Immigration Is Development (and a Development Tool)

Lant PritchettMay 26th, 2009

“Beyond the Fence”

Immigration is a Development Tool

• Development as people not place– Good for income, poverty, HDI, freedom

• Movers and Non-Movers– Depends on the people, type of migration, and

country circumstances

• Development as “accelerated four-fold modernization”—is migration good for nationalism?

The common, but crazy, measures of “development”

HaitiAverage Wage: $1 hrPoverty Line: 2$/day

USAAverage wage: 15$/hrPoverty line 15$/day

Haitian moves from making 2$/hr (above average, abovePoverty line) in Haiti to making 8$/hr (below average, below poverty

line (large family)) and considers him/herself much better off

Suppose no impact on anyone else (envelope theorem?)--what happened to “development”?

By all existing indicators “development” got worse in both places—Average wages fell, poverty rates rose even if everyone’s well being increased.

Development as if people mattered:“Income per natural” (Clemens and Pritchett)

keeps movers income in the accounting

Guyanese have sameIncome per natural as

Brazilians—just not in Guyana

Development as if people mattered:“Income per natural” keeps movers income

in at least someone’s accounting

Even if the effect isn’t bigin the aggregate (e.g. Peru), atleast the changes inIncome Per Natural (Peruviansnot “Those in Peru”) get the rightweight in well-being measures at the margin

Same is true for any other reasonable definition of

“development”

Don’t like income, then use (global or national) poverty (nearly all non-poor Haitians live outside Haiti)

Don’t like money measure, then use “HDI per natural”—infant mortality, schooling gains are just as big

Don’t like any of that because “development is/as freedom”—what could be more essential to freedom that personal mobility (e.g. ending apartheid, serfdom, slavery)

Human Beings

(Naturals)

Nation-States

(or “stayers”)

Economic

individual well

Being

Relaxation of distortions in global market for labor, at the margin, the biggest impact development agenda

Accelerated

Modernization

Impact of Movers on Non-Movers in Developing Countries (the “Left Behind”)

Type of migration Low/medium

Skill

High Skill

Country

condition

Linked Not

Linked

Linked Not

Linked

Booming/

Growing

R

FS

WL ↑ R? R CV=?, R?

PE

Fixable Stagnating R

FS

WL ↑ R CV=?, RP=?

PE

Hard Core Ghosts R

FS

WL ↑ R CV=0

PE

R=remittances, FS=Family Separation, W=wages, CV=Cortex Vortex, PE=Pecuniary Externality, RP=Reform Probability

Unskilled Labor: Why not a no-brainer?

• All people linked to migrants by remittances get remittances (circular)

• Cost is “family separation”—on which empirical evidence is mixed—but in any case we should assume it is internalized

• Reduces supply of low/medium skilled wages so low skill wages should rise (good for average, good for inequality)

• No obvious negative external ramifications

Are remittances “extra good”?

• “Two gap” thinking might lead one to expect remittances are not just good (e.g. increase utility) but “extra good” as they relieve binding constraints to growth (FEX “gap” or investment “gap”)—no reason to believe this (or be concerned)

• IF returns to investment are high (e.g. good business environment, good financial system) then might expand S in way that expands I in way that increases g—but often not.

In many plausible models there is nothing special about “remittances”• Worker in San Antonio Texas gets a job in

Houston– Is single and spends/saves income—no

“remittances”– Is married, husband doesn’t move, wages deposited

in joint account, “remittance”?Job is in Baton Rouge Louisiana?– Is married, husband moves, no remittance.– Is married, husband doesn’t move, deposited into

joint account in Texas, “remittance”?Job is in Nogales, Mexico– Is married, husband doesn’t move, deposited into

joint account in Texas, “remittance”?

High Skill Migrants

• Remittances are still on the positive side of the ledger (maybe less, maybe more)

• Thee possible (general, first order) effects on non-linked, non-movers:– “Cortex Vortex” has negative productive externalities – Movement of skilled labor leads to a net reduction in

skilled labor with a negative pecuniary externality – Movement of skilled labor leads to a change in the

likelihood of growth/well-being enhancing reforms

• The likelihood of these likely differ across the “growth state” an economy is in

“Productive Externality”

• No one has ever empirically demonstrated an empirically or statistically significant externality to human capital (and most of the evidence suggests that private and social returns are roughly equal)

• In otherwise…– Booming—likely a positive effect (e.g. circular

effects, e.g. Korea)– Ghost—likely no effect (kind of by definition)

“Productive Externality” in Fixable Stagnaters

• Likely near zero impact without “reform” (e.g. impact of incremental HK on growth unlikely to make the difference)

• Does the movement of high skill workers increase or decrease the likelihood of the initiation of a sustained growth acceleration?

• All kinds of stories, both positive (e.g. demonstration effects, rent capturing) and negative (reduces commitment of elite to progress)

Pecuniary Externality

• Net emigration of the high skilled leads to net reduction in the domestic supply of high skilled

• Raises the price of the goods that are intensive in high skilled labor reducing the welfare of those whose consumption is intensive in those goods

• For those high skill intensive services which are publicly produced this has a secondary fiscal impact (deadweight loss of incremental taxation)

Aside: Economics typically treats productive and pecuniary externalities completely differently

• I run a laundry service that hangs clothes outdoors to dry. You come into town and start a kiln that produces smoke that reduces my profits by increasing my costs: Negative productive externality, “polluter pays” a plausible default

• I run a laundry service that hangs clothes outdoors to dry. You come into town and start a laundry that produces clear laundry that reduces my profits by reducing my prices: Negative pecuniary externality, “free market” a plausible default (certainly not tort action against entrant)

Does emigration reduce net domestic supply?

• No reason to assume the stock is fixed

• Chand and Clemens (later today)—clearly not.

• Could act as an increase in the return, increase the net supply (e.g. Clemens, nurses in the Philippines).

• Might discourage accumulation (e.g. Mexico)

The “controversial” cases: Negative pecuniary externalities on publicly produced

services (e.g. nurses in health)

• Suppose governments run feeding program—should it ban the export of wheat to lower its price to them?

• Suppose governments build roads—should it ban the export of gravel to lower its price to them?

• Suppose the government builds cannons—should it ban the export of steel to reduce its price to them?

• Suppose the government produces health services with nurses—should it ban a domestic private sector in health to reduce the price of nurses?

Actions of the state to reduces its own prices are factor specific taxation (e.g. ex post selective expropriation) to fund its fiscal

need: is this part of the optimal tax structure?

Are these effects really first order, even in their sector?

• India exports doctors• Around half of public sector doctors are absent on any

given day• A huge ‘effort deficit’ in treatment leads their public

practice to be apparently health reducing (Das and Hammer)

• 85 percent of curative care visits are to provide providers• Barely half of children are fully vaccinated• Almost half of children are malnourished

Where does the “brain drain” of doctors rank onhealth improvement priorities?

Human Beings

(Naturals)

Nation-States

(or “stayers”)

Economic

individual well

Being

Relaxation of distortions in global market for labor, at the margin, the biggest impact development agenda

Low Skill—Yes

High Skill—

Productive externalities mixed

Pecuniary externalities dangerous

Accelerated

Modernization

“Development” is a descriptive and proscriptive theory of…what?

The Goal: Denmark(Economically prosperous, politically liberal (rights respecting democracy),

administratively capable, socially cohesive)

Modern(Industrial,

High income, Market)

Pre-Modern

Modern(Democratic,

Rights respecting,Secular)

Pre-Modern

Modern(Weberian

Bureaucracy, Professionalized

Civil Service )

Pre-Modern

Modern(Nationalism as

a primary ascriptiveIdentity)

Pre-Modern

Economic Political Administrative Social

Development is a particular theory of “modernization” which has nation-states as its primary objects of enquiry

Is immigration good for the development of nation-states?

The Goal: Denmark(Economically prosperous, politically liberal (rights respecting democracy),

administratively capable, socially cohesive)

Modern(Industrial,

High income, Market)

Pre-Modern

Modern(Democratic,

Rights respecting,Secular)

Pre-Modern

Modern(Weberian

Bureaucracy, Professionalized

Civil Service )

Pre-Modern

Modern(Nationalism as

a primary ascriptiveIdentity)

Pre-Modern

Economic:Mostly neutral,Definitely secondorder

Political: Complicates extension of equal rights to all?

Administrative:C.P Neutral

Social: Inimicalto many notions of“nationalism” which are condition of birthdependent

Nationalism as social identitypromotes political modernization

Nationalism as social identitypromotes administrative

order

Is a “development” that promotes “nationalism” and “nation-state-ism”

good for human well-being?

• “Modernization” as a description of the rise of the West—unbelievable progress

• “Development” as “consciously accelerated modernization”—amazing successes (e.g. Japan)

• Nearly all the evils of the 20th century can be laid at the feet of “nationalism” (e.g. the Holocaust) and “directed accelerated modernization” (e.g. Stalin, Mao)

• In large swaths of the globe the attempts at “accelerated modernization” have left us no closer to “

Is a “development” that promotes “nationalism” and “nation-state-ism”

good for human well-being?• “Modernization” as a description of the rise of the West—

unbelievable progress• “Development” as “consciously accelerated modernization”—

amazing successes (e.g. Japan)• Huge successes in specific dimensions (e.g. health) and those

aligned with nation-state-ism (e.g. education)• Nearly all the evils of the 20th century can be laid at the feet of

“nationalism” ideologies (e.g. the Holocaust, Rwandan genocide, ex-Yugoslavia atrocities) and “centrally directed accelerated modernization” (e.g. Stalin, Mao)

• In large swaths of the globe the attempts at proscriptive “accelerated modernization” have left us no closer to “Denmark” and probably further—(e.g. DRC, Somalia, Southern Sudan, Nepal, Myanmar, Cambodia, PNG) and lots of places with mixed progress (national sovereignty itself a decidedly mixed blessing, e.g. Hausmann et al)

Human Beings

(Naturals)

Nation-States

(or “stayers”)

Economic

individual well

Being

Relaxation of distortions in global market for labor, at the margin, the biggest impact development agenda

Low Skill—Yes

High Skill—

Productive externalities mixed

Pecuniary externalities dangerous

Accelerated

Modernization

(political, social, administrative)

Believed to be negative impacts on the development of “nationalism” from movement—how should we feel about this

Let’s talk justice, Rawlsian style

…including the use of coercion to stop people from crossing borders to carry out mutually beneficial economic transactions?

Would anyone, behind a “veil of ignorance” about where they would be born agree to this distribution?

Human Beings

(Naturals)

Nation-States

(or “stayers”)

Economic

individual well

Being

Relaxation of distortions in global market for labor, at the margin, the biggest impact development agenda

Low Skill—Yes

High Skill—

Productive externalities mixed

Pecuniary externalities dangerous

Accelerated

Modernization

(political, social, administrative)

Believed to be negative impacts on the development of “nationalism” from movement—how should we feel about this

What if these collide?

Clennsenism (Clemens, Lennon, Sen)

• “Imagine there’s no country”: Assessments of human well-being not place dependent or spatially aggregated

• “Development as Freedom”: Expansion of human freedoms the correct metric of human well-being

• Clemens: When could it possibly be that restrictions on a fundamental human freedom of mobility can justified as promoting “development”?

If immigration is bad for “development as proscriptive guide to four-fold accelerated modernization of nation-states” but good for

“development as globally measured human freedom/well-being” I am for immigration