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Open borders and global GDP – food for thought

8 December 20140 comments

GDPThe world’s GDP would double or triple if border controls were lifted allowing migrants to move from lower to higher-wage countries, according to a raft of controversial new research.

The studies have concluded leaving border controls as they are is the equivalent of throwing “trillion dollar bills on the sidewalk.”

The studies use simple economic reasoning to make projections of huge increases in global GDP with more migration.

Wages reflect the value of the marginal contributions of workers to what they help to produce. Since more capital and better infrastructure make workers more productive in richer countries, workers who move from poorer to richer countries earn higher wages.

Since low-wage countries have too many workers for their available capital and infrastructure, transferring them to high-wage countries benefits the migrants, the new host countries and the countries of origin through remittances.

The benefits accrue under the assumption that all migrants find jobs, do not displace local workers and sending countries via remittances.

the studies say global GDP, which was about $70 trillion in 2011, would increase by $40 trillion if: (1) wages were on average four times higher in the industrial countries with 600 million workers than in the developing countries with 2.7 billion; and (2) 2.6 billion or 95 per cent of the workers in developing countries moved to industrial countries.

These gains to global GDP would occur each year, making their present value huge.

But there are also costs. Wages would fall in industrial countries, by 40 per cent, and rise in developing countries, by over 140 per cent. Capital would gain about $12 trillion.

However, the trillion dollar bonus achieved from lifting migration restrictions is doubtful.

Mass influxes of migrants are not likely to be costless, as the models assume.

Models assume that all migrants get jobs on arrival, no local workers are displaced even as wages fall, and there are no broader socio-economic impacts as billions of migrants move from one country to another.

If people in developing countries have lower wages because of poor infrastructure and socio-economic institutions, and some of these institutional features transfer to industrial countries with the migrants, productivity might fall as institutions change.

Depending on assumptions about how much productivity falls, global GDP might fall rather than rise with more migration.

If migration costs are significant, global gains from migration decrease and could turn negative.

If there are negative externalities from congestion, social unrest, or other factors, global gains soon disappear.

It may be that governments understand at least somewhat the externalities that accompany migration, and that their migration policies aim to minimise migration costs.

Laurie Nowell
AMES Senior Journalist