Ethnic Network Effects in the Spanish Immigration Boom

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1 Ethnic Network Effects in the Spanish Immigration Boom Nina Heuer Marcel Smolka University of Tübingen 13th Annual Conference of the ETSG Copenhagen Business School University of Copenhagen September 8-10, 2011 Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

Business School University of Copenhagen September 8-10, 2011 Heuer, Smolka

2 Introduction Motivation Large and persistent cross-country wage differences Level of international migration flows low relative to that of trade and capital flows Substantial bilateral moving costs Ethnic networks provide newcomers with social capital that alleviates the cost of finding jobs and housing; Munshi (2003, QJE) Potential for migration to develop momentum? Clustering of co-ethnic migrants in space? Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

capital that alleviates the cost of finding jobs and housing; Munshi (2003, QJE) Potential for migration to develop momentum?

3 Introduction This Paper Role of ethnic networks in shaping (i) the aggregate dynamics (country margin) and (ii) the spatial distribution (province margin) of immigration in Spain Theoretical approach combines (i) dynamic migration model akin to Carrington et al. (1996) and Chau (1997) with (ii) random utility framework à la McFadden (1974) Econometric methods to explore (i) global network effect (country margin) (ii) local network effect (province margin) Counterfactual analysis through simulation Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

(1996) and Chau (1997) with (ii) random utility framework à la McFadden (1974) Econometric methods to explore (i) global network effect (country

4 Introduction Why Spain? Among the world s strongest migrant magnets In 2010, stock of foreign-born individuals was up 5.3 million people from 1995 Foreign-born share among the total population has risen from 2.6% to 13.8% over that same period Diverse ethnic background (more than 100 sources) Liberal immigration policy Detailed micro- and macro-level data freely available at the website of the Spanish Instituto Nacional de Estadística (INE); data include immigrants with and without valid residence permits Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

8% over that same period Diverse ethnic background (more than 100 sources) Liberal immigration policy Detailed micro- and macro-level data freely

5 Introduction Other Papers Sociologial network theory ( cumulative causation ); economic theory of labor migration Myrdal (1957), Massey et al. (1993); Carrington at el. (1996, AER), Chau (1997, JRS) Empirical literature on determinants of international migration (macro-level), often gravity-type for migration into OECD Hatton (1995, REStat), Clark et al. (2007, REStat), Lewer & Van den Berg (2008, EL), Pedersen et al. (2008, EER), Ortega & Peri (2009, NBER WP), Mayda (2010, JPopEcon), Beine et al. (2011, JDE) Empirical literature on migrants location choices in destination country (often U.S.) Bartel (1989, JLE), Zavodny (1999, IntMigRev), Chiswick & Miller (2004, JCPA), Bauer et al. (2005, JPopEcon), Card & Lewis (2007), Sandell (2008, IMDEA WP), Jayet et al. (2010, AES), Beine et al. (2011, CESifo WP) Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

(2007, REStat), Lewer & Van den Berg (2008, EL), Pedersen et al. (2008, EER), Ortega & Peri (2009, NBER WP), Mayda (2010, JPopEcon), Beine et al.

6 Data Migration Data from INE Yearly head count of legal and illegal inflows of all foreign nationals, detailed by Spanish provinces and nationality, Yearly head count of migrant communities in each of 52 Spanish provinces for 113 nationalities, Definition of migrant based on nationality (and country of birth) Other Spanish data GDP per capita (INE) Employment rates (INE) Bilateral trade volumes (from DataComex Statistics on Spanish Foreign Trade) Bilateral FDI flows (from DataInvex Statistics on Foreign Investments in Spain) Origin country data from various sources Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

Spanish data GDP per capita (INE) Employment rates (INE) Bilateral trade volumes (from DataComex Statistics on Spanish Foreign Trade) Bilateral FDI flows (from DataInvex

7 Data Migration Stocks and Inflows, Romanians Moroccans Ecuadorians Colombians Britons Bolivians Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

Bolivians 0 200 400 600 800 0 50 100 150 200 0 200 400 600 800 0 50 100 150 200 0 200 400 600 800 0 50 100 150 200 97 99 01 03 05 07

8 Data Concentration Curves for Foreign Nationals, 1999 and 2009 Romanians Moroccans Ecuadorians Colombians Britons Bolivians Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

Britons Bolivians Heuer, Smolka (University of

9 Data Cross-Country Variation: Initial Stocks and Subsequent Flows Emigration Rate ( ) Log Migrant Stock 1997 Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

04 Emigration Rate (1997-2009) 2 4 6 8 10 12 Log Migrant

10 Data Within-Variation: Stocks and Flows %-Change in Emigration Rate Lagged %-Change in Migration Stock Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

11 Data Within-Variation: Spanish GDP Per Capita and Flows %-Change in Emigration Rate Lagged %-Change in Spanish GDP Per Capita Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

12 Data Within-Variation: Spanish Employment and Flows %-Change in Emigration Rate Lagged %-Change in Spanish Employment Rate Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

05 Lagged %-Change in Spanish Employment Rate Heuer, Smolka

13 Framework and Parameter Estimates Basic Idea Individual decision making embedded in a periodic two-stage framework First stage: binary choice between migrating to Spain or staying at home; see Carrington et al. (1996) and Chau (1997) Second stage: discrete choice of residential destination in Spain, conditional on migrating; see McFadden (1974) Hierarchical information-processing (supported by evidence; see Pellegrini & Fotheringham, 2002) Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

(1996) and Chau (1997) Second stage: discrete choice of residential destination in Spain, conditional on migrating; see McFadden

14 Framework and Parameter Estimates First stage An individual s expected net benefit in lifetime utility from migrating from country i to Spain at time t is δe(v (w t, e t, c its )) δe(v (w it, e it)), (1) where w s are wages, e s employment rates, and c its c(m it 1 ; s) with s (0, 1) and M it 1 being the stock of migrants from i in Spain at t 1 We assume E(V (.)) ln w = α > 0, E(V (.)) ln e and similarly for the home country = β > 0, E(V (.)) c = γ < 0, (2) Assuming c/ s = 1, we find a unique s it s(w t, e t, w it, e it, M it 1) for which all individuals with s it < s it expect to be strictly better off through migration Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

(.)) ln w = α > 0, E(V (.)) ln e and similarly for the home country = β > 0, E(V (.

15 Framework and Parameter Estimates First stage (cont d) Letting F ( s it ) = s it and c/ ln M = θ < 0, we can use the marginal migrant condition to arrive at M it N i = θ ln ˇM it 1 α γ ln w t + α γ ln w it β γ ln e t + β γ ln e it M it will be the cumulative gross inflow of men aged from country i at time t Cumulative flow model, estimated with source fixed effects and time fixed effects; see also Brücker et al. (2004) and Brücker & Schröder (2011) No dynamic model since ˇM it 1 will be the observed stock of all immigrants from country i at time t 1 Augmented by bilateral trade and FDI flows Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

with source fixed effects and time fixed effects; see also Brücker et al.

16 Framework and Parameter Estimates First stage (cont d) Letting F ( s t ) = s t and c/ ln M = θ < 0, we can use the marginal migrant condition to arrive at M it N = θ ln ˇM it 1 α γ ln w t + α γ ln w it β γ ln e t + β γ ln e it Parameter estimates (log-log model) θ 0.5 α/γ 3.4 α /γ 0.6 β/γ 11.6 β /γ 3.1 Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

it β γ ln e t + β γ ln e it Parameter estimates (log-log model) θ 0.5 α/γ 3.4 α /γ 0.6 β/γ 11.

17 Framework and Parameter Estimates Second stage In Spain, choice of residential destinations indexed j = 1,..., J. Expected lifetime utility from migrating from i to j is E(U ijt ) = δe(v (w jt, e jt, c ijt )) + ε j, (3) where all immigrants draw their personal taste components ε j from iid type I extreme value distributions. Hence, ( ) Pr E(U ijt ) = max E(U ikt ) = m ijt exp(δe(v ijt )) = k m J it k=1 exp(δe(v (4) ikt)) Log-linearizing and rearranging yields ( J ) ln(m ijt ) = δe(v ijt ) ln exp(δe(v ikt )) + ln m it. (5) k=1 Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

components ε j from iid type I extreme value distributions.

18 Framework and Parameter Estimates Second stage (cont d) Applying a variant of the within-transformation to eliminate it-specific effects results in ln ( mijt m ilt ) ( ) ˇMijt 1 = δθγ ln + δα ln ˇM ilt 1 ( wjt w lt ) + δβ ln ( ejt m ijt will be the gross inflow of men aged from country i to province j at time t, and similarly for reference province l (Madrid) Estimated with source-and-destination fixed effects, destination-and-time fixed effects, and source-and-region-and-time fixed effects (computationally burdensome) Augmented by bilateral trade flows (province-level) and FDI flows (regional-level) e lt ) Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

l (Madrid) Estimated with source-and-destination fixed effects, destination-and-time fixed effects, and source-and-region-and-time fixed effects (computationally burdensome)

19 Framework and Parameter Estimates Second stage (cont d) Applying a variant of the within-transformation to eliminate it-specific effects results in ln ( mijt m ilt ) Parameter estimates δθγ 0.2 δα 1.2 δβ 2.2 ( ) ˇMijt 1 = δθγ ln + δα ln ˇM ilt 1 ( wjt w lt ) + δβ ln ( ejt e lt ) Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

20 Framework and Parameter Estimates Work in Progress Multilateral resistance (Bertoli & Fernández-Huertas Moraga, 2011) Cross-country differences in network effects Simulation Combine global and local network effect to simulate dynamics at the country and at the province margin of migration Account for wage and employment effects of migration Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

to simulate dynamics at the country and at the province margin of migration Account for wage and employment

21 Ethnic Network Effects in the Spanish Immigration Boom Nina Heuer Marcel Smolka University of Tübingen 13th Annual Conference of the ETSG Copenhagen Business School University of Copenhagen September 8-10, 2011 Heuer, Smolka (University of Tübingen) Spanish Migration Networks September 8-10, / 21

IAW Diskussionspapiere Nr. 83 Mai 2012 No. 83 May 2012. Nina Neubecker Marcel Smolka Anne Steinbacher

DISCUSSION PAPERS iaw@iaw.edu www.iaw.edu IAW Diskussionspapiere Nr. 83 Mai 2012 No. 83 May 2012 Networks and Selection in International Migration to Spain Nina Neubecker Marcel Smolka Anne Steinbacher