Relevant and even prescient commentary on news, politics and the economy.

Net Migration and Economic Growth Around the World – 1958 to the Present

In my last post, I used World Bank data to look at the effect of net migration on economic growth. Net migration is defined by the World Bank as the number of immigrants (coming into a country) less the number of emigrants (leaving the country). I showed that net migration as a share of the population in 2012 (the last year with for which this data has been reported so far) is negatively correlated with growth of PPP GDP per capita from 2012 to 2015. In other words, countries where the share of immigrants as a percent of the population was larger grew more slowly than countries with a smaller proportion of immigrants.

The natural question is… does this relationship hold over a longer period of time? In this post, I will show that the answer is yes.

As to data… I will use three series compiled by the World Bank: net migration, population, and PPP GDP per capita. Net migration data is reported every fifth year beginning in 1962, and it covers five years of activity. In other words, the net migration figure for 1962 is the sum total net migration for the years 1958 through 1962. Similarly, the net migration figure for 1967 is the total for the years from 1963 through 1967. Population is available annually going back to 1960. PPP GDP per capita is available annually, but only begins in 1990. To maximize the use of the available data, and still avoid situations where growth could be leading immigration, I looked at total migration from 1958 to 1992 as a share of the population in 1992, and compared it to growth in PPP GDP per capita from 1993 to 2015.

In other words, I took a look at (roughly) the percentage of the population that had migrated over 34 years, and compared that to the growth rate from the following year to 2015, which is a period of 22 years.

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Net Migration and Economic Growth Around the World

This post uses data from the World Bank to look at the effect of migration on countries around the world. I will begin by looking at all countries for which the World Bank has data, then drill down.

So to begin, the data used in this post:
1. Net migration, by country available here. The most recent data is from 2012. Net migration is defined as the “total number of immigrants less the annual number of emigrants, including both citizens and noncitizens. Data are five-year estimates.” As an example, the US reportedly had net migration of 5,007,887 (i.e., positive) in 2007 through 2012, while Bangladesh had a figure of -2,226,481 (i.e., negative) in the same years. That should fit with your intuition.

2. PPP GDP per capita. Data available here. The last year for which data is available is 2015.

3. Data on population through 2015.

I started by looking at immigration relative to the size of the population. I assumed that the net migration figure was the same in each of the five years. (I know – not correct, but reasonable.) I then divided the Net Migration from 2012 by Population from 2012. I then compared that to the annualized growth in PPP GDP per capita from 2012 to 2015. In other words, I looked at the Net Migration as a share of the Population in 2012 and the growth rate in the subsequent three years. I put both series up on a scatter plot.

Before I put up the graph, I would also note that I did leave some data out. It goes without saying that if a country did not report information, I did not include it. Additionally, countries reporting zero net migration were left out. After all, even North Korea has escapees, er, migrants, even if they won’t admit to it. Otherwise, everything went into the pot leaving a sample of 176 countries. Here’s what the relationship between Net Migration (from as a share of the Population in 2012 and the growth in PPP GDP per capita from 2012 to 2015 looks like for them:

Figure 1.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 176 Countries 20170112
Figure 1

The correlation is -0.32. That is, countries with higher Net Migration as a share of their Population tended to perform less well over the subsequent three years. In other words, it is better to give than to receive, at least when it comes to migrants.

Of course, if we want to understand the effect of Net Migration in the US and other Western Countries, perhaps it makes sense to narrow things down. The next graph uses only countries deemed to be “High Income” by the World Bank. I also restricted the sample to countries with populations exceeding 1 million people to avoid trying to learn life lessons based on recent happenings in Monaco or Andorra. Here’s what that looks like:

Figure 2.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 44 Countries 20170112
Figure 2

The population sample dropped from 176 countries to 44, and the correlation tightened up a bit to -0.48.

Frankly, I think the sample still needs cleaning up. Most of the points on the graph look bunched up because there are a few countries with very, very high Net Migration. For example, Oman is at 6.8%(!!!!), Qatar 3.6%, Kuwait 3.0% and Singapore 1.5%. These are mostly special cases, even for high income countries, and I would venture to say, provide very few lessons on immigration that are applicable to the US or most of the West. Limiting the sample to countries with Net Migrants to Population under 1.4%, the graph now looks like this:

Figure 3.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 40 Countries 20170112 - with corrected axis
Figure 3

This doesn’t change the outcome much, but it makes things easier to see. If desired, we can cut out one more outlier – this one on account of excessive economic growth. The point on the far right side of the graph is Ireland, bouncing back (in PPP GDP) from the monster collapse in 2007-8. Removing Ireland as well gives us this:

Figure 4.  Net Migration div Pop 2012 v. Growth from 2012 to 2015, 39 Countries 20170112 - with axis corrected
Figure 4

The absolute value of the correlation drops, but the fact remains: we are still left with a negative correlation between Net Migration as a percentage of the Population in 2012 and the growth in PPP GDP per capita between 2012 and 2015. We can do a bit more pruning, but frankly, the data simply refuses to support Holy Writ. Sure, these graphs don’t prove that immigration is bad for growth. However, they make it very, very hard to argue that immigration had a positive effect on growth during the past few years. Of course, that isn’t what we hear from our betters.

I will follow up this post with looks at other periods for which data is available from the World Bank. Meanwhile, I put together a spreadsheet that allows the user to make changes to the dates or downselect the data through income level, population, etc. It’s a bit large, but I will send it to anyone who contacts me for it within a month of the publication of this post.  I can be reached at mike and a dot and my last name (note – just one “m” in my last name) and the whole thing is at gmail.com.

 

Updated about fifteen minutes after original posting.  Figures 3 and 4 needed an additional significant digit on the Y-axis.

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Due Process: Holder vs Colbert. Art or Reality. Choose.

Re-posted from last year is Dan Becker’s post:

Due Process: Holder vs Colbert. Art or Reality. Choose.
This is the object:

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;

It’s all one sentence. Any questions?

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid

Did you ever have that feeling in your life

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Due Process: Holder vs Colbert. Art or Reality. Choose.

This is the object: 

No person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury,… nor be deprived of life, liberty, or property, without due process of law;
 
It’s all one sentence. Any questions?
 

This is Art:

The lyrics of Grand Funk Railroad’s Paranoid
Did you ever have that feeling in your life
That someone was watching you?
You don’t have no reason that’s right
But still he’s there watching you
Someone is waiting just outside the door
To take you away
Everybody knows just what he’s there for
To take you away
 
vs the lyrics of Red Rider’s Lunatic Fringe 
Lunatic Fringe – in the twilight’s last gleaming
This is open season, but you won’t get too far
‘Cause you got to blame someone for your own confusion
We’re all on guard this time against the Final Solution
all on guard this time
 

This is the reality. 44% of our wealth is due to rule of law.

 
World Bank study on wealth in 2005 stated:
 
Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.” “Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.”
 
Rule of law equates to trust.
 
 
 

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Free Trade vs the World Bank

This concept of Comparative Advantage hits a big wall if we accept the World Bank’s study on what generates wealth.

If comparative advantage is about what comes natural to a given nation, it has to include what the study referred to as natural capital. This is only 40% of the wealth generation for a poor nation but drops to 20% for a rich nation and is 5% overall world wide. Produced capital accounts for only 18% world wide.

77% of wealth creation is from “intangible capital”. Intangible capital is the results of societies efforts to improve it’s self as a society (making us better people). It is legal, it is education. It is civil rights, it is (or was here) free education to including college, it is management of our environment, it is (or was) the enlightenment, it is adaptation of knowledge for the betterment of living life. None of these things are the results of nature. They are the results of will and money. The money being spread for the benefit of all.

So, we look at China or India and see that they have taken steps to improve their society via education and legal. The comparative advantage however is still more in the natural capital. What is their “natural” capital? It is low relative wages as compared to the rich nations. Is there any naturally comparative advantage? I think not. It’s not like they are selling us natural resources. What they are selling are the results of moving the know how and productivity generating tools (using a hammer drill to drill a hole in concrete vs a star drill and hammer) to their countries. Their natural capital is in their labor.

This creates a dilemma for the free traders who think it is only a matter of stuff and things in exchange for currency. If 40% of poor nations wealth generation is natural capital, and produced capital is 18% of the wealth generation, then that leaves 42% of China’s wealth generation intangible. This is competing against us with numbers that most likely look closer to the world overall, 5% natural, 18% produced, 77% intangible. Being that our advantage is our society, and our society was created by creating a better distribution of wealth, then how are NAFTA, CAFTA etc. without emphasis on labor, rights, and environment promoting our comparative advantage?

This dilemma of promoting trade agreements on only the 2 tangible sectors of the 3 sectors that drive wealth creation ignoring that a rich country as moved vastly beyond the ratio of the 3 sectors to where investment in ones society is the dominating sector by far, is what is wrong with applying models that discuss comparative advantage as some kind of sliding scale based on only the tangibles. Wine vs wool was it?

We’re loosing the trade wars as a nation because we’re writing trading agreements to our partners advantage. That’s what comes of letting people who only think about business, do the trade agreements. They only think in terms of the natural capital and created capital. It is why the models are wrong when they say there will be or has to be “losers”. Bull crappy on that.

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Human capital is where it’s at!

Continuing from my last posting, I stated the World Bank has seen the light. It has put out a report: Where is the Wealth of Nations?
Reason Online has an interview with the prime author Kirk Hamilton.

Oil, soil, copper, and forests are forms of wealth. So are factories, houses, and roads. But according to a 2005 study by the World Bank, such solid goods amount to only about 20 percent of the wealth of rich nations and 40 percent of the wealth of poor countries.

So what accounts for the majority? World Bank environmental economist Kirk Hamilton and his team in the bank’s environment department have found that most of humanity’s wealth isn’t made of physical stuff. It is intangible…Hamilton’s team found that “human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”

The World Bank study defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and nonrenewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most of us think of when we think of capital: machinery, equipment, structures (including infrastructure), and urban land. But that still left a lot of wealth to explain. “As soon as you say the issue is the wealth of nations and how wealth is managed, then you realize that if you were only talking about a portfolio of natural assets, if you were only talking about produced capital and natural assets, you’re missing a big chunk of the story,” Hamilton explains.

The rest of the story is intangible capital. That encompasses raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions. Worldwide, the study finds, “natural capital accounts for 5 percent of total wealth, produced capital for 18 percent, and intangible capital 77 percent.”

For under developed or undeveloped countries you can see what direction they have to go in. But what about our country? We have had discussions about infrastructure. We have talked about the need for education. When I skimmed the report (200+ pages), savings was a must in order to be able to invest in the intangible capital. We have debated the share of benefit a person receives from the country’s infrastructure and institutions based on the wealth and/or income they control. We always argue about where growth comes from such that it raise all boats. (Sing that jingle!) And there is the “free market” debate revolving around regulation. Oh that nasty governance issue! If only we hadn’t signed on to form a more perfect union.

My quick assessment of this report is that it is a testament to the misdirection of our policies. We do not make money from money even though we have been trying to. You did catch the reference to “labor”. These breakouts of wealth suggest that there is a bottom limit to taxation as taxation reflects our investment in us. In the study, European countries dominate the top wealth and England is not in the top 10. This report implies that the wealthy do benefit more from the country’s structure and investment because the majority of their wealth is from this “intangible capital”. The few of the wealthy have accumulated their wealth from the investment of the many in the intangible. It also means capital gains should be tax equal to labor if not higher.

Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity,” the study concludes. According to Hamilton’s figures, the rule of law explains 57 percent of countries’ intangible capital. Education accounts for 36 percent.

With only 18% of wealth from produced capital and less from natural resources as a country becomes wealthier, freeing up money to produce money as we have been promoting is very poor investment strategy it would seem when 77% of our wealth is from the human element. In a broad sense, we are talking about what ideology concerning the conduct of human life works best to produce wealth.

An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth. For example, Switzerland scores 99.5 out of 100 on the rule of law index and the U.S. hits 91.8. By contrast, Nigeria gets a score of just 5.8, while the war-torn Democratic Republic of the Congo obtains a miserable 1 out of 100.

It is not just that we need to invest in education,or just have a legal system or just fix the bridges. These can be measured as noted in the World Bank Doing Business chart.

“Trust” seems to be the real intangible the report is talking about. We as a whole can be educated to the hilt, but if we can’t trust that our efforts will be put to constructive use, we have problems. Think habeas corpus, FISA, election fraud, threatening of the press, intimidation of speech, extension of free speech to none human entities, the equating of one voice-one vote to spending of one’s money, K Street project, etc. Think of the use of fear. If only a few are educated to the hilt or have access to the governance, we can not build capital.

If the country is 100 people large, but only 10 trust each other to do for each other, then how much wealth can they actually build if 93% of the 77% of intangible capital is related to law access (trust) and education (the removal of fear; trust) of the populace? But then, our founders seemed to have already reasoned this. Jefferson started the free education to including college!

So why should this report seem so “new”. This makes me think of the years of government bashing we have been hearing from the republican side. Reagan’s infamous “nine most dangerous words in the English language: I’m from the government and I’m here to help you.” It makes me realize we have to dump the Bush/neocon ideology here and in our foreign policy if only to remove the fear so that trust can return.

Mr. Hamilton’s example of the difference in thinking is in when he discusses pollution as a resource management issue:

It’s not a pollution problem; it’s a natural resources management problem. How do you maintain soil quality? How do you generate profits with the assets that you have, which in this case is land that can be invested in other things? The problem in China is they’ve figured out how to grow 9 percent a year pretty successfully but they’re now facing the environmental consequences of uncontrolled growth.

This is policy that he is talking about. Policy of what to spend on and policy governing relationships both boiling down to regulation. (What was that Milton quote the other day?)We’re talking government. I interpret this report as making a case that shrinking government to where it can be drowned in a bath tub is not the way to build wealth. The market will not solve our problems of growth for us. It is not the answer to Save the Rust Belt’s question of how to save the rust belt? We have to do it and we have to do it in a manor that is inclusive for that is the only way to maximize the “intangible capital”. It also means we have to do as Cactus is attempting to do; qualify our policy results related to specific ideology. Just charting to see what GDP is doing or just looking at supply and demand theory won’t do it. That’s just bench racing.

The World bank has done some qualifying and changed their ideology:

Hamilton: In the old days, we thought if you built the infrastructure then development would come-the Field of Dreams model of development. It turns out to be a lot harder than that.

Dare I suggest that the World Bank has discovered that an economy exists for our benefit and not for it’s own sake? Maybe they read our Declaration and our Constitution.

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Doing Business, World Bank ranking

Just a little break from the usual. Did you know you can pay your taxes easier in Iraq than in the US?

I stumbled across this today. It is the World Bank page on Doing Business. It ranks 178 countries on 10 topics. You can resort the order depending on 3 different settings. When you initially open the page you see the overall order.

Interestingly, the US with it’s over all ranking of 3, under ease of paying taxes: 76th. Iraq ranked 37 under this topic and is not even at the bottom over all! It even ranks 40th on registering property. But it is 164th on starting a business and once you start it, you probably can’t close it as that topic ranks 178 (the bottom).

Have fun.

Update: There is a report that goes along with this. Doing Business in 2005

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