Immigration and Spatial Equilibrium:
The Role of Expenditures in the Country of Origin
May 16, 2019
Many immigrants come to the US in search of greater economic opportunity. From the perspective of an immigrant, that opportunity varies greatly across US cities, impacting where immigrants choose to locate. All else equal, an immigrant who wants to consume part of her income in her country of origin prefers to live in a city that is twice as expensive if wages are also twice as high, something that is not necessarily true for a native. Based on this simple idea, this research investigates where immigrants to the US choose to live and their impact on economic activity in cities across the US.
Where do immigrants tend to locate and why?
- Immigrants to the US tend to concentrate in large, expensive cities where wages tend to be higher.
- The earnings gap between natives and immigrants is higher in these cities.
- These patterns are stronger where price differentials between the US and the immigrant’s country of origin are greater.
- Immigrants tend to send a portion of their income to relatives in their home country and consume less locally than natives.
- All these patterns are consistent with the fact that consumption in the country of origin shapes the location incentives of immigrants across US cities.
How do the residential choices of immigrants impact economic activity?
- Because immigrants tend to move to high-productivity cities, they move economic activity from low-productivity places to high-productivity ones.
- This leads to an increase in overall worker productivity by around 1% and increases the welfare of native workers by around 0.35%.
These findings show that immigrants systematically choose locations with higher levels of productivity and quantify the beneficial effect of immigration on overall productivity in the US.