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The Immigration Policy Puzzle

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Author Info

  • Paolo E. Giordani

    ()
    (Department of Economics and Business, LUISS Guido Carli University)

  • Michele Ruta

    ()
    (World Trade Organization, Economics Research Division)

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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Bibliographic Info

Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 0905.

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Date of creation: 2009
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Handle: RePEc:lui:celegw:0905

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Keywords: Costs and benefits from immigration; immigration policy.;

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References

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  1. 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.
  2. Duffy, John & Papageorgiou, Chris, 2000. " A Cross-Country Empirical Investigation of the Aggregate Production Function Specification," Journal of Economic Growth, Springer, vol. 5(1), pages 87-120, March.
  3. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, vol. 32(4), pages 1667-1717, December.
  4. Bentollia, S. & Saint-Paul, G., 1999. "Explaining Movements in the Labor Share," Papers 9905, Centro de Estudios Monetarios Y Financieros-.
  5. 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.
  6. 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, edition 1, volume 1, number 0262582775.
  7. Benhabib, Jess, 1996. "On the political economy of immigration," European Economic Review, Elsevier, vol. 40(9), pages 1737-1743, December.
  8. Facchini, Giovanni & Mayda, Anna Maria & Mishra, Prachi, 2007. "Do Interest Groups Affect Immigration?," IZA Discussion Papers 3183, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Stark, Oded & Zakharenko, Roman, 2011. "Differential migration prospects, skill formation, and welfare," University of Tuebingen Working Papers in Economics and Finance 22, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. 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.
  3. Giuseppe Russo & Luigi Senatore, 2013. "Who contributes? A strategic approach to a European immigration policy," IZA Journal of Migration, 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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