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The Immigration Policy Puzzle

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  • Paolo E. Giordani
  • Michele Ruta

Abstract

This paper revisits the puzzle of immigration policy: standard economic theory predicts that free immigration improves natives' welfare, but (with few historical exceptions) an open door policy is never implemented in practice. What rationalizes the puzzle? We first review the model of immigration policy where the policy maker maximizes national income of natives net of the tax burden of immigration (Borjas, 1995). We show that this model fails to provide realistic policy outcomes when the receiving region's technology is described by a standard Cobb-Douglas or CES function, as the optimal policy imposes a complete ban on immigration or implies an unrealistically large number of immigrants relative to natives. Then the paper describes three extensions of this basic model that reconcile the theory with the evidence. The first introduces a cost of integration of the immigrant community in the destination country; the second takes into account the policy maker's redistributive concern across different social groups; the last extension considers positive spillover effects of (skilled) migrants on the receiving economy.

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File URL: http://hdl.handle.net/10.1111/j.1467-9396.2011.00995.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 19 (2011)
Issue (Month): 5 (November)
Pages: 922-935

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Handle: RePEc:bla:reviec:v:19:y:2011:i:5:p:922-935

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References

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  1. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2007. "Do Interest Groups Affect Immigration?," IZA Discussion Papers 3183, Institute for the Study of Labor (IZA).
  2. Rainer Klump & Peter McAdam & Alpo Willman, 2007. "Factor Substitution and Factor-Augmenting Technical Progress in the United States: A Normalized Supply-Side System Approach," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 183-192, February.
  3. Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers, Centro de Estudios Monetarios Y Financieros- 9905, Centro de Estudios Monetarios Y Financieros-.
  4. Antras, Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," Scholarly Articles 3196325, Harvard University Department of Economics.
  5. Timothy J. Hatton & Jeffrey G. Williamson, 2008. "Global Migration and the World Economy: Two Centuries of Policy and Performance," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262582775, December.
  6. Benhabib, Jess, 1996. "On the political economy of immigration," European Economic Review, Elsevier, Elsevier, vol. 40(9), pages 1737-1743, December.
  7. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 87-120, March.
  8. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 32(4), pages 1667-1717, December.
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Cited by:
  1. Alexander M. Danzer & Firat Yaman, 2012. "Do Ethnic Enclaves Impede Immigrants' Integration? Evidence from a Quasi-Experimental Social-Interaction Approach," CESifo Working Paper Series 4022, CESifo Group Munich.
  2. Oded Stark & Roman Zakharenko, 2012. "Differential Migration Prospects, Skill Formation, and Welfare," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 20(4), pages 657-673, 09.
  3. Giuseppe Russo & Luigi Senatore, 2013. "Who contributes? A strategic approach to a European immigration policy," IZA Journal of Migration, Springer, Springer, vol. 2(1), pages 1-16, December.
  4. Vikhrov Dmytro, 2013. "Welfare Effects of Labor Migration," CERGE-EI Working Papers wp491, The Center for Economic Research and Graduate Education - Economic Institute, Prague.

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