The Natural Rate of Immigration

There are large differences in immigration (per capita) levels among rich OECD countries. In addition these differences are unrelated to the respective levels of income per capita and display a large persistence over time. Existing economic theories of immigration cannot explain these facts. This paper presents a dynamic political-economy model of immigration where agents choose an immigration policy at each period. In the model immigration poses a trade-off to the native voters. Wage gains from a given immigration policy need to be compared to its expected political costs (if any). The latter may arise because immigrants gain voting rights and their political preferences may be against those of the voters who let them in. The equilibrium can be characterized analytically. Immigration is shown to depend crucially on the degree of intergenerational mobility in skills in the economy. When mobility is low the political effects of immigration determine the policy whereas for high mobility the wage motive dominates. For some parameters the model produces immigration patterns that resemble those present in the data. In the last section I plan to test whether the model provides an answer to the empirical puzzle. ∗I am greatly indebted to Jess Benhabib for his patient role as my advisor and to Alberto Bisin for tons of help. Also, I have greatly benefited from discussions with Sophie Bade, Joan Carles Conesa, Boyan Jovanovic, Alessandro Lizzeri, Antoni Manresa, Larry Jones, Ricardo Lagos, Ryuichi Tanaka, Michele Tertilt and Vincenzo Quadrini. I also thank the participants at the SED-2002 in New York, and at the SET-2002 in Venice for their comments. All remaining errors are, of course, my own. For any comments, please write to [email protected].