The Economic Impact of Immigration

As the citizens of some countries call on their governments to stem levels of immigration, two studies explore the positive effects that immigrants have had on the long-term prosperity of regions in the U.S.

THE VOLATILE POLITICAL climates in some regions of the world have sent millions of people traveling to other countries to seek safe haven. Such widespread movement of population, however, has spurred great debate about whether some nations should decrease the number of immigrants crossing their borders. One survey of Europeans from ten E.U. countries, conducted by the U.K.-based research firm Chatham House, found that a majority of respondents would like their governments to put a halt to immigration from Muslim-majority countries. Similarly, a recent Gallup poll of Americans found that 38 percent of those surveyed would like to see the U.S. place further limits on immigration.

Much of this sentiment is driven by citizens’ fear for their safety in light of recent terrorist attacks in Europe and elsewhere. But according to two working papers, the long-term impact of immigration on a country’s economic well-being is substantially positive:

  • The authors of one paper studied the impact of immigration by measuring the rate of “foreign-born enterprise” and economic growth in the tech sector that occurred after the influx of immigrants to the U.S. from 1880 to 1940. The scholars include Ufuk Akcigit, assistant professor of economics, and John Grigsby, doctoral student in economics, at the University of Chicago in Illinois; and Tom Nicholas, professor of business administration at Harvard Business School in Boston, Massachusetts.

  • Akcigit, Grigsby, and Nicholas focused on whether technology sectors where immigrant-driven patents were more prevalent from 1880 to 1940 experienced greater growth between 1940 and 2000 than other regions. They note that “immigrant inventors were noticeably absent from Southern states, perhaps because such places were less likely to be open to disruptive ideas and intolerant of social change.”

    The team found that foreign expertise leads to a greater number of patents and research citations over the next 60 years. Immigrant inventors were 9 percent more productive, in terms of number of patents, than native-born inventors. In turn, the sectors where they focused their work experienced higher levels of growth than other sectors. At the same time, the income for immigrant inventors was 5 percent lower than that for native-born inventors.

  • A second paper examines immigration to the U.S. that occurred from 1860 to 1920. Its co-authors include Nathan Nunn, professor of economics at Harvard University; Nancy Qian, professor of managerial economics and decision sciences at Northwestern University’s Kellogg School of Management in Evanston, Illinois; and Sandra Sequeria, lecturer in development economics at the London School of Economics and Political Science in the U.K.

Nunn, Qian, and Sequeria took two factors into account: weather patterns in Europe and the extension of the railroad system in the U.S.

The researchers found that immigration to the U.S. was highest during a weather-related crisis in Europe, such as a drought. U.S. counties connected to the railway system just before a weather shock in Europe experienced greater immigration, because immigrants were more likely to go where the railway traveled. Counties not connected to the railway until after such a shock experienced less immigration. These factors, largely out of the control of the immigrants or the regions where they settled, allowed the researchers to simulate a randomized controlled trial.

The researchers found that residents who today live in counties that experienced median levels of immigration during the time frame of the study enjoy 20 percent higher average incomes than those living in counties that experienced no earlier immigration. Counties with median levels of immigration also had 3 percent lower rates of poverty and unemployment. Greater levels of immigration also led to more innovation as measured by a greater number of patents.

Short-term effects also were largely positive. Counties with median levels of immigration saw a 50 percent average increase in manufacturing output per capita by 1920, and up to a 58 percent increase in farm values by 1930. Literacy and educational levels decreased, given that many immigrants did not speak English, but improved over time.

Both studies suggest that efforts to decrease immigration could result in decreased innovation and prosperity. “It’s entirely understandable why any population, any community, would be concerned by a large influx of people who are very different from them,” says Qian in Kellogg Insight. “But at least in the United States, we have no evidence of adverse effects, either economically or socially.”

Read “Migrants and the Making of America: The Short- and Long-Run Effects of Immigration During the Age of Mass Migration.” Subscribers of the National Bureau of Economic Research can download “Immigration and the Rise of American Ingenuity” at no charge.

This article originally appeared in BizEd's September/October 2017 print issue. If you have comments or feedback on its contents, please contact us at bized.editors@aacsb.edu.