2

van der Mensbrugghe and Partial 0.8 0.9Roland-Holst (2009) Partial 2.0 2.3

Notes: The Moses and Letnes fgures on emigration rates rom are rom Moses and Letnes (2005) table 9.3;fgures on e fciency gains are rom Moses and Letnes (2004) table 9, scaled to assume equal inherent labor productivity across countries ( or example, 10 percent elimination o wage gap gives $774 billiongain in table 9, multiplied by the ratio 96.5/9.6 in table 5 to equalize inherent labor productivity, anddivided by world GDP gives 22 percent). Iregui (2005) fgures are rom tables 10.3, 10.6, 10.8, and 10.9.Klein and Ventura (2007) fgures are rom tables 2 and 7 (emigration rates calculated rom populationallocations given 80 percent initial population allocation to poor region). Walmsley and Winters (2005)fgures rom tables 4 and 11, assuming 80 percent o world population starts out in (net) migrant-sendingcountries. Van der Mensbrugghe and Roland-Holst (2009) fgures come rom tables 6 and 7, and likewiseassume 80 percent o world population starts out in (net) migrant-sending countries. World GDP in 2001is taken to be $32 trillion, doubling (in 2001 dollars) to $64 trillion by 2025.


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Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? 87

observably identical, low-skill workers exceeding 1,000 percent between the UnitedStates and countries like Haiti, Nigeria, and Egypt.2 Our analysis suggests that noplausible degree o unobservable di erences between those who migrate and those who do not migrate comes close to explaining wage gaps that large.

All o this suggests that the gains rom reducing emigration barriers are likely to be enormous, measured in tens o trillions o dollars. But o course, the exact magnitudes o the estimates inTables 1 and 2 are highly sensitive to modelingassumptions. For convenience, I will re er to the studies by their initials: Hamiltonand Whalley (1984) [HW ], Moses and Letnes (2004, 2005) [ML ], Iregui (2005)[I ], Klein and Ventura (2007) [KV ], Walmsley and Winters (2005) [WW ], and vander Mensbrugghe and Roland-Holst (2009) [VR ]. The backbones o these studies vary rom a static partial equilibrium model (HW and ML ), to a static computable

general equilibrium model (I , WW , VR ), to a dynamic growth model (KV ). Somehave two actors, labor and immobile capital (HW , ML , I ), and some allow mobilecapital plus third actors and international di erences in total actor productivity (KV , WW , VR ). Some include extensions that di erentiate between skilled andunskilled labor (KV , I , WW , VR ). Di erences among the models conclusions hingecritically on how the e ects o skilled emigration are accounted or; the specifca-tion and parameters o the production unction (and thus the elasticities o supply and demand or labor); assumptions on international di erences in the inherent productivity o labor and in total actor productivity; and the easible magnitude o labor mobility.3 Assumptions on the mobility o other actors matter a great deal as

well; inKV the majority o global e fciency gains rom labor mobility require mobilecapital to chase laboras described by Hatton and Williamson (1994).To understand what underlies these various estimates o the gains rom greater

labor mobility, we need better in ormation about at least our eatures o thesemodels: 1) What are the external e ects o (especially skilled) emigrants depar-ture on the productivity o non-emigrants? Many o the above estimates rest on theassumption that this e ect is small or nil. 2) What is the elasticity o labor demand,in the origin and destination countries? Are these studies getting it about right?3) How much o international di erences in productivity depend on workersinherent traitsaccompanying them when they moveand how much dependson their surroundings? Is productivity mostly about who you are, or where you are?4) Finally, given the many barriers that prevent emigration today, what uture levelo emigration is easible?

2 Here, observably identical means 35 year-old urban males with 912 years o education, born andeducated in the country o origin.3 Some o the estimates in the original papers assume that workers rom the poorest countries workingin rich countries are inherently and permanently one-third as productive (Hamilton and Whalley,1984) or one-f th as productive (Moses and Letnes, 2004) as workers born in rich countries. Thisassumption seems extraordinarily conservative (as Moses and Letnes point out in their ootnote 12).The model o Klein and Ventura (2007) is extended to describe the transition to steady state in Kleinand Ventura (2009).


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Figure 1illustrates the importance o the answers to these questions. FollowingBhagwati (1984), consider a world with two countriesone with low wages and one with high wages. Wages or the low-wage country are on the le t-hand vertical axis,and the quantity o labor in that country is measured rom le t to right, romO to L .The labor demand curve there is D. Wages or the high-wage country are measuredon the right-hand vertical axis, and quantity o labor in the high-wage country ismeasured right to le t romO * to L . The labor demand curve there is D *. Thus,

world labor supply is the entire length o the horizontal axisOO *

. Initial wages ineach country arew 0 and w 0 * . I completely ree migration were allowed, the wagerate between the two countries would equalize at the point where the labor demand

Figure 1Determinants o the Gains rom Emigration

Note: The migrants gain wel are corresponding to areaa + b . In the low-income country, labor gains areac ;owners o other actors (say, capital and land) lose areab + c . In the high-income country, labor loses aread ; owners o other actors gain aread + e . In sum, the global wel are gain isa + e , the shaded area.

D (low-wage country)

D * (high-wage country)

w w *

O O *L L

a

w 0

*

b c

d e w

0

W a g e

i n l o w - w

a g e c o u n t r y W

a g e

i n h i g h - w a g e c o u n t r y

Quantity of labor


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curves intersect. An increase in migrationsay by having the workers betweenL and L migrate rom the low-income to the high-income countryleads to a rela-tively small decrease in the wage rate or the high-income country, a relatively smallrise in the wage rate or the low-income country, and a large rise in income orthe migrants themselves. Migrant workers gain; nonmigrant workers gain in thelow-income country and lose in the high-income country; owners o other actors(such as capital and land) lose in the low-income country and gain in the high-income country. Adding up these wel are e ects, global wel are rises by an amount corresponding to the shaded area o the fgure.

The fgure makes it clear how the answers to the our questions above shape thesize o the global wel are gain. I emigration exerts negative externalities on nonmi-grants, the gain could be o set by consequent downward shi ts in both demand

curves. I labor demand becomes highly elastic at the origin or at the destination,the gain shrinks. To the extent that emigrants areinherently less productive thannonmigrant workers at the destination, the true demand curve or their labor lies

urther below D* , and the gain also shrinks. Finally, as the size o easible migrationshrinks,L gets closer toL, and once again, the gain shrinks.

In the ollowing sections, I will consider each question in turn. I argue that,or most o them, economists need much more evidence than we have, but that the

existing evidence gives us little reason to believe that the numbers inTables 1and 2 greatly overstate the gains to lowering migration barriers.

Question 1: What are the External E ects o Migrants onNonmigrants?

Begin with the country o origin. The departure o some peoplesuchas the skilled or talented rom a poor country might reduce the productivity o others in that country. Such an e ect would tend to o set the gains romemigration. Externalities like these are o ten assumed to be so pervasive that the literature re ers to skilled migration with a pejorative catchphrasebraindrainembodying the assumption. (To see why economists should avoid thisterm, picture reading a journal article on emale labor orce participation that calls it the amily abandonment rate.) In this issue, Gibson and McKenzie review and critique this literature.

But it is not well-established under what conditions the emigration o skilled workers results in a net depletion, in equilibrium, o the stock o skilled workers inthe origin country. Mount ord (1997), Stark, Helmenstein, and Prskawetz (1997),and a subsequent literature theorize that when emigration to high-wage countriesbecomes possible, even when it is costly and uncertain, the expected value o human capital rises or all potential migrants. Because not all o those who were

thus encouraged to invest will leave, the existence o an emigration option or somepeople can tend to raise the human capital stock at home. Macro and micro studiessuggest that this e ect is real and large enough to substantially o set the departures


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in some settings (Beine, Docquier, and Rapoport, 2008; Chand and Clemens, 2008;Batista, Lacuesta, and Vicente, 2011; Docquier and Rapoport, orthcoming).

But or the sake o argument, consider cases where skilled emigration unambigu-ously lowers the stock o human capital at the origin. A broad theoretical literatureposits that human capital externalities shape the development o poor countries ( orexample, Romer, 1990; Kremer, 1993; Lucas, 1988). I positive human capital exter-nalities are real and large, it is possible that the depletion o human capital stock viaemigration in icts negative externalities on nonmigrants. However, these externali-ties have proven di fcult to observe, their theoretical basis remains unclear, and theiruse to justi y policy remains shaky. I will discuss each o these in turn.

Human capital externalities are, it turns out, hard to locate and measure in the wild. The most commonly cited example o externalities that emigrants might impose

on those remaining in the origin country involves healthcare workers. But i humancapital externalities rom health workers were a frst-order determinant o basic healthconditions, A rican countries experiencing the largest out ows o doctors and nurses would have systematically worse health conditions than other parts o A rica. In act,those countries have systematically better health conditions (Clemens, 2007). Morebroadly, i the external e ects o schooling were major and straight orward determi-nants o economic development, the vast increases in schooling levels across the worldsince 1960 would have been accompanied by a substantial rise in total actor produc-tivity. As Pritchett (2001) points out, nothing like that happened in poor countries.

These acts do not negate the existence o human capital externalities. But they

do suggest that externalities rom national stocks o human capital per seall elseequalmight be small enough or their e ects to be swamped by other orces.Furthermore, the theoretical mechanisms o human capital externalities are

poorly established in the literature, which has ew conclusions in general and evenewer or developing countries (Ciccone and Peri, 2006). Potential mechanisms or

human capital externalities include knowledge spillovers, research and develop-ment, physical health, political leadership, ertility, and capital accumulation ( orexample, Meng and Ye, 2009; Canton, 2009; Spilimbergo, 2009). Docquier, zden,and Peri (2010) fnd that the e ects o emigration on nonmigrants depend critically on the assumed mechanisms o human capital externalities. I economists are tounderstand, measure, or predict the external e ects o emigration, they requiregreater clarity about these mechanisms.

For example, the external e ects o emigration on nonmigrants dependcrucially on the spatial extent o human capital externalities, which is poorly under-stood. I the external e ects o human capital act over short distancessuch as adoctors carethe e ects on nonmigrants rom the emigration o human capitalper se might be small. Most doctors in many A rican countries already work in cities(and in nicer neighborhoods), so the marginal e ect o their international emigra-tion on people in rural areas and slums could be limited (Clemens, 2009). On the

other hand, i the external e ects o human capital act over large distancessuchas by the generation o public goods like new ideas that can ow back homethistoo diminishes the external e ects o emigration per se (Kerr, 2008).


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Here is another example o the need or greater clarity: Let us assume that greater inequality has negative external e ects, perhaps by ostering crime andmistrust. It is conceivable that emigration could exert external e ects on nonmigrantsby raising inequalityi or instance a ew amilies with relatives abroad get bigremittance ows. But i this is an argument or restricting migration, it proves alittle too much. Inequality o remittance income would be lower i no amilies hadthis opportunity or i all amilies had this opportunity. So it is not clear whether alittle emigration is too much or too little by this criterion. Furthermore, i a man

rom Morocco triples his income by moving to France, the e ects on inequality o outcomes within Morocco and within France are both contingent: they dependon where in Moroccos income distribution he came rom, and where in Francesincome distribution he goes to. But the e ects on inequality o outcomes or France

and Moroccocollectively almost certainly declines. Does international inequality exert worse external e ects than domestic inequality? Both theory and evidence arelacking here.

Even i the mechanism and magnitude o these external e ects were crystal-clear, there are important concerns about policy instruments that would addressthe externalities by limiting or taxing migration ows: whether it is practical to set correct Pigovian taxes, statically or dynamically, and the extent to which the assump-tions justi ying Pigovian taxes hold here.

An economic case or emigration taxes or restrictions based on human capitalexternalities would require abulous amounts o in ormation. A social planner selec-

tively restricting skilled emigration rom each country would need a vast databaseo domestic labor market conditions or hundreds o skilled occupations, as well asreliable estimates o the socioeconomic externalities conveyed by those o di erent pro essions in di erent locations at di erent times: entrepreneurs, nurses, engineers,and others.4 In practice such restrictions end up indiscriminatesuch as the policy o the United Kingdoms National Health Service to ban recruitment rom most developing countries, regardless o conditions there. The optimal uture timepath o such restrictions is even less clear. Should the emigration o skilled workers rom theDemocratic Republic o the Congo, one o the poorest countries on Earth, be tempo-rarily restricted so that those workers positive externalities somehow spark growth

4 Ng (2004) makes this argument ormally: In the presence o an externality that cannot be directly removed, achieving a second-best wel are outcome via intervention (such as a Pigovian emigration tax)can be impossible i : 1) there are multiple substitute/complement relationships o unknown directionand sign among di erent goods in the market; and 2) the costs o administering the intervention arelarge. Ng (p. 202) does argue that a probabilistic third-best outcome may be achievable i there is at least good in ormation on the size and sign o the original externality, but poor in ormation on thesize and sign o other relationships in the economy. Thus, i we held di use priors about the harm toemigrants rom restricting emigration, but narrow priors about the positive e ects on non-emigrants

rom restricting emigration, a probabilistic third-best outcome might be achievable by emigration restric-tions. But regulating emigration based on human capital externalities aces the opposite situation: themagnitude o the harm to potential emigrants rom emigration restrictions is clearly negative and can belarge, whereas the size and sign o the human capital externalities that the intervention seeks to correct are theoretically and empirically uncertain.


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there? Even i that happened or which there is no clear economic evidencesuchtemporary restrictions might need to last or centuries be ore Congo caught up tothe destination countries and the restrictions became unnecessary.5

What is more, policy measures to tax or limit emigration o ten rest on assump-tions that bear closer examination. In one o the best-known proposals, Bhagwatiand Dellal ar (1973) argue or a Pigovian tax on skilled emigration, to compensatetheir countries o origin ( or additional discussion, see Bhagwati and Hamada, 1974; Wilson, 2008). Their argument is that skilled workers convey a positive externality on other workers in the same country, such as acilitating the adoption o oreigntechnologies. Their argument does not rest on fscal e ects, such as the loss o public subsidies or tuition spent on those who later emigrate, but rather on thepure external e ects o having smart and talented people nearby.

There are at least two undamental problems with this idea. First, it assumesthat skilled labor emigration is not already taxed. But many skilled workers acebinding migration restrictions that are the economic equivalent o large taxes. TheUnited States strictly rations its visas or temporary and permanent employment-based skilled migration, especially rom large countries like India, and most physicians rom the developing world ace large nonvisa migration barriers suchas the requirement to repeat medical residency or U.S. licensing. Just as nontari trade barriers have a tari equivalent, quotas and licensing restrictions on themovement o skilled workers have a migration tax equivalent. International gapsin real earnings or high-skill workers are very high: 5001,000 percent or some

pro essors, computer programmers, and health workers (Clemens, 2009). Eveni only a small raction o these gaps is due to policy restrictions, the economicequivalent o a large emigration tax is already broadly applied.

Second, Coase (1960) taught us that the mere existence o an externality doesnot imply that a Pigovian tax maximizes wel are. In a world o transaction costs andexternalities, wel are is maximized i the property right is assigned to the party witha higher cost o reducing the externality. Requiring skilled emigrants to pay a tax,rather than requiring non-emigrants to pay potential emigrants to stay, assigns owner-ship o emigrants positive externalities to non-emigrants. But in settings o skilledemigration, it is not obvious who bears the higher cost. Taxing an emigrant Filipinoregistered nurse at 10 percent o oreign income per year or 10 years might raise$40,000.6 But the all-inclusive cost o eliminating the external e ect by a di erent

5 Real per capita income in the United States is now 150 times real per capital income in the DemocraticRepublic o the Congo (as measured by the World Bank at purchasing power parity). Assume (hero-ically!) that human capital externalities are enormous, so that restricting emigration rom Congo couldraise its real per capita growth rate rom roughly zero to about 4 percent per year. Given that real percapita growth in the United States is historically about 2 percent per year, it would take about two and ahal centuries be ore emigration restrictions became unnecessary.6 Bhagwati and Dellal ar (1973) suggest a tax o 10 percent on the a ter-U.S.-tax income o skilledemigrants rom low-income countries working in the United States. Assuming an annual income in theUnited States o $60,000 and U.S. tax rate o 30 percent, such an emigration tax would yield $42,000over 10 years.


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routetraining a new registered nurse in the Philippinescan be less than $12,000.The ormer policy might be globally impoverishing relative to the latter.

Further complications arise rom the implicit assumption that non-emigrantshold property rights in the positive externalities o skilled migrants. I non-emigrants own these rights, do they also own any negative externalities theemigrants would have provided by stayinglike contributions to urban conges-tion or to pollution? And who decides whose positive externalities are owned by whom? Presumably, an American doctors decision not to provide care in Haiticauses the same loss o positive externality to Haitians as a Haitian doctors deci-sion to leave Haiti, but ew would consider taxing the American doctors decision.

So ar I have discussed externalities at the origin, as this piece seeks to shinelight on emigration rather than immigration. But I now turn brie y to the issue

o negative externalities imposed on people who already live at the destination when migrants arrive there. The arrival o migrants could, or example, decreasethe availability o unpriced public goods at the destination like open space, cleanair, publicly- unded amenities, and a degree o cultural homogeneity that may be valued by nonmigrants. These too would tend to reduce the global wel are gains o greater mobility.

Economics knows little about the mechanisms and magnitudes o such exter-nalities at the destination, particularly under large-scale emigration. These deservestudy. But there is little reason at present to think that they would greatly alter themessage o Tables 1and 2.First, the literature contains no documented case o large

declines in GDP or massive declines in public-service provision at the destinationcaused by immigration. Second, century-old issues o theAmerican Economic Review and the Journal o Political Economy extensively discuss concerns that any urtheremigration might degrade the American economy and society ( or example, Hall,1913; Kohler, 1914). Since then the American population has quadrupledwithmuch o the rise coming rom increasingly diverse immigration to already settledareasand the United States remains the worlds leading economy, with muchgreater availability o publicly- unded amenities than a century ago. Third, thereare also many plausible positive externalities rom increased immigration. Theseinclude spatial aggregation economies in high-skill labor ( or example, Glaeserand Mar, 2001) and the e ects o low-skill labor availability on the productivity o high-skill labor, particularly womens labor ( or example, Kremer and Watt, 2009;Cortes and Tessada, orthcoming). Fourth, all serious economic studies o theaggregate fscal e ects o immigration have ound them to be very small overallsmall and positive at the ederal level (Auerbach and Oreopoulos, 1999; Lee andMiller, 2000), small and negative at the state and local level (Congressional Budget O fce, 2007).

Here again, even i we had solid evidence that immigration exerted clear andlarge net negative externalities to those at the destination, an economic justifcation

or internalizing those externalities with quotas or taxes would ace unansweredquestions. I peoples taste or cultural homogeneity justifes limits on immigrationrom abroad, could a taste or cultural homogeneity also justi y blocking certain


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kinds o internal migration to a neighborhood or city that has, to its current resi-dents, a pleasing degree o cultural homogeneity? This raises urther di fcult issueso the extent to which pre erences or homogeneity are endogenous to exposure,so that greater immigration might alter the pre-existing pre erence. And returningto the issue o property rights, any taxes or quotas to internalize the negative exter-nalities o immigration at the destination require an assumption: that migrants areresponsible or theirnegative externalities at the destination. But as I have discussedabove, some economists assume that migrants home countriesnot the migrantsthemselvesown migrants positive externalities at the origin. It is doubtless possible, with some e ort, to lay out a theory in which societies own the positive externali-ties o migrants in their origin country but societies are not the owners o negative externalities o migrants in their destination country. The economics literature has

barely begun to address these issues.In short, there is little in the admittedly scanty literature so ar to support thenotion that externalities rom labor mobility would greatly a ect the global wel areestimates presented earlier in this paper.

Question 2: What is the Elasticity o Labor Demand at the Originand Destination?

Economists studying international migration have given much o their energy

to estimating how the movement o emigrants a ects the wages o nonmigrants. Forexample, does the arrival o immigrants lower wages or incumbent workers? In a U.S.context, Borjas (2003) and Borjas and Katz (2007) argue that low-wage workers doexperience a modest decline in nominal wages rom immigration. On the other side,Card (2009) and Ottaviano and Peri ( orthcoming) fnd that millions o recent immi-grants to the United States have caused the average workers nominal wages to declinea ew percenti at allwhile Cortes (2008) fnds that immigration lowered the priceo a typical consumption basket about hal o 1 percent. The mass migrations o thenineteenth century likely caused a cumulative decline o 1 or 2 percentage pointseach decade in wages at the destination (Hatton and Williamson, 1994).

Conversely, does the departure o emigrants raise the wages o non-emigrantsin the origin country? Mishra (2007) fnds that the vast emigration o Mexicans tothe United States between 1970 and 2000 may have caused an 8 percent increasein Mexicans nominal wages in Mexico. Economic historians have evidence that comparable increases in home wages were caused by mass emigration rom Sweden(Karlstrm, 1985) and Ireland (Hatton and Williamson, 1993; ORourke, 1995).

These estimates are roughly in line with the elasticities used in the global wel areestimates o Tables 1and 2.For example, in the model o Moses and Letnes (2004),a 10 percent removal o emigration barriers generates a 34 percent increase in

wages or non-emigrants at the origin, and a 2.5 percent decline at the destination.Even substantial adjustment o these elasticities is unlikely to alter the estimatede fciency gains a great deal.


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O course, these elasticities could be di erent at much higher levels o emigra-tion. The literature gives no clear support or such a pattern, however, even undergreatly increased migration. In historical cases o large reductions in barriers tolabor mobility between high-income and low-income populations or regions,those with high wages have not experienced a large decline. For example, wageso whites in South A rica have not shown important declines since the end o theapartheid regime (Leibbrandt and Levinsohn, 2011), despite the total removal o very large barriers to the physical movement and occupational choice o a poorpopulation that outnumbered the rich population six to one. The recent advent o unlimited labor mobility between some Eastern European countries and Great Britain, though accompanied by large and sudden migration ows, has not causedimportant declines in British wages (Blanch ower and Shad orth, 2009).

Further, even i emigrants modestly depress wages when they arrive at the desti-nation, this does not justi y restricting movement by the standard wel are economicsanalysis. Such e ects represent pecuniary externalities rather than technicalexternalities. The human capital externalities discussed in the previous section,along with common examples like belching smokestacks, are examples o technicalexternalities. Pecuniary externalities, in contrast, operate through the price mecha-nism: or example, my decision not to place a bid on the house you are selling may lower the price you can receive rom an alternative buyer. Pecuniary externalitiesare a near-universal eature o economic decisions. In standard economic analysis,they o er no wel are justifcation or taxation or regulation o those decisions.7

For example, research on domestic labor movements has oundto thesurprise o ewthat movement o labor rom one city to another tends to modestly lower wages at the destination (Boustan, Fishback, and Cantor, 2010), and that theentry o women into the labor orce can modestly lower mens wages (Acemoglu, Autor, and Lyle, 2004). However, no economist would argue that these acts alonesigni y negative externalities that reduce social wel are and should be adjusted witha Pigovian tax on those who move between cities or on women entering the work-

orce, because these externalities seem to be almost purely pecuniary. Similarly,economists would be virtually unanimous against imposing a tax on new domesticcompetitors on the grounds that they imposed costs on existing frms, becauseagain such externalities are pecuniary. O course, this argument need not imply that policies to help low-wage U.S. workers in some manner are socially undesirable,only that such policies should be based on concerns over equity or building humancapital, rather than on standard e fciency justifcations.

7 This classifcation can be subtle. For example, McKenzie and Rapoport ( orthcoming) fnd that somechildren in Mexico drop out o high school as a result o the emigration o a household member. Should we treat this fnding as an externality? I the behavior occurs because those children see that the returnsto emigration are much higher than the returns to education, then their behavior need not imposean externality. However, a negative externality could arise i high school graduates in Mexico convey substantial positive technical externalities on other workers. The literature has not established the theo-retical extent or empirical magnitude o such externalities.


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Question 3: Is Labor Productivity Mostly about Who You Are, Or Where You Are?

Existing estimates o the e fciency gains rom greater emigration hinge ona critical assumption: How productive will migrants be at the destination? Many have low productivity where they now are, in poor countries. How much o that low productivity moves with them? Klein and Ventura (2007) assume that migrantsproductivity is about 68 percent o the productivity o nonmigrants at the destination;Moses and Letnes (2004) estimate scenarios where this number is anything rom 20to 100 percent. The assumption has frst-order e ects on their e fciency estimates.

We can observe the earnings o todays migrants in destination countries tolearn something about their productivity. The question is how these marginal

migrants would di er rom average migrants under larger-scale migration. Futuremigrants could be more positively or more negatively selected than todays migrants, with regard to observable or unobservable determinants o productivity. Selectionon observable traits is easier to measure; selection on unobservables is harder.

This question is closely linked to the question o whether international di er-ences in productivity are explained by di erences in people or di erences in places.I an emigrant to a rich country is more productive than an observably identical worker who stayed in a poor country, there are two broad explanations. One is that the emigrant is di erent in unobservable ways rom the non-emigrant; this argument is compatible with a high degree o positive selection in migration and little in uence

o location itsel on productivity. The other is that the emigrant is not that di erent in unobservable ways rom the non-emigrant; this argument is compatible with lesspositive selection in emigration, and a large e ect o location on productivity.

Empirical work is beginning to attack this problem. One approach is to usemore sophisticated structural models to account or selection in macroeconomicestimations (Ortega and Peri, 2009; Grogger and Hanson, 2011). A complemen-tary approach is to fnd natural experiments that identi y the extent o selectionon unobservables in microeconomic settings (summarized by McKenzie and Yang,2010). Examples o the latter include McKenzie, Gibson, and Stillman (2010), whouse a naturally randomized visa lottery to show that the gains rom emigrating romTonga to New Zealand are only somewhat lower than the simple wage di erence

or observably identical workers inside and outside Tongain other words, there islittle unobserved sel -selection in those who emigrated. In Clemens (2010), I alsouse a naturally randomized visa lottery to show that large gains to overseas workexperienced by Indian so tware workers cannot be primarily the result o unob-served positive sel -selection in those workers.

While this literature is actively evolving, in no case has one o these recent andrigorous studies identifed a country pair or which large di erences in earningsacross the border can be mostly accounted or by sel -selection o workers (migrant

or otherwise) who cross the border. Numerical simulations using U.S. census micro-data on immigrants (Hendricks, 2002) and combined U.S. and oreign microdata(Clemens, Montenegro, and Pritchett, 2008) have shown that plausible degrees o


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positive selection are insu fcient to explain more than hal the earnings gap between workers in the United States and observably identical potential migrants abroad.Sophisticated survey data do not fnd positive emigrant selection on unobservabledeterminants o earnings to much exceed 50 percent in any case that has beenstudied ( Jasso and Rosenzweig, 2009; Kaestner and Malamud, 2010; Fernndez-Huertas, 2011; Ambrosini, Mayr, Peri, and Radu, 2011).

These initial results accord well with an entirely separate macroeconomic liter-ature ( or example, Hall and Jones, 1999) which fnds that most o the productivity gap between rich and poor countries is accounted or by place-specifc total actorproductivity, not by productivity di erences inherent to workers. Large di erencesin location-specifc total actor productivity mean that ree movement o goods andcapital cannot by themselves achieve the global equalization o wages, as they can

in the most abstract trade models (ORourke and Sinott, 2004; Freeman, 2006,Kremer, 2006).In other words, the existing evidence, preliminary and spotty though it is,

gives no reason to believe that a better accounting or unobserved di erences inthe determinants o productivity between migrants and nonmigrants would greatly alter the preceding estimates o e fciency gains rom greater labor mobility.8

Question 4: What Future Level o Emigration Is Feasible?

The extent o easible emigration depends on the willingness o politiciansat potential destinations, acting as agents or their electorates, to allow immigra-tion. About 59 percent o people in the United Kingdom tell pollsters that thereare currently too many immigrants; in Italy it is 53 percent, in the United States37 percent, in France 33 percent, in Germany and the Netherlands 27 percent, andin Canada 17 percent (German Marshall Fund, 2010).

The global gains in aggregate economic wel are inFigure 1mask the conse-quent redistribution between labor and other actors, and between labor at di erent levels o skill. I the median voter at the destination holds relatively little capital orskill, this could limit the willingness o citizens and politicians in that country toreduce impediments to emigration rom poor countries. Noneconomic attitudessuch as nationalism can also play an important role. Mayda (2006) fnds that it isthe wealthier, better-educated, and less-nationalist individuals in rich destinationcountries who have more avorable attitudes toward immigration.

8 In act, the emerging evidence on selection suggests that some o the estimates o gains rom emigrationare small because they are too conservative. Walmsley and Winters (2005), or example, assume in theirbase scenarios that migrants rom low-productivity countries to high-productivity countries acquire only hal o the di erence in productivity between the two countries. That is, they assume that the di erencein productivity between observed non-emigrants at the destination and observed non-emigrants at theorigin overstates by 100 percent the true productivity e ect o emigration on new emigrants. None o the existing estimates suggests that the magnitude o selectionin the limited cases that have beenstudiedis close to that large.


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A substantial expansion o emigration may thus seem politically impractical,and within a time rame o a ew years, this objection holds some orce. But theglobal e fciency gains rom even small relaxations o existing barriers to emigrationare large relative to the gains rom urther relaxation o barriers to trade and capital

ows (as shown earlier inTable 2).Furthermore, economists should be open to the possibility that dramatic

changes in what is practical can happen over several decades. A ter all, changesin geographic labor mobility that were unthinkable only a ew decades ago havecome to pass. Through the 1980s, a Polish national attempting to emigrate to West Germany could be shot by soldiers sealing the Inner German border rom the east.Today, Polish jobseekers may move reely throughout Germany. The world hassummarily discarded vast systems o restrictions on the labor mobility o medieval

ser s, slaves, women, South A rican blacks, indigenous Australians, and a long list o others.Even modest expansions o emigration have provided great benefts or large

numbers o people. In Clemens and Pritchett (2008), my coauthor and I show that among the people born in Haiti, Mexico, or India who live above a (uni orm,purchasing power parityadjusted) international poverty line, large ractions live inthe United States. For example, among Haitians who live either in the United Statesor Haiti and live on more than $10/day measured at U.S. pricesabout a third o the U.S. poverty line our out o fve live in the United States.9 Emigration romHaiti, as a orce or Haitians poverty reduction, may be at least as important as any

economic change that has occurred within Haiti.Economic policy might help ease political constraints. Several economists haveproposed policy mechanisms to compensate nonmigrants at the destination ordeclines in wel are, by charging immigrants a taxthe fgure $50,000 o ten comesupor auctioning work permits (including Becker and Becker, 1997; Freeman,2006; Orrenius and Zavodny, 2010; Fernndez-Huertas and Rapoport, 2010). All o these, in one way or another, seek to minimize the number o losers rom labormobility by moving rom the KaldorHicks concept o optimalitywhich is that social gains are su fcient so that it would be potentially possible to compensateloserstoward Pareto optimality, in which parties that would otherwise be losersreceive actual compensation. Mechanisms like this might alleviate some o thepolitical constraints to greater labor mobility.

9 That fgure probably overestimates the e ect o migration on Haitians poverty, since there is evidenceo some positive selection o Haitian emigrants on observable and unobservable determinants o earn-ings (Clemens, Montenegro, and Pritchett, 2008). But even strong assumptions about highly positiveselection would still leave emigration as the cause o a large raction o the poverty reduction that hasoccurred or people born in Haiti. In addition, this estimate tends to understate the e ect o emigra-tion on poverty reductionbecause it does not count Haitians who emigrated to countries other thanthe United States; because part o the poverty reduction or non-emigrants could have been caused by remittances, in turn caused by emigration; and because the estimate was made be ore a 2010 earthquakecrushed Haitis economy.


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A Research Agenda Whose Time Has Gone

The our questions above outline a research agenda on emigration with whichI will conclude this paper. But frst I want to contrast that new agenda with the oldagenda in the literature we have now, and speculate about why that old agenda hasdominated so ar.

Start talking about the wel are benefts and costs o emigration at any researchor policy meeting on migration and economic development, and the conversationturns quickly to two topics: brain drain and workers remittances. These havebeen the primary ocus o research on the relationship between emigration andglobal economic development, and not coincidentally, they are the ocus o theother two papers in this symposium. Both issues are important. Yet neither o

these approaches shows much promise as a way o better understanding the globale fciency gains rom greater emigration. I have already discussed the reasons why the literature on migration and human capital externalities has not yielded goodreasons to alter existing estimates o the gains to greater emigration. I turn now tothe literature on remittances.

Global ows o remittances are rising toward $400 billion per year (Mohapatra,Ratha, and Silwal, 2011). This trend has helped to launch a large and valuableresearch literature, presented and discussed by Dean Yang in this issue. But remit-tances are typically a small raction o emigrants oreign wage, especially orpermanent emigrants (van der Mensbrugghe and Roland-Holst, 2009). To a frst

approximation, remittances are intrahousehold trans ers that cross borders, and thereasons that people send remittances (Rapoport and Docquier, 2006) are broadly the same as the reasons people make other intrahousehold trans ers (La errreand Wol , 2006). I a Mexican woman experiences an income gain rom workingin Mexico, the whole value o that gain adds to her households wel areboth theportion she consumes and the portion she shares with her husband. This social wel are calculation is una ected i she experiences an income gain by stepping overthe Mexican border into Texas.

In short, barriers to emigration have a frst-order e ect on wel are; any barriers to ows o remittances have only a second- or third-order e ect on wel are. But the literature has gone into great detail about the smaller e ects,

requently investigating whether the wel are e ects o remittances are attenuatedby any withdrawal o remittance recipients rom the labor orce ( or example,Cox-Edwards and Rodrguez-Oreggia, 2008) or by any consequent appreciationo the sending-country exchange rate ( or example, Amuedo-Dorantes and Pozo,2004; Vargas-Silva, 2009).

Why has the literature ocused so much more on the relatively small and uncer-tain e ects o remittances and brain drain than on the relatively massive and likely global e ects o migrationincluding the benefts or the migrants themselves?

Perhaps many economists consider the estimates o e fciency gains inTable 1 tobe sel -evident and thus not worthy o much study. But the review above suggests we have much to learn about those estimates. I suspect the reason lies elsewhere.


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Perhaps the literature ocuses on remittances and brain drain because thosee ects more obviously pertain to national wel are than individual wel are.

Focusing on national wel are is a grand old tradition in economicsolder,indeed, than the work o Adam Smith, who prominently inserted the wealtho nations into the title o his great book. Economists in the long-ago mercan-tilist tradition largely agreed that the goal o economic policy was to encouragenational production and exports, to discourage imports, and thus to bring specieinto the country. To this end, they advised encouraging manu actured exports anddiscouraging raw material exports, to generate domestic employment (Heckscher,1935[1955]; Irwin, 1996, p. 34). The classic work o Furniss (1920, p. 8) drawsout the implications o mercantilist assumptions or labor: Raising export revenuerequires mass production at low cost. High manu acturing employment at low

wages requires a moral duty or low-income people to work in manu acturingand a moral duty or high-income people to pre erentially consume domesticmanu actures. In this view, the emigration o labor only a ects national wel are tothe extent that it encourages or discourages home production and exports. Themercantilist writer Josiah Child (1668 [1751], pp. 1467), or example, argued that any emigration to colonial plantations is certainly a damage, except the employ-ment o those people abroad, do cause the employment o so many more at homein their mother kingdoms, and that can never be, except the trade be restrained totheir mother kingdom . . .

Economic research carried out under this set o working assumptions would

ocus on estimating the extent to which emigration tends to raise origin-country production (such as through remittances, minus the consequent labor orce withdrawal) or tends to lower origin-country production (such as through braindrain). Little attention would be reserved or the gains to migrants. This, in very broad strokes, describes the bulk o extant literature on the economic e ects o emigration. I am ar rom the frst to claim a link between the mercantilist traditionand economics preoccupation with suspected negative, within-country e ects romemigration.10 A ter Furniss (1920, p. 54), this link has been explicitly made by Nobellaureate Ted Schultz (1978); Charles Kindleberger (1986) when he was president o the American Economic Association; and one o the great scholars o migration andeconomic growth, Brinley Thomas (1973, pp. 16); among many others.11

10 Incidentally, the leading economic research onimmigration not the ocus o this essaylooks quitedi erent. Under mercantilist assumptions, any wage-depressing e ects o immigration at the destination would raise that countrys wel are by increasing the competitiveness o its manu actured exports. But thecenterpiece o the immigration literature is the anti-mercantilist suspicion o immigrations deleteriouse ects on labor. I have no explanation or the di erence other than to point out that the modernimmigration literature was ounded by microeconomic labor economists such as George Borjas andDavid Card. The modern literature on economic growth and development overseas, in contrast, was

ounded by researchers with a primarily macroeconomic ocus such as Alexander Gerschenkron, PaulRosenstein-Rodin, and Robert E. Lucas.11 Others include Hovde (1934), Hamilton (1940), Shepperson (1953), Middendor (1960), OBrien(1966), Letiche (1969), Jeremy (1977), Dowty (1986), Backhaus and Wagner (1987), Davis (1988),de Soto (1989, p. 201), and Mokyr and Nye (2007).


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A New Research Agenda On Emigration

The available evidence suggests that the gains to lowering barriers to emigra-tion appear much larger than gains rom urther reductions in barriers to goodstrade or capital owsand may be much larger than those available through any other shi t in a single class o global economic policy. Indeed, some big bills havenot been picked up on the routes that lead rom poor to rich countries (Olson,1996). Research economists, however, write relatively little about emigration. Theterm international trade is 13 times more requent than international migrationin all the published article abstracts contained in the Research Papers in Economics(RePEc) archive. Furthermore, economists ocus on arrival, not departure: inRePEc, immigration is our times as requent as emigration.

It should be a priority o economic research to seek a better characterizationo the gains to global labor mobility and to investigate policy instruments to realizea portion o those gains. The our questions in this paper suggest one structure

or that agenda. We clearly need a better theoretical and empirical understandingo human capital externalities; the dynamics o labor demand under large-scalemigration ows; the magnitude and mechanisms o the e ect o workers loca-tion on their productivity, relative to the e ect o workers inherent traits on theirproductivity; and the policy instruments that might make greater labor mobility possible. Many o the outstanding questions are discussed by Pritchett (2006),Rosenzweig (2006), Hanson (2009), and Docquier and Rapoport ( orthcoming).

Complicating the empirical portion o this agenda is the act that even basicstatistics on international migration are o ten unavailable to economists (Commis-sion on International Migration Data or Development Research and Policy, 2009).Detailed statistics are either held confdential by governments or not collected at all,and publicly-released data can be a mess o incomparable time periods, modes o migration (temporary vs. permanent, entries vs. individuals, and other categoriza-tions), and defnitions o occupations. Just estimating bilateral stocks o migrants at a single point in time, even without any other in ormation about those migrants, isa costly enterprise requiring heroic assumptions and massive imputation (Parsons,Skeldon, Walmsley, and Winters, 2007). Publicly available international migrationstatistics have roughly the quality o international trade statistics in the 1960s. Asoccurred in international trade, investing in migration data collection and compila-tion must be part o the research agenda.

I this additional research tends to confrm that barriers to emigration placeone o the attest o all wedges between humankinds current wel are and itspotential wel areno doubt with a number o use ul caveatsthen understandingand realizing the gains rom emigration deserve much more research priority.Emigrations literature remains scattered; emigrationsWealth o Nations unwritten;emigrations Ricardo undiscovered.


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The author would like to thank Lant Pritchett and Je rey Williamson or ormative conversations, Tejaswi Velayudhan or research assistance, and the John D. and Catherine T.MacArthur Foundation or generous support, as well as David Autor, Nancy Birdsall, William

Easterly, Chad Jones, Roman Keeney, John List, Jonathan Morduch, Jonathon Moses, Justin Sande ur, Timothy Taylor, Gustavo Ventura, and Dominique van der Mensbrugghenone o whom are responsible or any errors. Nothing in this paper necessarily refects the views o the Center or Global Development, its board, or its unders.

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