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International migration in Venezuela and the Growth Collapse Dan Levy Visiting Assistant Professor, Kennedy School of Government, Harvard University Dean Yang Assistant Professor, Ford School, University of Michigan Presentation at the Kennedy School of Government, April 2006 Two key objectives I. Characterize history of international migration in Venezuela II. Assess link between migration and growth collapse in Venezuela Data Encuesta de Hogares (1975-2003) : Semi-annual household survey Allows us to get a history of number of foreign born people and net flows Key variables Place of birth Year of birth Entrepreneur status Limitations Year of arrival to Venezuela only available for 1994-2003 Can only infer net flows Entrepreneur status variable is relatively crude measure I - History of International Migration in Venezuela Key questions How has the stock of immigrants evolved over time? How has the composition of immigrants evolved over time? How do immigrants differ from natives in their: Entrepreneurship Human capital Number of foreign-born living in Venezuela Number of Foreign born 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 1975 1980 1985 1990 Year 1995 2000 Foreign born as a percentage of total population Percent of Foreign Born 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 1975 1980 1985 1990 Year 1995 2000 Composition of stock of foreign born over time 100% Percent of foreign born 90% 80% 70% 60% Other 50% Europeans 40% Colombians 30% 20% 10% 0% 1975 1980 1985 1990 Year 1995 2000 Average age of foreign born living in Venezuela 60.00 Average Age 50.00 40.00 30.00 1975 1980 1985 1990 1995 Year Avg age of Colombians Avg Age of Europeans 2000 Prevalence of entrepreneurship 40% 35% % entrepreneurs 30% 25% Foreign born Venezuelans 20% Europeans Colombians 15% 10% 5% 0% 1975 1980 1985 1990 Year 1995 2000 Number of Foreign born entrepreneurs living in Venezuela 140,000 Number of individuals 120,000 100,000 80,000 60,000 40,000 20,000 0 1975 1980 1985 1990 Year 1995 2000 Average Years of Schooling 10.00 9.00 Yrs of Schooling 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1975 1980 1985 1990 1995 2000 Year Venezuelan entrepreneurs European entrepreneurs European non-entrepreneurs Main take-away points Fraction of foreign born: about 5% Went up in 1975-1980 and down afterwards Big shift in composition of foreign born from mostly Europeans to mostly Colombians Foreign born much more likely than Venezuelans to be entrepreneurs But fraction of foreign born entrepreneurs decreased over time Foreign born do not differ markedly from locals in terms of educational attainment II – Assessing link between international migration and the growth collapse in Venezuela European presence and relative economic conditions 2 1.8 1.6 Value relative to 1975 1.4 1.2 1 0.8 0.6 0.4 0.2 Venezuelan real per capita GDP Number of European-born Per capita real GDP in S. European sources Number of European-born entrepreneurs 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 0 Notes -- Per capita real GDP in S. European sources is weighted average across Spain, Italy and Portugal. Weights based on relative shares of foreign-born across those three countries from 1971 census (0.46, 0.28, and 0.26, respectively). "Entrepreneurs" are those reporting selves as "Patronos" in labor force survey. Migration and the collapse: key questions Generally How have the large changes in migrant inflows and outflows affected the Venezuelan economy in the last 30 years? In particular How have changes in the fraction foreign born affected Venezuelan natives’ labor market outcomes? Outcomes: wages, employment, labor force participation, total output or production Focus on natives in the same “group” as foreign-born, such as: 1) industries, 2) states Examine differential effects of Colombian vs. European migrants Challenges to identification Fraction foreign born (in industries or states) is endogenous with respect to outcomes of interest Reverse causation: growing industries may attract more foreignborn Omitted variables: third factors (e.g., industry subsidies, sectorspecific trade liberalization) may influence both natives’ labor market outcomes and fraction foreign-born Need a source of variation in fraction foreign-born that is exogenous with respect to natives’ labor market outcomes Identification strategy Use shocks in migrants’ origin countries as instruments for changes in fraction foreign-born Economic conditions in origin countries should affect new inflows, as well as rate of return migration To get variation at industry or state level, interact shocks with initial (~1975) fraction foreign born in industry or state First stage regression Unit of observation is group-country-year (group is industry or state) For fraction foreign-born Fjkt in group j from country k in year t: Fjkt = g0Zkt + g1Zkt-1 +… + a0(Zkt*Fjk1975) + a1(Zkt-1*Fjk1975) +… + year fixed effects + country k fixed effects + group j fixed effects + ejt Zjt, Zjt-1, … are current and lagged economic conditions in origin country k Interaction with initial fraction in group j Fjk1975 allows effect of shock to be larger for groups with higher initial presence Construct predicted fraction foreign born, Fhatjkt, for each origin country k Main concern: first stage may be too weak Instrumental variables regression For labor market outcome Yjt in “group” (industry or state) j and year t: Yjt = b0Fraction_Colombianjt + b1Fraction_Europeanjt +… + year fixed effects + group j fixed effects + ejt Fraction_Colombianjt , Fraction_Europeanjt, … are predicted values from first stage Coefficients b0, b1, … are effect of exogenous changes in fraction foreign born on labor market outcomes of natives in same “group” Comments welcome Average Years of Schooling 9.00 8.00 Yrs of Schooling 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1975 1980 1985 1990 1995 Year Venezuelans Europeans Colombians 2000