ECONOMIC GROWTH BOOSTED WHEN IMMIGRATION LEADS TO CULTURAL
DIVERSITY: EVIDENCE FROM THE AGE OF MASS MIGRATION
Inflows of immigrants can increase incomes per capita if they are associated with a
significant increase in the cultural diversity of the country’s working-age population.
That is the central conclusion of new research by Philipp Ager and Markus Bruckner,
to be presented at the Royal Economic Society’s 2011 annual conference.
Their study, which analyses nineteenth century mass immigration to the US, finds that
in counties where there was a significant increase in the ‘fractionalisation’ or cultural
diversity of the population, there was a significant increase in output per capita. A one
percentage point increase in US counties’ fractionalisation increased output per capita
by over 3% on average.
That is a quantitatively large effect given that the average level of fractionalisation in US
counties was at that time around 30%. Roughly speaking, these estimates imply that
over the 1870-1920 period, a doubling of the average county’s fractionalisation led to
an almost doubling of output per capita in that county.
More…
There is a fierce debate in the US and other OECD countries about the costs and
benefits of immigration. This analysis suggests that if immigration leads to an increase
in the fractionalisation of the population, then this has a positive effect on incomes per
capita.
Fractionalisation versus polarisation
The empirical analysis also reveals that immigration can have a negative effect on
average income if it leads to a significant increase in polarisation – that is, if it increases
the distribution of cultural differences along extremes.
To explain this asymmetry in the effects of immigration, the researchers document that
increases in fractionalisation were associated with significant increases in the variety of
products produced in the agricultural and manufacturing sector. Increases in
polarisation were on the other hand associated with significant increases in the
incidence of riots and other crimes.
Thus, when immigration led to an increase in the diversity of the US population without
leading to a drastic increase in the concentration along extremes, it had a positive effect
on production; with the main channel being an increase in the variety of workers’ skills,
which led to an increase in the variety of intermediate products.
If, on the other hand, immigration led to an increase in the polarisation of society, then it
was associated with conflicts that on average led to a decrease in incomes per capita.
Identifying causal effects
The US experience of mass immigration during the nineteenth century provides a
natural experiment to study the effects that immigration had on the economy. Not only
were the immigration inflows unprecedented, they also occurred during a period that
was characterised by mostly free and unrestricted immigration policy.
But there is a key methodological challenge that complicates the empirical analysis:
was it changes in cultural fractionalisation and polarisation that affected the economy;
or did changes in the economy induce a change in cultural fractionalisation and
polarisation?
The researchers address this important ‘identification’ issue by using an ‘instrumental
variables’ approach. The approach exploits the fact that immigrants selected
themselves into counties based on (regional) network effects. The study uses the global
inflow of immigrants to the US and assigns inflows based on the initial (pre-determined)
distribution of immigrants. This makes it possible to generate a plausibly exogenous
source of variation in counties’ predicted immigration inflows that can be used to predict
changes in these counties’ cultural fractionalisation and polarisation.
Conclusion
A debate on whether to tighten or liberalise immigration laws needs to take account of
the effects that immigration has on the economy. These results imply that immigration
policy should focus in particular on how immigration affects the (regional) distribution of
cultural differences.
If immigration leads to increases in fractionalisation (that is, it makes the distribution of
cultures more dispersed), then this will bring mostly positive effects for the economy.
If, on the other hand, immigration primarily leads to an increase in polarisation (that is, it
makes the distribution of cultures centred around opposing extremes) then the
economic effects will mostly be negative.
ENDS
‘Cultural Diversity and Economic Growth: Evidence from the US during the Age of Mass
Migration’ by Philipp Ager and Markus Bruckner
Contact:
Philipp Ager
email: philipp.ager@upf.edu; mobile: +34 65 578 5424; work: +34 93 542 2697
Markus Bruckner
email: markus.bruckner@adelaide.edu.au; mobile: +61 040 704 5534