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The Immigration Policy Puzzle

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  • Paolo E. Giordani
  • Michele Ruta

Abstract

This paper revisits the puzzle of immigration policy: standard economic theory predicts that free immigration improves natives' welfare, but (with few historical exceptions) an open door policy is never implemented in practice. What rationalizes the puzzle? We first review the model of immigration policy where the policy maker maximizes national income of natives net of the tax burden of immigration (Borjas, 1995). We show that this model fails to provide realistic policy outcomes when the receiving region's technology is described by a standard Cobb-Douglas or CES function, as the optimal policy imposes a complete ban on immigration or implies an unrealistically large number of immigrants relative to natives. Then the paper describes three extensions of this basic model that reconcile the theory with the evidence. The first introduces a cost of integration of the immigrant community in the destination country; the second takes into account the policy maker's redistributive concern across different social groups; the last extension considers positive spillover effects of (skilled) migrants on the receiving economy.
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Suggested Citation

  • Paolo E. Giordani & Michele Ruta, 2011. "The Immigration Policy Puzzle," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 922-935, November.
    • Handle: RePEc:bla:reviec:v:19:y:2011:i:5:p:922-935
    DOI: j.1467-9396.2011.00995.x
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    1. Bentolila Samuel & Saint-Paul Gilles, 2003. "Explaining Movements in the Labor Share," The B.E. Journal of Macroeconomics, De Gruyter, vol. 3(1), pages 1-33, October.
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    Cited by:

    1. Alexander M. Danzer & Firat Yaman, 2013. "Do Ethnic Enclaves Impede Immigrants' Integration? Evidence from a Quasi-experimental Social-interaction Approach," Review of International Economics, Wiley Blackwell, vol. 21(2), pages 311-325, May.
    2. Oded Stark & Roman Zakharenko, 2012. "Differential Migration Prospects, Skill Formation, and Welfare," Review of International Economics, Wiley Blackwell, vol. 20(4), pages 657-673, September.
    3. Giuseppe Russo & Luigi Senatore, 2013. "Who contributes? A strategic approach to a European immigration policy," IZA Journal of Migration and Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 2(1), pages 1-16, December.
    4. Oda, Masao & Okawa, Masayuki, 2018. "A model for liberalizing nursing and trade," Japan and the World Economy, Elsevier, vol. 46(C), pages 50-55.
    5. Harashima, Taiji, 2017. "A Theory on the Economic Impacts of Immigration," MPRA Paper 78821, University Library of Munich, Germany.
    6. Vikhrov Dmytro, 2013. "Welfare Effects of Labor Migration," CERGE-EI Working Papers wp491, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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