Migration Flows and Capital Movements In Small Open Economies

41 Pages Posted: 21 Nov 2016

See all articles by Fabian Lange

Fabian Lange

McGill University

Douglas Gollin

Oxford Department of International Development; Williams College; Yale University

Date Written: May 17, 2012

Abstract

This paper explores the extent to which migration-related capital flows can explain the variation in investment rates and current and capital account imbalances across OECD countries. We begin with a model in which migration is exogenous. Migrants must be equipped with machines, and the resulting demands for capital will generate cross-border flows of capital. Next, we move to an empirical exercise in which we examine the predictions of a simple model in which both capital and labor flows are endogenous. We test this model using data from a panel of OECD countries. Finally, we consider data from a number of recent episodes of plausibly exogenous migration. Taken together, we conclude that migration flows do in fact generate substantial matching capital flows. We then ask how much immigration may have 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. We calculate that the increase in migration may have accounted for about one-fourth of this decline.

Keywords: Migration, Capital flows

JEL Classification: F16, F21, F22

Suggested Citation

Lange, Fabian and Gollin, Douglas, Migration Flows and Capital Movements In Small Open Economies (May 17, 2012). Available at SSRN: https://ssrn.com/abstract=2872265 or http://dx.doi.org/10.2139/ssrn.2872265

Fabian Lange (Contact Author)

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

Douglas Gollin

Oxford Department of International Development ( email )

Queen Elizabeth House
3 Mansfield Road
Oxford, OX1 3TB
United Kingdom

Williams College ( email )

Fernald House
Williamstown, MA 01267
United States

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8264
United States

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