Individuals and Institutions: Evidence from International Migrants in the U.S
AbstractA growing body of theoretical and empirical work identifies the ability of a country's institutions to protect private property and provide incentives for investment as a key explanation for the persistent disparity in financial market development. We add to this literature by analyzing the impact of institutions on financial development using data on the financial decisions of immigrants and the native-born in the U.S. While all of the individuals whose decisions we analyze face the same formal institutional framework in the U.S., immigrants bring with them varied experiences with institutions in their home countries. We find that immigrants who come from countries with institutions that are more effective at protecting property rights are more likely to participate in U.S. financial markets. The effect of home country institutions is very persistent and impacts immigrants for the first 25 years that they spend in the U.S. Evidence from variation in the effect of home country institutions by age at migration, suggests that individuals appear to learn about home country institutions before the age of sixteen, probably in the home and potentially at school, rather than through direct experience. These findings are robust to alternative measures of institutional effectiveness and to various methods of controlling for unobserved individual characteristics.
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Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 857.
Date of creation: 03 Dec 2006
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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
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institutions; financial development; stock market participation; legal origin;
Find related papers by JEL classification:
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-13 (All new papers)
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