Stronger Borders Don’t Mean Stronger Economies
Why immigration is (mostly) a good thing.
The epoch that began in the mid-20th century is one characterised by unprecedented trade openness. This has indeed been part of the ideology of most developed nations.
However, globalisation is just as concerned with the movement of people as that of goods.
Whilst exports have increased and tariffs have decreased in the preceding decades, the proportion of immigrants globally has remained constant since 1960, at around 3.5%. Why have we seen globalisation in goods but not in people?
This article will discuss whether borders should be more open to migrants. It will begin by discussing whether immigration can, and by parity of reasoning, should, follow a similar path to trade liberalisation.
It will then examine the economic effects of migration on both recipient and home countries to reach the conclusion that borders should be more lax, but not opened completely, and that host countries should give preferential treatment to select groups. I only advocate for less open borders in the case of developing countries with excessive brain drain.
Firstly, let’s acknowledge the argument that immigration may not be able to follow a similar path to trade liberalisation. There is research from Yale’s Margaret Peters suggesting that the two are inversely related, meaning that the pursuit of free trade reduces the need for open borders and vice versa.
The reasoning is that trade openness causes offshoring of low-skilled industries, reducing the demand for low-skilled immigrants in the domestic economy.
Conversely, protectionism should cause firms to seek low-skilled immigrants and lobby for open borders. Immigration and trade may thus possibly be substitutes economically.
However, this research is a simplification, since it assumes labour is scarce in recipient countries and ignores high skilled workers. In addition, much low-skilled labour cannot be outsourced, namely in services that must be executed domestically.
In reality, free trade and immigration can and do coexist at high levels, as evidenced by many Western nations. The restriction of borders is primarily a result of politics, not a natural consequence of free trade. Far from being a substitute, immigration complements free trade; it would be logically inconsistent to desire open trade but closed borders.
For every 10% increase in the immigrant stock, there is a causal increase of 1.5% in the level of trade, with high-skilled migrants and those involved in business having the greatest impacts.
Immigrants can foster bilateral trade flows as they are familiar with the language, regulations and customs of their native countries, which reduces transaction barriers. They also tend to create demand for products from their home countries, and a “demonstration effect” can increase demand for those products from the host population as well.
Therefore, both recipient and origin countries tend to reduce trade barriers with one another and benefit from the ensuing trade.
Accordingly, a government wishing to bolster trade flows should consider more liberal immigration policy, and opening borders to high-skilled immigrants in particular.
Anyone who truly champions free trade must be prepared to do the same for immigration. Not doing so would be gravely hypocritical.
“One estimate claims that allowing everyone wishing to migrate to do so would produce $90 trillion worth of benefits, doubling world GDP.”
Furthermore, the benefits of migration are irrefutable in a broader economic sense. A plurality of economists will contend that a sizable immigrant population is beneficial to recipient economies.
One estimate claims that allowing everyone wishing to migrate to do so would produce $90 trillion worth of benefits, doubling world GDP. The rewards from open borders are thus unequivocally greater than what any other policy can achieve.
This stems from the fact that immigrants are instantly more productive when able to access the superior institutions, capital markets, health systems and infrastructure of the rich countries they typically move to.
High-skilled immigrants are particularly desirable. Economic growth is driven by a combination of expertise in complementary fields, and the best way of securing this array of talent is to import it.
However, if immigrants cannot communicate their knowledge due to poor native language fluency, this economic impact is diminished. This suggests that immigration policy should be selective towards high-skilled workers fluent in the recipient country’s language where possible.
Image Credit: Al Jazeera
Common grievances about immigrants stealing jobs and hemorrhaging the finances of the host country are largely unfounded. From 2001 to 2011, immigrants provided a net fiscal benefit of £25 billion to the UK. We can see similar trends in other instances.
This is because migrants generally immigrate after completing their education, and return to their home country for retirement, reducing the burden they place on the state. In regards to employment, immigrants reduce production costs and help expand output, actually increasing demand for native workers.
This expansion will provide enough employment opportunities to outweigh the displacement of natives due to substitution: approximately four native jobs are created for every ten immigrants.
In contrast, the effects of migrants on wages are less desirable. Although there is a slight improvement in native wages in aggregate, those with low levels of education face significant downward pressure on incomes. Open borders will consequently risk exacerbating inequality.
The other drawbacks of opening borders completely should also be acknowledged. A sudden inundation of immigrants will likely shock labour markets and physical and social infrastructures such as housing and healthcare.
In addition, while it is true that there exist considerable efficiency losses due to migration barriers, after a certain maximum point, reducing barriers will reduce productivity.
For very high immigrant inflows, the transmission of productivity from native countries and the rate of assimilation to the productivity level of host countries is diminished.
This is the case against completely open borders. However, no country is near this point of “dynamic efficiency” yet- liberalising currently excessive immigration restrictions would get them closer.
Another concern with a deluge of immigrants is that it may threaten the culture of the host country.
A homogenous culture may reduce social conflict and create an element of trust between people, which can translate into economic benefits. Furthermore, a sense of belonging and social cohesion may also provide intangible benefits to individuals.
One could also argue that valuing cultural diversity counterintuitively means limiting migration to avoid a globalised monoculture.
However, empirically, cultural diversity increases average incomes for all in the society and is needed to protect society from economic demise. Japan and South Korea, once proud of their ethnic uniformity, are now scrambling to find immigrants to slow the decline of their workforces and the stagnation of their economies.
Therefore, wanting to preserve a culture in its original form is idealist- those that do not adapt, much like a business, will fade into irrelevance and perhaps extinction. Indeed, historically, human societies have evolved through cumulative cultural adaptation.
A variety of knowledge, technologies and skills is a requisite to accumulating improvements and fostering innovation.
Thus far, immigration has been discussed from the perspective of the recipient country. While open borders would indeed largely be to their economic benefit, it is important to remember that there are two sides to every border.
The developing world suffers from a mass exodus of its skilled workers- upwards of 80% of whom emigrate from countries in the Caribbean and Latin America.
Too many brains leaving can never be a good thing. Image Credit: The Slovenia Times
In order to combat crippling brain-drain, some nations may utilise emigration barriers. Instead of forbidding emigration outright, these usually manifest as exit taxes, time-limited visas, or compulsory work requirements, particularly if one has been educated at the expense of the state.
Not only should this compensate the state for its expenditure and its losses from emigration, but it will also help build the robust institutions necessary to improve living standards.
It is along these same lines that some developed nations justify their own immigration restrictions. They argue that it would be immoral to subject poor nations to underdevelopment by appropriating their middle class. However, this attitude is not as economically intuitive as it might initially seem.
Encouraging emigration can be advantageous for the origin country’s economy. Despite initial labour shortages, these nations will benefit from better long-term employment and wages.
The remittances by emigrants also often far exceed what they would have otherwise earned and can bolster the origin nation’s living standards and trade surplus.
The predominance of male emigration can deteriorate family structures, but improves the rights and economic inclusion of women. Besides, most emigrants return, often with new skills that they can apply to their home country; for instance, the Indian IT sector owes tribute to professionals returning from Silicon Valley.
Restricting emigration could change the incentives that lead people to become skilled in the first instance. If opportunity is scarce in their native countries, as it often is to those seeking to emigrate, emigration restrictions will simply result in a lower demand for education, harming the skilled workforce overall.
Emigration policy is currently less restrictive than immigration policy, but there is still scope for opening exit borders in some poor countries. The national income-maximising emigration rate is around 10% of highly educated workers.
Emigration policy should thus adjust to high-skilled worker outflows, translating to stricter barriers in small and medium size countries, which suffer from more substantial brain drain.
On the other hand, large countries, such as Brazil, India and China, can actually benefit economically from encouraging more emigration.
Opening borders noticeably past current levels, but not completely, would be prudent overall to recipient countries. Especially amidst the population decline of the developed world, the opening of borders is a fundamental step in preventing economic decline. Doing so is necessary to be consistent with and to complement free trade policies.
Even though opening borders can increase inequality and social and political instability, the advantages outweigh the drawbacks in aggregate, especially in empirical economic evaluations.
For those nations with significant numbers of migrants desiring entry, native-language-speaking and high-skilled immigrants should be given preferential treatment.
Developing countries should be prepared to encourage or restrict skilled emigration as necessary to meet the level that will optimise their national income.
Economics nerd who loves offering his perspective about the world around him. Student. Naturally curious. Finance Director of ShoutOut Adverts LLP.