If the United States returned to a policy of essentially unrestricted immigration, would a much larger number of immigrants lead to a decrease in our economic freedoms?
Cato economist Alex Nowrasteh and I explored this question among others in our recent book, Wretched Refuse: the Political Economy of Immigration and Institutions.[1] Economists estimate that the global gains to humans’ welfare would be massive if destination countries eliminated their current restrictive immigration policies and allowed for an unrestricted number of people to immigrate. Estimates range from an increase of 67% to 150% of total global output.[2] However, these gains are predicated on destination countries maintaining their high level of productivity.
Some social scientists have embraced what is coming to be known as “the new economic case for immigration restrictions.” These scholars posit that some of the factors responsible for the low productivity in immigrants’ origin countries might “migrate” with the immigrants and decrease the productivity of destination countries. These factors include the norms and beliefs of the immigrants that shape formal and informal institutions. Our book is the most comprehensive empirical examination of the new economic case for immigration restrictions, and it considers multiple factors related to productivity that immigration could influence.
This essay focuses on economic freedom because it is one example of an important institution related to productivity that immigrants could erode. Hundreds of papers have been written finding a positive relationship between economic freedom and desirable outcomes using the Economic Freedom of the World Annual Report over the last 25 years.[3] This index measures economic freedom across five main areas: The size of government; protection of private property rights; sound money; freedom to trade internationally; and regulation of businesses, labor markets, and credit markets.
My choice to focus on immigrants’ impact on economic freedom should also be of interest to conservatives and libertarians, independent from any impact economic freedom has on productivity. The fear that immigrants might erode our freedoms is a common one among conservatives and libertarians and can be traced back to fears of some of the founding fathers. For example, in 1783, Thomas Jefferson wrote that immigrants “will bring with them the principles of the governments they leave, imbibed in their early youth; or, if able to throw them off, it will be in exchange for an unbounded licentiousness, passing, as is usual, from one extreme to another. It would be a miracle were they to stop precisely at the point of temperate liberty.”[4]
Do immigrants bring with them the principles of the governments that they leave behind? If so, do they hold onto those principles long enough to impact the institutions of governance in destination countries? It is certainly plausible that immigrants from less free countries could decrease the economic freedom of destination countries. But it is also plausible that instead, they assimilate their beliefs about the proper role of government to match the views of the native-born population. A positive selection bias might also lead those people who most value the increased freedoms in destination countries to immigrate. This selection bias could even lead to increases in economic freedom in destination countries. There are multiple and conflicting channels of how immigrants might, or might not, impact the economic freedoms in destination countries. The netting of these effects is ultimately an empirical question. Let’s review some evidence that Alex and I explain in more detail in Wretched Refuse.
Some Evidence from U.S. History[5]
Prior to 1922, immigration to the United States was largely unrestricted, with the notable exception of bars on immigrants from East Asia, Africa, and other parts of Asia. In the century leading up to 1922, the average annual number of immigrants to the United States amounted to about 0.66 percent of the U.S. population. Immigration to the United States was most restrictive between 1922 and 1967. During this time, the average inflow of immigrants amounted to only 0.14 percent of the population per year. Since immigration laws were partially liberalized in 1968, the average inflow of immigrants doubled to about 0.3 percent of the population per year, but it still remained below half the level of that prior to 1922.
Unfortunately, we do not have a great measure of overall economic freedom for this entire period, but federal expenditures as a percent GDP can serve as a decent proxy. These expenditures increased more than 302 percent in the 45 years that immigration was most restricted. In the 45 years preceding the 1922 restrictions they grew less than 118 percent and in the 45 years following their partial liberalization they grew 8.7 percent.[6] This negative correlation is, of course, not causation. Two World Wars, a Great Depression, and numerous other factors are at play. But as a first cut, it is suggestive evidence that larger numbers of immigrant arrivals were not associated with decreased economic freedom in the past.
What about socialist immigrants during the period of unrestricted immigration? It is true that a large percentage of American socialist intellectuals were immigrants and even published their propaganda in foreign-language periodicals. But a socialist movement never grew in the United States to the extent it did in these immigrants’ origin countries. Many immigrants pursued their American dreams rather than socialist activism once they arrived in the United States. For instance, one list of 797 exiled socialists from Germany who arrived in the United States and were taken care of by the Socialist Labor Party records that only 191 of them joined the party—an attrition rate of 76 percent.
Immigrants did participate in labor activity, but because of the United States’ open immigration policy, ethnic, linguistic, and religious fractionalizations were increased. As a result, unionization rates remained low because collective action in heterogeneous communities is more difficult than it is in homogeneous communities. Thus unions, one of the main organized groups that lobby and vote for a larger and more interventionist welfare state, were smaller than they would have been in a less diverse America. Furthermore, voters were less supportive of redistribution, welfare, and government-supplied services when the consuming population was more heterogeneous. As a result, federal outlays, state expenditures, and local tax rates were negatively correlated with the size of the immigrant population.
Much more could be written on this topic. We spend an entire chapter of Wretched Refuse on it and only scratch the surface. However, even if one believes that unrestricted immigration in U.S. history didn’t lead to a decrease in economic freedom, that doesn’t mean unrestricted immigration wouldn’t reduce economic freedoms today. Today there is a large welfare state, information and transportation costs are lower, and immigrants’ origin countries differ, among other factors. Perhaps greater immigration today would impact our freedom differently than it did in our past.
Some Evidence Across Countries Today[7]
The first study coauthors and I did on immigration’s impact on economic freedom examined a broad cross-section of countries over two decades. We examined how initial stocks of immigrants in 1990, that were accumulated over many decades, and/or the subsequent 20-year inflow of immigrants, were associated with a country’s level of economic freedom in 2011. The immigrant share of the population in the 110 countries we studied ranged from a low of 0.03 percent of the population (China) to a high of 77 percent of the population (Kuwait).
We ran 32 separate regressions that looked at initial immigrant stocks and inflows individually, together, and interacting with each other. We ran baseline results that only controlled for countries’ initial level of economic freedom and more fully specified regressions that also controlled for countries’ income levels and political institutions. In our 32 regressions we did not find a single instance where immigration was associated with decreased economic freedom and also statistically significant. Instead, in half our regressions we found that greater immigration was associated with increases in economic freedom that were both statistically significant and meaningful in magnitude. For instance, in one specification we found that a one standard-deviation larger immigration stock in 1990 increases economic freedom by 0.34 points in 2011. Using an estimate for the impact of economic freedom on growth, that suggests that an increase in the immigrant share of this magnitude will generate a 0.45 percentage point higher long-run annual growth rate.
There are obvious limitations to using cross-country studies to infer whether greatly expanded immigration would decrease our freedoms in the United States today. A standard concern with cross-country studies is, of course, endogeneity–the fact that increases in economic freedom improve economic outcomes, and that immigrants are attracted to economic opportunities, could mean that immigration is not causing economic freedom to increase, rather, immigration is responding to it. Using initial stocks of immigrants that were accumulated over many decades partially alleviates endogeneity concerns (it is not likely they came in anticipation of freedom increasing later) but not completely. Furthermore, cross-country studies tell us the overall effect across all of the countries, perhaps immigration improves economic freedom in some countries while harming it in others. Perhaps most importantly, existing stocks and flows of immigration are the result of managed immigration policies that are highly restricted and thus impact both the mix and quantity of immigrants. Even if exiting immigrant stocks and flows increase economic freedom, perhaps unrestricted flows would decrease economic freedom.
Some Evidence from Recent Mass Migrations[8]
Individual case studies of modern mass migrations are an alternative way to examine how greatly increased immigration can impact economic freedom. We examine two of them, Israel and Jordan, in Wretched Refuse. Israel’s population increased by 20 percent during the 1990s due to an influx of immigrants from the Soviet Union. Jordan’s population increased about 10 percent due to immigration of Kuwaiti-Palestinians who were displaced by Iraq’s invasion of Kuwait and the subsequent Gulf War.
The mass migration to Israel occurred when Soviet emigration restrictions were lifted. Israel’s “Law of Return” allows any Jewish person to immigrate to Israel and receive instant citizenship, including full voting rights, upon arrival. The Law of Return defines Jewish people who qualify quite broadly, so the resulting immigration from the Soviet Union was mostly not religiously or linguistically homogeneous to the existing Israeli population. They also arrived from a country with a 70-year history of little economic or political freedom. If the beliefs responsible for the lack of freedom in the Soviet Union migrated with the immigrants, they could have used their political rights to undermine Israel’s economic freedom.
Instead, Israel’s economic freedom increased 45 percent during the decade following the mass migration. As a result, Israel catapulted from the 92nd freest economy in the world in 1990 to the 54th freest in 2000. In research with coauthors, and in the book, I argue that the immigrants caused this increase in economic freedom. One way we established causality was to employ a synthetic control methodology to create a counterfactual Israel to measure the real Israel’s changes against. We find that the real Israel improved more than its synthetic counterpart to a statistically significant extent. We also document the political activity of the immigrants from the former Soviet Union and argue that they were a political force for greater economic freedom.
Jordan’s case is similar. Due to a quirk of Jordanian law, the Kuwaiti-Palestinians received political rights, including the right to vote, upon arrival. Like Israel, Jordan also improved its economic freedom following the mass migration. Jordan improved its economic freedom score by nearly 34 percent and rose in the rankings from 65th to 42nd freest country between 1990 and 2000. The same synthetic control methodology also establishes that this is a larger improvement than counterfactual versions of Jordan that did not experience an immigration surge. We also describe how the political influence of the immigrants tipped the balance away from Transjordanians, who were largely opposed to liberalization, and towards Jordanian-Palestinians, who favored liberalization.
The advantages and disadvantages of the Israel and Jordan studies are similar. Neither had truly free immigration policies. Instead, each only had a free immigration policy that applied to certain people: Jews in the case of Israel and Kuwaiti-Palestinians in the case of Jordan. However, both benefit from having mass immigrations, from countries with low economic freedom, that stem from a clearly exogenous shock. Thus, endogeneity concerns are largely absent and are instead replaced with concerns about the external validity of these cases for other countries.
Conclusion
There is no Q.E.D. here. Nor is there one in Wretched Refuse (But you should still buy the book!). There are limitations to each way we examine the relationship between immigration and changes in economic freedom. These same limitations are present to varying degrees in the numerous other ways Alex Nowrasteh and I empirically investigate the new economic case for immigration restrictions in Wretched Refuse. However, regardless of which way we examined the relationship, we never found evidence that immigration decreases economic freedom in destination countries. That said, our historical investigation, cross-country findings, and case studies, cannot rule out the possibility that, in particular cases, immigration from one or more origin countries to a particular destination country could decrease economic freedom. However, empirical conjectures require empirical evidence. Until such evidence emerges, conservatives and libertarians should not oppose greater immigration because of its threat to our freedom. Similarly, economists should continue to estimate global gains from unrestricted immigration without assuming immigrants would undermine the factors that make destination countries productive.
Notes
[1] Nowrasteh, Alex and Benjamin Powell. (2020). Wretched Refuse? The Political Economy of Immigration and Institutions. Cambridge: Cambridge University Press.
[2] Clemens, M. (2011). “Economics and emigration: Trillion-dollar bills on the sidewalk?” Journal of Economic Perspectives 25(3), 83-106.
[3] Hall, J. and Lawson, R. (2013). “Economic freedom of the world: An accounting of the literature.” Contemporary Economic Policy 32: 1-19.
[4] Jefferson, T. (1787). Notes on the State of Virginia. London, John Stockdale, Chapter 8.
[5] Chapter 9 of Wretched Refuse covers this topic in much greater detail.
[6] The results are similar if calculated as real per capita expenditures instead of as a percent of GDP.
[7] Chapter 5 of Wretched Refuse covers the cross country evidence in much greater detail. Some of the main empirical work that the chapter is based on can also be found in: Clark, J., Lawson, R., Nowrasteh, A., Powell, B. and Murphy, R. (2015). Does immigration impact institutions?. Public Choice, 163(3-4), 321-335.
[8] Chapters 10 and 11 of Wretched Refuse cover these examples in greater detail. Those chapters are based on work published in: Powell, B., Clark, J., and Nowrasteh, A. (2017). “Does mass immigration destroy institutions? 1990s Israel as a natural experiment.” Journal of Economic Behavior & Organization 141, 83-95 and Nowrasteh, A., Forrester, A. and Blondin, C. (2020). “How mass immigration affects countries with weak economic institutions: A natural experiment in Jordan.” World Bank Economic Review 34 (2), 533-549.