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Center for Global Development and The Paul H. Nitze School of Advanced International Studies co-hosted the Massachusetts Avenue Development Seminar (MADS), How Much Do Low-Income Workers Gain from Migrating to a Rich Country? Experimental vs. Non-experimental Measures Using the New Zealand Visa Lottery featuring David McKenzie, Development Research Group, World Bank. Anna Maria Mayda,Department of Economics, Georgetown University, served as the discussant.
Accurate measurement of the effect of migration on the income of potential migrants is a crucial factor in determining the impact that lowering barriers to migration would have on world income. However, measuring this effect is complicated by non-random selection of migrants from the general population, which makes it hard to obtain an appropriate comparison group of non-migrants. This paper uses a migrant lottery to experimentally estimate the income gains from migration, thus overcoming this problem. New Zealand allows a quota of Tongans to immigrate each year with a lottery used to choose amongst the excess number of applicants. A unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration to be obtained by comparing the incomes of migrants to those who applied to migrate, but whose names were not drawn in the lottery, after allowing for the effect of non-compliance among some of those whose names were drawn. We find evidence of migrants being positively selected in terms of both observed and unobserved skills. As a result, non-experimental methods other than instrumental variables are found to overstate the gains from migration by 20 to 82 percent.