International migration in Venezuela and the Growth Collapse

Dan LevyVisiting Assistant Professor, Kennedy School of Government, Harvard University

Dean YangAssistant 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

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1975 1980 1985 1990 1995 2000

Year

Nu

mb

er

of

Fo

reig

n b

orn

Foreign born as a percentage of total population

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1975 1980 1985 1990 1995 2000

Year

Pe

rce

nt

of

Fo

reig

n B

orn

Composition of stock of foreign born over time

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975 1980 1985 1990 1995 2000

Year

Per

cen

t o

f fo

reig

n b

orn

Other

Europeans

Colombians

Average age of foreign born living in Venezuela

30.00

40.00

50.00

60.00

1975 1980 1985 1990 1995 2000

Year

Ave

rag

e A

ge

Avg age of Colombians Avg Age of Europeans

Prevalence of entrepreneurship

0%

5%

10%

15%

20%

25%

30%

35%

40%

1975 1980 1985 1990 1995 2000

Year

% e

ntr

epre

neu

rs

Foreign born

Venezuelans

Europeans

Colombians

Number of Foreign born entrepreneurs living in Venezuela

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1975 1980 1985 1990 1995 2000

Year

Nu

mb

er o

f in

div

idu

als

Average Years of Schooling

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00

1975 1980 1985 1990 1995 2000

Year

Yrs

of

Sch

oo

lin

g

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

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.

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Val

ue

rela

tive

to

197

5

Venezuelan real per capita GDP Number of European-born

Per capita real GDP in S. European sources Number of European-born entrepreneurs

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 foreign-

born Omitted variables: third factors (e.g., industry subsidies, sector-

specific 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 = 0Zkt + 1Zkt-1 +…

+ 0(Zkt*Fjk1975) + 1(Zkt-1*Fjk1975) +… + year fixed effects+ country k fixed effects + group j fixed effects

+ jt

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 = 0Fraction_Colombianjt + 1Fraction_Europeanjt +…

+ year fixed effects

+ group j fixed effects

+ jt

Fraction_Colombianjt , Fraction_Europeanjt, … are predicted values from first stage

Coefficients 0, 1, … are effect of exogenous changes in fraction foreign born on labor market outcomes of natives in same “group”

Comments welcome

Average Years of Schooling

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1975 1980 1985 1990 1995 2000

Year

Yrs

of

Sch

oo

ling

Venezuelans Europeans Colombians