Does immigration impact institutions?

Abstract

The economics literature generally finds a positive, but small, gain in income to native-born populations from immigrants and potentially large gains in world incomes. But immigrants can also impact a recipient nation’s institutions. A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long-run prosperity. But little is known about how immigration impacts these institutions. This paper empirically examines how immigration impacts a nation’s policies and institutions. We find no evidence of negative and some evidence of positive impacts in institutional quality as a result of immigration.

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Notes

  1. 1.

    Comparatively little work has been done on the causes of economic freedom. There is some evidence that economic freedom is enhanced by fiscal decentralization (Cassette and Paty 2010), more educated politicians (Dreher et al. 2009), and by the competitiveness of the political environment (Leonida et al. 2007). Djankov et al. (2003a, b), and Bjornskov (2010) examined the determinants of legal institutions consistent with economic freedom. Finally, La Porta et al. (1999) looked at the determinants of various other aspects of economic freedom, such as marginal tax rates and government fiscal size and scope.

  2. 2.

    Despite the small net gain, Powell (2012) shows that with substantial transfers the rent-seeking costs to policy changes could be much larger than the standard Harberger triangles.

  3. 3.

    A separate and distinct question, on which there is a larger amount of research, is what the fiscal impact is of immigration given current tax and spending policies. On this point there is less consensus than on the impact of immigrants on the employment opportunities and wages of natives. The fiscal impact of immigration varies considerably depending on the country studied, the characteristics of the immigrants, and model estimated. In general, though, if a consensus has been reached, it is that the net fiscal impact is small. See Kerr and Kerr (2011) for a survey.

  4. 4.

    This is consistent with Rodrik (1998), who finds that the more open a country is to international trade, the larger government expenditures are as a percentage of GDP so as to mitigate the population’s risk from fluctuations in the international market.

  5. 5.

    Dimant et al. (2013) found that immigrants increase corruption in recipient countries when they come from corruption-ridden countries. Our measure of property rights and law is broader than just corruption, but contains some components related to corruption.

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Acknowledgments

We thank the participants at the Association of Private Enterprise Education’s 2014 annual conference, the participants at Texas Tech’s Free Market Institute’s Research Workshop, and an anonymous referee for helpful comments on prior drafts. Support from the John Templeton Foundation is gratefully acknowledged.

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Correspondence to Benjamin Powell.

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Clark, J.R., Lawson, R., Nowrasteh, A. et al. Does immigration impact institutions?. Public Choice 163, 321–335 (2015). https://doi.org/10.1007/s11127-015-0254-y

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Keywords

  • Economic freedom
  • Immigration
  • Institutions

JEL Classification

  • J1
  • J6
  • P1