1. 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

2. Two key objectives I. Characterize history of international migration in Venezuela II. Assess link between migration and growth collapse in Venezuela

3. 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

4. I - History of International Migration in Venezuela

5. 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

13. 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

14. II – Assessing link between international migration and the growth collapse in Venezuela

15. 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.

16. 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

17. 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

18. 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

19. First stage regression Unit of observation is group-country-year (group is industry or state) For fraction foreign-born F jkt in group j from country k in year t: F jkt =  0 Z kt +  1 Z kt-1 +… +  0 (Z kt *F jk1975 ) +  1 (Z kt-1 *F jk1975 ) +… + year fixed effects + country k fixed effects + group j fixed effects +  jt Z jt, Z jt-1, … are current and lagged economic conditions in origin country k Interaction with initial fraction in group j F jk1975 allows effect of shock to be larger for groups with higher initial presence Construct predicted fraction foreign born, Fhat jkt, for each origin country k Main concern: first stage may be too weak

20. Instrumental variables regression For labor market outcome Y jt in “group” (industry or state) j and year t: Y jt =  0 Fraction_Colombian jt +  1 Fraction_European jt +… + year fixed effects + group j fixed effects +  jt Fraction_Colombian jt, Fraction_European jt, … 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”

21. Comments welcome