Does Mass Immigration Destroy Institutions? 1990s Israel as a Natural Experiment

Abstract

The relaxation of emigration restrictions in the Soviet Union and the State’s subsequent collapse led to a large exogenous shock to Israel’s immigrant flows because Israel allows unrestricted immigration for world-wide Jews. Israel’s population increased by 20 percent in the 1990s due to immigration from the former Soviet Union. These immigrants did not bring social capital that eroded the quality of Israel’s institutional environment. We find that high quality political institutions were maintained while economic institutions improved substantially over the decade. Our case study finds that the immigrants played an active role in this institutional evolution and we also employ a synthetic control to verify that it is likely that the institutions improvement would not have occurred to the same degree without the mass migration.

Keywords: Economic Freedom, Immigration, Institutions

JEL Classification: J1, J6, P1