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Equipping Immigrants: Migration Flows and Capital Movements

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Author Info
Douglas Gollin (Williams College)
Fabian Lange (Yale University)

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Abstract

The large current account and capital account imbalances among OECD countries continue to attract attention among policy makers and researchers. This paper explores the extent to which migration-related capital flows can explain the movements and magnitudes of current and capital account imbalances in OECD countries. Migrants must be equipped with machines, and the resulting demands for capital are likely, all else being equal, to generate cross-border flows of capital. We analyze the empirical predictions of a simple model with endogenous capital and labor flows. This model allows for exogenous variation in the supply of capital and labor as well as in local production conditions. Empirically, we find that the observed correlation in investment rates, capital and labor flows are roughly consistent with a model in which capital is elastically supplied at a constant world interest rate, but where the supply of migrants to local economies varies exogenously. We then examine how much the increase in net migration rates contributed to the increase in the US current account deficit since 1960. Between 1960 and 2000, the US current account declined by about 4% of annual GDP. The increase in migration contributed about 1% of GDP to this decline.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2008-18.

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Length: 40 pages
Date of creation: Jul 2008
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Handle: RePEc:wil:wileco:2008-18

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Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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  1. Stuart J. Wilson, 2003. "A Dynamic General Equilibrium Analysis of Migration and Capital Formation: The Case of Canada," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 455-481, April. [Downloadable!] (restricted)
  2. Taylor, Alan M & Williamson, Jeffrey G, 1994. "Capital Flows to the New World as an Intergenerational Transfer," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 348-71, April. [Downloadable!] (restricted)
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  3. John F. Helliwell, 2004. "Demographic Changes and International Factor Mobility," NBER Working Papers 10945, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Francesc Ortega & Giovanni Peri, 2009. "The Causes and Effects of International Migrations: Evidence from OECD Countries 1980-2005," NBER Working Papers 14833, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Higgins, Matthew, 1998. "Demography, National Savings, and International Capital Flows," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 343-69, May.
  6. B. Douglas Bernheim & John B. Shoven, 1991. "National Saving and Economic Performance," NBER Books, National Bureau of Economic Research, Inc, number bern91-2, September.
  7. John F. Helliwell, 2004. "Demographic changes and international factor mobility," Proceedings, Federal Reserve Bank of Kansas City, issue Aug, pages 369-420. [Downloadable!]
  8. Matthew Higgins & Jeffrey G. Williamson, 1996. "Asian Demography and Foreign Capital Dependence," NBER Working Papers 5560, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Susan M. Collins, 1991. "Saving Behavior in Ten Developing Countries," NBER Chapters, in: National Saving and Economic Performance, pages 349-376 National Bureau of Economic Research, Inc. [Downloadable!]
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