BACKGROUND PAPER FOR THE

WORLD DEVELOPMENT REPORT 2013

Labor Market and Growth

Implications of Emigration:
Cross-Country Evidence

Shoghik Hovhannisyan
The World Bank
 Labor Market and Growth Implications of Emigration:

Cross-Country Evidence

Shoghik Hovhannisyan

Abstract

The number of migrants residing in 30 OECD countries increased from 42 million to nearly
59 million over 1990-2000. This paper studies the impact of emigrants with different education
levels on their home countries’ employment-population ratio, GDP per worker, and its factors
obtained by a production function decomposition. It uses migration data from 195 countries of
origin to 30 major destination OECD countries in 1990 and 2000 and applies two different econo-
metric approaches to estimate this impact. The first approach discusses how changes in native
population due to emigration affect the growth of macroeconomic variables and constructs an
instrument based on pull factors of migration and migrants’ networks to correct for endogene-
ity bias. The second approach estimates the elasticities of variables of interest with respect to
emigration rates and uses instruments widely discussed in the literature: dummy variables for
being in a colonial relationship; low-income countries; whether the migrant sending country’s
official language is English; distance; and country size. Estimation results across two economet-
ric approaches indicate that total emigration rates increase GDP per worker in all countries,
non-high income countries, and low and lower middle income countries, primarily driven by im-
provements in total factor productivity (TFP). In contrast, there is no robust significant impact
of emigration on the employment-population ratio across different specifications.

1
1 Introduction

Along with increased flows of capital, goods, and services, international labor mobility has become

an inseparable part of globalization, with enormous economic, social and cultural implications

in both countries of origin and destination. The number of foreign-born individuals residing in

30 OECD countries increased from 42 million to nearly 59 million over the period of 1990-2000.

This paper studies the impact of emigration for different education levels on GDP per worker, its

factors obtained by a production function decomposition, and the employment-population ratio in

migrant-sending countries. It uses data on emigration from 195 countries of origin to 30 OECD

destination countries which account for about 70 percent of total emigration and 90 percent of

skilled emigration in the world. Emigration can have both a negative and a positive impact on

migrant-sending countries. On one hand, these countries face deprivation of their labor force

especially the most educated, known in the literature as a brain drain phenomenon. On the other

hand they benefit from emigration in several ways. Migrants remit money home and these financial

flows account for a significant share of GDP in developing countries. Remittances relax financial

constraints of households which have a member or relative abroad and can increase not only their

consumption of goods and services, but also expenditures on health and education, thus having both

short-term and long-term effects on GDP. Emigration might also promote transfer of technology

and knowledge across countries by facilitating more foreign direct investment (FDI), trade, and

other partnerships through established diasporas abroad and their networks. Finally, the high

probability of emigration of educated labor raises returns to education and, therefore, might lead

to higher investments in education. As not everyone has a chance to migrate, this increases overall

human capital in the migrant-sending country.

There is a large empirical literature on emigration effects in migrant-sending countries and their

various transmission mechanisms. Macroeconomic studies using cross-country data provide mixed

evidence on the effects of emigration and remittances on growth and its drivers, with results highly

dependent on the econometric approaches and instruments used to control for endogeneity bias.

Estimations by Cartinescu et al. (2009) and Acosta et al. (2008) show an increase in growth due

to remittances, while Chami et al. (2009) find a negative effect of remittances on growth volatility.

However, Barajas et al. (2009) conclude that remittances have no impact on economic growth

2
in their cross-country analysis. At the same time, Easterly and Nyarko (2009) find no significant

impact of brain drain or outflow of high-skill migrants on GDP growth in African countries by

using distance from France, U.K., and U.S., and population as instruments to address endogeneity

issues. In addition, Gould (1994) shows that U.S. bilateral trade is larger with countries that send

more migrants to the U.S. and Head et al. (1998) estimate similar effects for Canada.

A significant fraction of the emigration literature discusses its impact on human capital of migrant-

sending countries. Papers by Beine et al. (2008), Docquier et al. (2008), Docquier et al. (2007), and

Easterly and Nyarko (2009) use a variety of instruments such as total population size; migration

stocks at the beginning of the period; geographical proximity to developed countries; dummy

variables for small islands, landlocked, least-developed, and oil exporting countries; former colonial

links; etc., to correct for endogeneity bias in estimating these effects. These papers find a positive,

significant impact of emigration on human capital formation in countries of origin due to a higher

propensity to migrate for more educated people, which increases investments in education.

Studies using household, firm, or individual-level data discuss various transmission mechanisms

of emigration impact on growth. Yang (2008) finds an increase in remittances to households in the

Philippines at the time of the Asian financial crisis, consistent with consumption smoothing. In

contrast, government transfers have no impact on remittances in Mexico, according to Teruel and

Davis (2000) or in Honduras and Nicaragua, according to Nielsen and Olinto (2007). Woodruff and

Zenteno (2006) find that migration is associated with higher investment levels and profits when

analyzing data on self-employed workers and small firm owners in urban areas of Mexico. Also,

using panel data from rural Pakistan, Adams (1998) shows that availability of remittances helps to

increase investment in rural assets by raising the marginal propensity to invest for migrant house-

holds. In addition, remittances increase households’ school attendance in El Salvador according

to Cox and Ureta (2003) and improve health outcomes in Mexico according to Hilderbrandt and

McKenzie (2005). Finally, a study by Saxenian (2002) concludes that emigration of India’s high-

skill labor to Silicon Valley increased trade with and investment from the U.S., promoting creation

of local high-technology industries. In terms of labor market outcomes, Mishra (2007), Aydemir

and Borjas (2007), and Hanson (2007) find a positive correlation between wages and emigration in

Mexico.

This paper contributes to the emigration literature by studying the growth and labor market im-

3
plications of emigration across different education groups of population, using a new econometric

approach. First, to address endogeneity and simultaneity bias in Ordinary Least Squares (OLS) es-

timation, it applies an Instrumental Variable (IV) approach with the following instruments adopted

from the literature: (i) a dummy variable for ever being in a colonial relationship, (ii) a dummy

variable for low-income countries, (iii) the average distance from migrant destination countries with

an exception of selective countries: Australia, Canada, and the U.S., (iv) a minimum distance from

selective countries, (v) country size in terms of population, including both residents and emigrants,

and (vi) a dummy variable if the migrant-sending country’s primary language is English. These

instruments are used to estimate elasticities of the variables of interest with respect to emigration

rates for different education groups. In addition, this study suggests a new instrument constructed

based on pull factors of migration and migrants’ networks to estimate how changes in population

due to emigration affect the growth of dependent variables. An increase in total immigration stocks

of destination countries is primarily driven by either changes in immigration policies or labor de-

mand, and is taken as exogenous to developments in countries of origin. At the same time, this

higher demand for immigrants in destination countries would be distributed proportionally across

countries of origin based on the size of their diasporas due to the importance of migrants’ networks

in the cross-country mobility of population.

Estimation results of emigration impact on different country groups based on their income levels

indicate that total emigration rates increase GDP per worker in all countries, all non-high income

countries, and all low and lower middle income countries. These results remain robust to the

inclusion of different control variables and across different econometric specifications. The growth

in GDP per worker is primarily driven by improvements in TFP. In contrast, emigration rates of

secondary and tertiary educated individuals have no consistent significant effects on the variables

of interest. Finally, there is no impact of emigration on the employment-population ratio.

The rest of the paper is organized as follows. Section 2 introduces the theoretical framework for

growth accounting. Section 3 discusses the estimation approach including two IV methods. Section

4 describes the data and construction of variables. Empirical results are presented in Section 5.

Finally, Section 6 concludes.

4
2 Theoretical Framework

This paper uses a growth accounting framework to analyze the impact of emigration on GDP per

worker in migrant-sending countries. To study the channels of emigration impact it decomposes the

GDP into three factors using the following Cobb-Douglas production function as in Caselli (2005):

Yit = Ait Kitα (Lit hit )1−α (1)

where Ait is TFP, Kit is an aggregate capital stock, α is a capital share in GDP, and (Lit hit ) is

a quality adjusted workforce, with the number of workers Lit multiplied by their average human

capital hit , in country i and period t. In per-worker terms the production function can be written

as:

α
yit = Ait kit (hit )1−α (2)

where kit is the capital-labor ratio (Kit /Lit ). Kit is constructed using the perpetual inventory

method:

Kit = Iit + δKit−1 (3)

where Iit is investment in country i and period t and δ is a depreciation rate. The initial capital

stock Kit0 is obtained from the steady-state expression for capital stock in the Solow model:

Ii0
Kit0 = (4)
gi + δ

where Ii0 is a value of the investment series in the first available year and gi is an average geometric

growth rate for the investment series between the first available year and 2000 for country i. To

compute the time series for Kit , investment in respective years is added to the initial capital stock.

The average human capital hit is a function of average years of schooling in the population as

expressed in the following equation:

hit = eφ(sit ) (5)

5
where sit is average years of schooling in country i and period t and φ(sit ) is a piecewise linear

function with slope 0.13 for sit ≤ 4, 0.10 for 4 < sit ≤ 8, and 0.07 for 8 < sit . This function resem-

bles the log-linear functional relationship between wages and years of education in the Mincerian

approach, where wages are assumed to be proportional to human capital given the production func-

tion and perfect competition. Since international data on education and wages suggest that there

are some differences in marginal rates of return across countries, those differences are introduced

with the convexity. Finally, TFP, Ait , is constructed as a residual.

The empirical strategy consists of two econometric approaches which estimate the impact of

different education groups of emigrants on the employment-population ratio and GDP per worker

and its components as obtained above. In the first approach (IV1), following Easterly and Nyarko

(2008), population is defined as:

L = LD + LF (6)

where L is a total native population which includes both residents LD and emigrants LF . The

percentage change in native population can be expressed as:

dL dLD dLF
= + (7)
L L L

The second component in Equation (7) captures the effect of a change in population due to

emigration. The IV1 approach estimates reduced form equations of the impact of a change in

population due to emigration on variables of interest: employment-population ratio, GDP per

worker, capital-worker ratio and average human capital as in the following equation:

dbi dLk
= αk + β k kF i + i (8)
bi Li

dbi dLkF i
where bi is a growth rate of each variable of interest in country i, Lki
is the change in native

population due to emigration for education group k in country i, and i is a zero-mean random

shock.

The second approach, IV2, uses data as a pooled cross-section and estimates elasticities of variables
LkF it
of interest (bit ) with respect to emigration rates ( Lkit
) by controlling for a year-fixed effect (ηt ) as

6
in the following equation:

LkF it
ln bit = αk + ηt + γ k ln + i (9)
Lkit

3 Estimation Approach

This study estimates the impact of emigration on GDP per worker and its factors, obtained by a

production function decomposition and the employment-population ratio in migrant-sending coun-

tries using cross-country data over the period of 1990-2000. It analyzes the impact of emigration

for three different education groups of the native population: for all levels of education, those

with secondary and tertiary education, and those with tertiary education. Distinguishing across

these groups is important in understanding to what extent education of emigrants matters for de-

velopment of their home countries. Low-skill emigration can simply lead to a decline in labor or

influence countries of origin through remittances, promotion of FDI and trade, etc. In addition

to these channels, high-skill emigration directly reduces the level of human capital in the migrant-

sending countries but might contribute to investments in education, given a higher likelihood to

emigrate for individuals with more education, as emphasized in the literature.

Estimating these effects in reduced form equations in an Ordinary Least Squares (OLS) might

generate bias in the coefficients due to reverse causality or endogeneity. For example, emigration

of highly educated people might decrease GDP per worker in the source countries, given a higher

marginal productivity of high-skill labor compared to low-skill labor. At the same time, a low level

of GDP per worker might induce migration of more people both high-skilled and low-skilled to

higher-income countries with better standards of living. In terms of endogeneity, there might be

other factors driving both emigration and GDP per worker such as civil wars, weak institutions, etc.,

which might reduce GDP growth and increase emigration to countries with better opportunities.

To address these econometric problems this paper applies two different IV approaches. The first

approach introduces a new instrument, while the second approach uses conventional instruments

from the emigration literature. Comparing estimation results of these two approaches allows us to

test their robustness.

The first approach, IV1, studies how changes in native population due to emigration affect the

7
growth of the employment-population ratio, GDP per worker, capital-worker ratio, and average

human capital. Using this regressor helps to separate the impact of emigration from changes in

the structure of the domestic population. Migration to 30 OECD countries increased by 45 percent

over the period of 1990-2000 with similar trends observed across all education groups: primary (27

percent), secondary (51 percent), and tertiary (68 percent). However, these substantial changes in

absolute number of migrants had an insignificant impact on emigration rates in migrant sending

countries due to a rise in their population and education levels (Table 1). There was a 24.3

percent increase in the total population of migrant-sending countries with 19.6, 25.1, and 52.5

percent growth, respectively, in the number of primary, secondary, and tertiary educated people.

In addition, this approach estimates growth equations consisting of only time-variant variables,

thus eliminating countries’ fixed effects, omission of which can cause endogeneity bias.

Table 1: Emigration Rates in 1990 and 2000 by Education Groups1

Variable Mean Confidence Interval
Total Emigration Rate, 1990 .062 (0.047,0.077)
Total Emigration Rate, 2000 .067 (0.051,0.082)
Emigration Rate of Secondary and Tertiary Educated, 1990 .099 (0.078,0.120)
Emigration Rate of Secondary and Tertiary Educated, 2000 .101 (0.08,0.122)
Emigration Rate of Tertiary Educated, 1990 .208 (0.173,0.243)
Emigration Rate of Tertiary Educated, 2000 .194 (0.163,0.227)
The mean computed in the table is non-weighted arithmetic mean.

As OLS estimates of the reduced form equation (8) might be prone to simultaneity or omitted

variable bias, the IV technique is used to correct for this. Migrants’ networks and pull factors

of migration provide variations in emigration exogenous to migrant-sending countries’ conditions

and, therefore, can serve as a basis for constructing an instrument. There are economic incentives

for labor mobility between OECD countries and the rest of the world given a huge gap in income

levels. In these circumstances, migrants’ networks stimulate migration flows, as having individu-

als from the same countries of origin provides access to jobs and other information, substantially

reducing migration costs. Figure 1 in the Appendix depicts these network externalities, indicating

that countries with high emigration rates or with large diasporas in 1990 tend to have high emi-
1
Emigration rates are computed for 195 migrant-sending countries in each year.

8
gration rates in 2000 as well. Each point on these graphs shows a share of emigrants in the total

native population in each migrant-sending country in 1990 and 2000 for three education levels:

all, secondary and tertiary, and tertiary, thus highlighting the key role of networks in a choice to

emigrate. In addition, Figure 2 illustrates the network effects for total emigration from India and

Philippines where distribution of migrants across major destination countries remains relatively

stable over time. Literature mostly discusses networks as a decisive factor in migrants’ location

choices in the context of subnational data and this study expands the existing literature by using

network effects for country level analysis. The growth in the total number of immigrants in each

of 30 destination countries, which might be a combination of different factors such as increases in

overall labor demand and changes in immigration policies, is also used to construct the instrument.

Assuming there are economic incentives for emigration from developing to developed countries, a

higher demand from destination countries triggers more emigration. At the same time, as migrants’

networks or diasporas play an important role in migrants’ destination choices, an increase in the

number of immigrants in the destination country from different countries of origin is likely to be

proportional to the sizes of their diasporas. The IV1 approach consists of the following steps. First,

the growth in the total number of immigrants in 2000 relative to 1990 is computed for each of 30

OECD destination countries using the actual number of immigrants:

k
Eij,2000 k
− Ej,1990
Gkij = k
(10)
Ej,1990

where Gkij is a growth rate in the total number of immigrants with education level k in destination
k
country j in 2000 relative to 1990 to be used for country of origin i, Eij,2000 is the actual number

of immigrants in country j with education level k excluding immigrants from country i in 2000,
k
and Ej,1990 is the actual number of immigrants in destination country j and education level k

in 1990. Excluding the number of migrants from country i in the total number of immigrants

in destination countries in 2000 eliminates any impact of country of origin i on an increase of

immigration in destination countries. Therefore, this measurement of an immigration growth in

destination countries is purely demand driven which ensures the exogeneity of the constructed

instrument. 2 Next, these destination countries’ growth rates are applied to the number of migrants
2 k
The estimations results are similar when Eij,2000 includes immigrants from country i as well.

9
from each country of origin i in the respective destination country j in 1990 in order to impute the

number of migrants in 2000:

h i
k k
E
bi,j,2000 = Ei,j,1990 × 1 + Gkij (11)

bk
where Ei,j,2000 is the imputed number of migrants from country of origin i in destination country j
k
with education level k in 2000, and Ei,j,1990 is the actual number of migrants from country of origin

i in destination country j with education level k in 1990. The imputed total number of emigrants

in each country of origin i is obtained by summing across the destination countries:

X
b kF,i,2000 =
L E k
bi,j,2000 (12)
j

Finally, the instrument for change in population due to emigration for each country i during the

period of 1990-2000 is constructed as:

ck bk k
dLF,i L F,i,2000 − LF,i,1990
= (13)
Lki Lki,1990

where LkF,i,1990 and Lki,1990 are respectively the actual number of emigrants and population in coun-

try i in 1990 with education level k. This instrument has a strong explanatory power for all

education levels of emigrants, as shown in Table 2.

Table 2: IV1, First-Stage Regression Results for Changes in Population due to Emigration by
Different Education Groups
Dependent Variable Coefficient t-stat R-squared Observations
All Emigrants .940 16.06 0.572 195
Secondary and Tertiary Educated Emigrants .988 17.59 0.616 195
Tertiary Educated Emigrants 1.0 13.23 0.475 195

The second approach, IV2, uses data as a pooled cross-section for the years 1990 and 2000 and

studies the impact of emigration rates on the variables of interest for different education groups

as shown in equation (9). To address possible reverse causality and endogeneity issues, it applies

instruments selected from the emigration literature. The instruments for total emigration rates

10
include dummy variables for ever having been in a colonial relationship (Colony) and low-income

countries (Low Income); the average distance from destination countries, with the exception of

selective countries: Australia, Canada, and the U.S. (Distance); a minimum distance from selective

countries (Minimum Distance); and a country size, in terms of population including both residents

and emigrants (Population). Migrants are likely to face lower adjustment costs in the destination

country if the home country was its former colony due to similarity in institutions, language, and

stronger political ties. A dummy for low income countries is used as an instrument to capture

financial constraints of potential migrants which reduce their costly cross-country mobility. Also,

the physical distance between migrant-sending and receiving countries affects the travel costs for

the initial move and visits home. In addition, migrants are also better informed about neighboring

countries than distant ones. Distinguishing between selective and other countries is important in

the analysis of emigration by education groups, as around 63 percent of migrants with secondary

and tertiary education and 72 percent of migrants with tertiary education to 30 OECD countries

were hosted by selected countries in 2000. All destination countries with the exception of Australia,

Canada, the U.S., New Zealand and Mexico, are on the same continent and the average distance

is more indicative of migration costs. However, the minimum distance is more informative for

Australia, Canada and the U.S. given their highly dispersed locations. Finally, small countries

tend to be more open to emigration due to universal or nearly equal immigration quotas based

on countries of origin in migrant-receiving countries. The instruments for emigration rates of

secondary and tertiary educated groups vary. They include a dummy variable if the migrant-sending

country’s primary language is English (English), as it increases the transferability of migrants’ skills

for these education levels in the selective countries attracting most of them where English is an

official language. The dummy for low-income countries is dropped for these education groups since

emigrants with secondary and tertiary education are less financially constrained compared to the

emigrants with no formal education or only a primary education.

Tables 3 and 4 show the first-stage regression results for emigration rates by different education

groups with instruments discussed above for all countries and non-high-income countries. All in-

struments have the expected sign and significance. Emigration increases for all education groups
3
In this and following tables the numbers in parentheses are standard errors of the coefficients and (*) indicates
significance level at 10 percent, (**) at 5 percent, and (***) at 1 percent.

11
Table 3: IV2, First-Stage Regression Results for Emigration Rates by Education Groups: All
Countries
Instruments All Secondary and Tertiary Tertiary
Colony 0.582** (0.203) 3 0.723*** (0.21) 0.633** (0.203)
Low Income -0.932*** (0.195) -0.107 (0.176) 0.112 (0.169)
Distance -1.168*** (0.143) -0.680*** (0.117) -0.419*** (0.107)
Minimum Distance -1.252*** (0.237) -0.952*** (0.227) -0.583** (0.197)
Population -0.260*** (0.041) -0.254*** (0.037) -0.214*** (0.033)
English 0.431*** (0.125) 0.674*** (0.115)
Common Language 0.432** (0.15)
Observations 341 341 341
R-squared 0.458 0.383 0.354

Table 4: IV2, First-Stage Regression Results for Emigration Rates by Education Groups: Non-High
Income Countries
Instruments All Secondary and Tertiary Tertiary
Colony 0.827*** (0.246) 0.913*** (0.241) 0.738** (0.232)
Low Income -0.666*** (0.189) 0.136 (0.162) 0.326* (0.158)
Distance -1.140*** (0.241) -0.796*** (0.176) -0.531*** (0.157)
Minimum Distance -2.007*** (0.2) -1.730*** (0.165) -1.216*** (0.142)
Population -0.195*** (0.046) -0.151*** (0.037) -0.120*** (0.034)
English 0.540*** (0.124) 0.828*** (0.114)
Common Language 0.076 (0.216)
Observations 247 247 247
R-squared 0.522 0.526 0.471

if a country has ever been in a colonial relationship (Colony). A dummy variable for low income

countries (Low Income) is significant and negative only for all emigrants, while it has no or low

explanatory power for higher education groups. The average distance to destination countries with

an exception of selected countries (Distance) and the minimum distance to selected emigration

countries (Minimum Distance) negatively affect emigration rates of all education groups. The re-

sults indicate that Mimium Distance is more important than Average Distance, given a high share

of migrants moving to selected destination countries and these estimates have overall lower mag-

nitudes for higher education levels. As expected, small countries are more open and emigration

rates decline with population (Population). To capture linguistic proximity and, therefore, lower

12
assimilation barriers, two variables are used: (i) a dummy variable if official or national languages

and languages spoken by at least 20 percent of the population of the country are spoken in the

destination country (Common Language) and (ii) a dummy variable if English is the official or

national language and language spoken at least by 20 percent of the population of the country (En-

glish). Using a dummy variable English instead of Common Language for more educated emigrants

is more relevant, as the majority of these emigrants are in three English-language destination coun-

tries: Australia, Canada and the U.S. and language is essential for skill transferability at higher

education levels. The results indicate that having a common language (Common Language) loses

significance when high-income countries are excluded from the sample, while the impact of variable

English remains positive and significant for both groups of countries and for both high education

levels. Based on these estimates, a dummy for low income countries (Low Income) is dropped from

the analysis of secondary and tertiary educated emigrants and tertiary educated emigrants, and

a dummy for commonly spoken language (Common Language) is removed from the list of instru-

ments for all emigrants. The remaining instruments have high explanatory power as can be seen

from the reported R2 .

4 Data Description

This study uses the migration dataset by Docquier, Lowell, and Marfouk (2008) which provides

the number of migrants from 195 migrant-sending countries to 30 main destination OECD coun-

tries. These emigration stocks account for about 70 percent of total emigration and 90 percent

of skilled emigration in the world. The dataset classifies emigrants into three groups based on

education: high-skill, medium-skill, and low-skill emigrants with respectively a post-secondary, an

upper secondary, and a primary or no formal education. It also provides emigration rates for each

education group defined as a share of emigrants in the total native population including residents

and emigrants in the same education category.

Country-level aggregate variables including the employment-population ratio, GDP per worker,

capital per worker, and labor inputs are obtained from the Penn World Tables (PWT) by Heston,

Summers and Bettina (PWT 7.0). First, the number of workers in each country i and year t is

computed as (rgdpchit ∗ popit /rgdpwokit ), where rgdpchit is a PPP converted GDP per capita

13
(Chain Series) at 2005 constant prices, popit is a population, and rgdpwokit is a PPP Converted

GDP Chain per worker at 2005 constant prices. To construct the employment-population ratio the

number of workers is divided by the population. The capital-worker rat io k is computed using the

perpetual inventory method:

Kit = Iit + δKit−1 (14)

where Iit is investment and δ is a depreciation rate. Iit is computed as (rgdplit ∗ popit ∗ kiit ),

where rgdplit is a PPP converted GDP per capita (Laspeyres) at 2005 constant prices, popit is

population, and kiit is an investment share of PPP converted GDP per capita at 2005 constant

prices in country i and year t. The depreciation rate δ equals 0.06, which is a conventional value

used in the literature. In addition, PWT 7.0 provides data on several control variables discussed

below such as government size (kgit ) and openness of the economy (openkit ) measured respectively

as the shares of government expenditures and trade, including exports and imports, in GDP.

The average human capital hit is constructed using average years of schooling in the population

over 25 years old from the Barro - Lee dataset. As in Docquier and Marfouk (2006), human

capital indicators are replaced with those from De La Fuente and Domenech (2002) for OECD

countries. For countries where Barro and Lee measures are missing, the proportion of educated

individuals is predicted using the Cohen and Soto (2007) measures. In the result, there are 25

missing observations for 1990 and 35 for 2000 accounting respectively for 15 and 20 percent of

total observations, which are imputed using the GDP per worker. Finally, TFP is constructed as

a residual.

To obtain instruments for the IV2 approach, this study uses the GeoDist database by Mayer and

Zignago (2011), which provides information on colonial relationships, distance between countries

and countries’ spoken languages. Colonial relationship is defined as ever having been in a colonial

relationship. The distances are calculated following the great circle formula, which uses latitudes

and longitudes of the most important cities or agglomerations in terms of population. Finally,

spoken language is an official or national languages and languages spoken by at least 20 percent of

the population.

The control variables on legal origins of countries and political stability as described below are

14
taken from the Levine, Loayza and Beck (2000) dataset. The measurement of legal origins are

dummy variables for British, French, German and Scandinavian legal origins. The variables on

political stability include revolution and coups; assassinations; and ethnic fractionalization. A

revolution is defined as any illegal or forced change in the top governmental elite, any attempt

at such a change, or any successful or unsuccessful armed rebellion whose aim is independence

from the central government. Coup d’Etat is an extraconstitutional or forced change in the top

government elite and/or its effective control of the nation’s power structure in a given year. This

excludes unsuccessful coups, with data averaged over 1960-1990. The measurement of assassinations

is given by the average number of assassinations per thousand inhabitants over 1960-1990. Ethnic

fractionalization represents an average value of five indices of ethnolinguistic fractionalization with

values ranging from 0 to 1, where higher values denote higher levels of fractionalization.

5 Estimation Results

This paper studies emigrants’ impact on the GDP per worker and its production factors: capital-

worker ratio, average human capital, and TFP, and employment-population ratio. It estimates

equations (8) and (9) using the IV1 and IV2 econometric approaches described above for six country

groups based on the World Bank (WB) classification: (1) low income, (2) lower middle income,

(3) upper middle income, (4) all, (5) all non-high income, and (6) all low income and lower middle

income countries. To test the robustness of results, IV1 uses control variables adopted from Levine

et al. (2000) such as logarithms of the initial levels of the dependent variable and average human

capital in 1990. Next, it augments this list of regressors with growths in government size, measured

as a share of government expenditures in GDP and openness of the economy, computed as a trade

share in GDP. The IV2 approach first controls for logarithms of shares of government expenditures

and trade in GDP and then adds variables on financial development and political stability. Dummy

variables for British, French, German and Scandinavian legal origins exogenously drive differences

in the legal rules covering secured creditors, the efficiency of contract enforcement, and the quality

of accounting standards: hence, financial development. The number of revolutions and coups and

the number of assassinations per thousand of inhabitants averaged over 1960-1990 and an index of

ethnic fractionalization capture the variations in political stability.

15
 Table 5 in the Appendix reports regression results of emigration impact on GDP per worker for

different education groups as in equations (8) and (9). In IV1 estimates, a one percent change

in native population due to total emigration increases GDP per worker for all countries by 2.1

percent at the 10 percent significance level; for all non-high income countries by 1.67 percent; and

for all low income and lower middle income countries by 1.88 percent at the 5 percent significance

level. These coefficients retain their significance and signs when adding control variables to the

regressions. Moreover, the signs and significance of these coefficients is consistent with the IV2

estimates, although their magnitudes differ. In particular, the GDP per worker grows in response

to an increase in total emigration rates for all countries by 0.69 percent; for all n’on-high income

countries by 0.46 percent; and for all low income and lower middle income countries by 0.45 percent.

The sensitivity analysis shows that this impact remains robust when control variables are included

in the regressions.

Decomposing the GDP per worker into capital per worker, human capital, and TFP helps to

understand the main channels of GDP growth driven by emigration. There is no robust significant

estimate of the impact of emigration on capital per worker across the IV1 and IV2 approaches

(Table 6). In the IV1 regressions, a change in population due to emigration of secondary and

tertiary educated individuals consistently raises capital per worker in all non-high income countries

with a magnitude in the range of 0.18-0.24 at the 10 percent significance level across different

specifications. In contrast, the results for IV2 indicate that there is an increase in capital per

worker in response to a one percent change in total emigration rates for all countries and all non-

high income countries across all estimates with a coefficient in the range of 0.1-0.22. There is no

consistent significant estimate of emigration’s impact on human capital across different econometric

specifications in the IV1 approach (Table 7). In IV2, the only robust result is a positive impact of

total emigration rates on all countries with a coefficient in the range of 0.05-0.09. Table 8 reports

results for an impact of emigration rates for different education groups on the last component,

TFP. Similar to GDP per worker, TFP increases in all countries, all non-high income countries,

and all low and lower middle income countries in both IV1 and IV2 estimates. Thus, despite the

differences in IV1 and IV 2 estimation techniques and the inclusion of various control variables, some

results remain robust across all specifications. They indicate that migrant-sending countries’ GDP

per worker benefits from total emigration, mainly through improvements in TFP. These changes in

16
TFP might be a result of trade, FDI, and other cross-country partnerships facilitated by established

diasporas abroad which lead to a transfer of knowledge and technology.

This paper also studies the labor market implications of emigration for different education groups

by using both the IV1 and IV2 approaches to estimate the impact of emigration on the employment-

population ratio. Overall, there is no consistent significant estimate of this impact across differ-

ent education groups and specifications. The IV1 estimation results in Table 9 indicate that the

employment-population ratio declines by 0.17-0.21 percent in response to a one percent change in

population of secondary and tertiary educated due to emigration for upper middle income countries.

However, there is no significant change in the employment-population ratio of other income groups

across different education levels. The IV2 estimates produce no consistent significant results across

different specifications. In addition, the results for GDP per worker can serve as a basis for wage

analysis. In the conditions of perfect competition and constant returns to scale, wages are equal

to the marginal product of labor, expressed as (1 − α) LYitit . Therefore, wages rise in response to an

increase in total emigration rates in all countries, all non-high income countries, and all low and

lower middle income countries.

6 Conclusions

This paper studies the impact of emigration on several macroeconomic variables of migrant-sending

countries using 1990 and 2000 emigration data from 195 source countries to 30 OECD destination

countries. It applies two econometric approaches varying by the choice of instruments and specifica-

tions. The first approach studies the impact of changes in the native population due to emigration

on the growth of employment-population ratio, GDP per worker, and its components. To overcome

the endogeneity bias, it uses instruments based on migration pull factors and migrants’ networks.

The second approach estimates the elasticities of variables of interest with respect to emigration

rates, using conventional instruments from the literature such as colonial relationship, distance,

country size, country’s development level, and English as a primary language. Estimation results

indicate that total emigration rates increase GDP per worker in all countries, non-high income

countries, and low and lower middle income countries: an effect primarily driven by improvements

in TFP. These results are robust to both econometric approaches and inclusion of various con-

17
trol variables in the regressions. In addition, emigration has no consistent significant impact on

migrant-sending countries’ employment-population ratio across different specifications.

18
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notes://NOTES303/85257726004C7554/38D46BF5E8F08834852564B500129B2C/2D7D81B0DD8ACA4F85257B9

7 Appendix

21
Figure 1: Share of Emigrants in Native Population across Countries by Different Education Groups
in 1990 and 2000.

All Emigrants
60%

50%

40%
2000

30%

20%

10%

0%
0% 10% 20% 30% 40% 50%
1990

Emigrants with Secondary and Tertiary Education

90%

80%

70%

60%

50%
2000

40%

30%

20%

10%

0%
0% 10% 20% 30% 40% 50% 60% 70% 80%
1990

22
 Emigrants with Tertiary Education
100%

90%

80%

70%

60%
2000

50%

40%

30%

20%

10%

0%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
1990

23
Figure 2: Total Number of Emmigrants in India and Philippines in 1990 and 2000 by Major
Destination Countries.

1,600,000

1,400,000

1,200,000

UK
1,000,000 Germany
USA
People

800,000
Canada
Australia
600,000
Italy
Japan
400,000

200,000

0
Philippines, 1990 Philippines, 2000 India, 1990 India, 2000

24
 Table 5: Estimation Results for GDP per Worker
Estimation approach Low Income Lower Middle Income Upper Middle Income All All Non-High Income Low and Lower Middle Income
(1): All, IV1 0.07(2.45) 1.651*(0.66) 0.84(0.89) 2.1*(0.81) 1.67**(0.55) 1.88** (0.6)
(2):(1)+ initial GDP per 2.5 (2.24) 2.33***(0.62) 0.91(0.96) 2.15*(0.96) 1.66**(0.6) 2.15**(0.67)
Worker and Human Capital
(3): (2)+ Changes in Gov. Ex- 1.29(1.62) 2.35***(0.64) 0.37(0.9) 2.17*(1) 1.58**(0.59) 2.17**(0.7)
penditures and Trade Shares in
GDP
(4): Secondary and Tertiary, -0.57(0.43) 0.9*(0.44) 0.01(0.3) 1.22(0.87) 0.49(0.26) 0.8(0.4)
IV1
(5):(4)+ initial GDP per -0.19(0.53) 1.15*(0.43) 0.2(0.34) 1.27(0.89) 0.47(0.25) 0.81(0.43)
Worker and Human Capital
(6): (5)+ Changes in Gov. Ex- -0.29(0.47) 1.16*(0.45) 0.01(0.32) 1.19(0.84) 0.42(0.25) 0.8(0.45)
penditures and Trade Shares in
GDP
(7): Tertiary, IV1 -0.07(0.19) 0.58*(0.28) 0.14(0.22) 0.27(0.18) 0.22(0.16) 0.25(0.23)
(8):(7)+ initial GDP per 0.04(0.21) 0.66*(0.31) 0.34(0.3) 0.25(0.15) 0.19(0.15) 0.21(0.22)
Worker and Human Capital
(9): (8)+ Changes in Gov. Ex- 0.09(0.22) 0.66*(0.32) 0.2(0.29) 0.29(0.18) 0.18(0.15) 0.23(0.23)
penditures and Trade Shares in
GDP
Number of Observations 30 44 42 164 117 74
(10): All, IV2 0.16(0.08) 0.17***(0.04) 0.09(0.05) 0.69***(0.07) 0.46***(0.05) 0.45***(0.06)

25
(11): (10)+ Gov. Expenditures 0.18(0.09) 0.15**(0.04) 0.11(0.07) 0.67***(0.08) 0.44***(0.05) 0.39***(0.06)
and Trade Shares in GDP
(12): (11)+ Financial Develop- 0.21(0.11) 0.25(0.2) 0.03(0.06) 0.51***(0.13) 0.37*(0.14) 0.44*(0.19)
ment and Political Stabiity
(13): Secondary and Tertiary, 0.02(0.1) 0.16***(0.05) 0.1(0.06) 0.25**(0.08) 0.27***(0.05) 0.31***(0.08)
IV2
(14): (13)+ Gov. Expenditures 0.03(0.1) 0.13**(0.04) 0.14(0.07) 0.2*(0.09) 0.22***(0.06) 0.22** (0.08)
and Trade Shares in GDP
(15): (14)+ Financial Develop- 0.33**(0.1) 0.28(0.17) 0.05(0.06) -0.06(0.14) 0.12(0.14) 0.17(0.18)
ment and Political Stabiity
(16): Tertiary, IV2 -0.03(0.09) 0.15*(0.06) 0.1(0.07) -0.12(0.09) 0.14(0.07) 0.227*(0.1)
(17): (16)+ Gov. Expenditures -0.03(0.09) 0.11*(0.05) 0.15(0.09) -0.22*(0.1) 0.07(0.07) 0.15(0.09)
and Trade Shares in GDP
Number of Observations 63 93 89 341 247 156
(18): (17)+ Financial Develop- 0.37**(0.1) 0.14(0.23) 0.05(0.06) -0.38**(0.13) -0.08(0.16) 0.08(0.22)
ment and Political Stabiity
Number of Observations 20 30 34 140 86 50
The dependent variable for IV 1 approach is the growth of GDP per worker and the explanatory variable is the change in labor force due to emigration. In IV 2 approach the dependent variable is
a logarithm of GDP per worker and the explanatory variable is logarithm of emigrants as a share of total labor force. Each cell is the result of a separate regression. The units of observations are
migrant receiving countries in 1990 and 2000. In IV 2 approach each regression includes year fixed effects. The method of estimation is Instrumental Variable approach. Instrument for IV 1 is a
change in labor force due to the imputed number of emigrants. Instruments for IV 2 are dummy variables for colonial relationship and low-income countries; the average distance from destination
countries, with the exception of selective countries: Australia, Canada, and the U.S.; a minimum distance from selective countries; and a country size, in terms of population including both
residents and emigrants. The numbers in parentheses are heteroskedasticity robust standard errors of the coefficients and (*) indicates significance level at 10, (**) at 5, and (***) at 1 percent.
“All” shows regression results for all emigrants, “Secondary and Tertiary” includes only emigrants and labor force with secondary and tertiary educations, and “Tertiary” includes only emigrants
and labor force with tertiary education.
 Table 6: Estimation Results for Capital per Worker
Estimation approach Low Income Lower Middle Income Upper Middle Income All All Non-High Income Low and Lower Middle Income
(1): All, IV1 -0.23(1.12) -0.09(0.17) 1.05(0.62) 0.77(0.5) 0.55(0.28) 0.07(0.14)
(2):(1)+ initial Capital-Worker 0.09(0.82) 0.39(0.21) 0.82(0.46) 1.23(0.85) 0.68(0.35) 0.24(0.22)
Ratio and Human Capital
(3): (2)+ Changes in Gov. Ex- -0.24(0.81) 0.39(0.21) 0.66(0.37) 1.22(0.83) 0.67*(0.34) 0.24(0.22)
penditures and Trade Shares in
GDP
(4): Secondary and Tertiary, -0.17(0.2) -0.04(0.09) 0.29*(0.13) 0.67(0.59) 0.18*(0.09) 0(0.07)
IV1
(5):(4)+ initial Capital-Worker -0.1(0.18) 0.19(0.11) 0.37(0.18) 0.86(0.7) 0.24*(0.11) 0.05(0.1)
Ratio and Human Capital
(6): (5)+ Changes in Gov. Ex- -0.12(0.19) 0.18(0.11) 0.28(0.16) 0.8(0.64) 0.22*(0.1) 0.04(0.11)
penditures and Trade Shares in
GDP
(7): Tertiary, IV1 0.01(0.09) -0.05(0.06) 0.26*(0.13) 0.11(0.09) 0.08(0.06) -0.03(0.05)
(8):(7)+ initial Capital-Worker 0.01(0.07) 0.05(0.09) 0.31(0.17) 0.12(0.11) 0.08(0.06) -0.03(0.06)
Ratio and Human Capital
(9): (8)+ Changes in Gov. Ex- 0.02(0.07) 0.02(0.09) 0.28(0.14) 0.14(0.12) 0.08(0.06) -0.03(0.06)
penditures and Trade Shares in
GDP
Number of Observations 30 44 42 164 117 74
(10): All, IV2 0.05(0.02) 0.07***(0.02) 0.01(0.02) 0.22***(0.02) 0.15***(0.01) 0.16***(0.02)

26
(11): (10)+ Gov. Expenditures 0.06*(0.02) 0.04*(0.02) 0.02(0.02) 0.21***(0.02) 0.14***(0.02) 0.13***(0.02)
and Trade Shares in GDP
(12): (11)+ Financial Develop- 0.06(0.03) 0.04(0.05) 0.02(0.02) 0.16***(-0.04) 0.1**(0.04) 0.1(0.05)
ment and Political Stabiity
(13): Secondary and Tertiary, 0.01(0.02) 0.06**(0.02) 0.02(0.02) 0.09***(0.02) 0.09***(0.02) 0.12***(0.03)
IV2
(14): (13)+ Gov. Expenditures 0.02(0.02) 0.04*(0.02) 0.03(0.02) 0.06*(0.03) 0.07***(0.02) 0.08**(0.02)
and Trade Shares in GDP
(15): (14)+ Financial Develop- 0.07*(0.03) 0.06(0.05) 0.04(0.02) -0.03(0.04) 0.02(0.04) 0.02(0.05)
ment and Political Stabiity
(16): Tertiary, IV2 0.01(0.02) 0.06*(0.03) 0.02(0.02) -0.02(0.03) 0.06*(0.02) 0.1**(0.04)
(17): (16)+ Gov. Expenditures 0.01(0.02) 0.03(0.02) 0.04(0.03) -0.06(0.03) 0.03(0.03) 0.06*(0.03)
and Trade Shares in GDP
Number of Observations 63 93 89 341 247 156
(18): (17)+ Financial Develop- 0.079* (0.03) -0.01(0.05) 0.04(0.02) -0.12***(0.03) -0.05(0.04) -0.01(0.06)
ment and Political Stabiity
Number of Observations 20 30 34 140 86 50
The dependent variable for IV 1 approach is the growth of capital per worker and the explanatory variable is the change in labor force due to emigration. In IV 2 approach the dependent variable
is a logarithm of capital per worker and the explanatory variable is logarithm of emigrants as a share of total labor force. Each cell is the result of a separate regression. The units of observations
are migrant receiving countries in 1990 and 2000. In IV 2 approach each regression includes year fixed effects. The method of estimation is Instrumental Variable approach. Instrument for IV 1 is a
change in labor force due to the imputed number of emigrants. Instruments for IV 2 are dummy variables for colonial relationship and low-income countries; the average distance from destination
countries, with the exception of selective countries: Australia, Canada, and the U.S.; a minimum distance from selective countries; and a country size, in terms of population including both
residents and emigrants. The numbers in parentheses are heteroskedasticity robust standard errors of the coefficients and (*) indicates significance level at 10, (**) at 5, and (***) at 1 percent.
“All” shows regression results for all emigrants, “Secondary and Tertiary” includes only emigrants and labor force with secondary and tertiary educations, and “Tertiary” includes only emigrants
and labor force with tertiary education.
 Table 7: Estimation Results for Average Human Capital by Different Education and Country Groups
Estimation approach Low Income Lower Middle Income Upper Middle Income All All Non-High Income Low and Lower Middle Income
(1): All, IV1 -0.53(0.8) -0.15(0.09) 0.09(0.11) -0.06(0.09) -0.09(0.08) -0.18*(0.09)
(2):(1)+ initial Human Capital -0.09(0.48) 0.07(0.06) 0.04(0.14) 0.11(0.06) 0.06(0.05) 0.09(0.07)
(3): (2)+ Changes in Gov. Ex- 0.01(0.47) 0.07(0.07) 0.04(0.13) 0.12(0.06) 0.05(0.06) 0.09(0.07)
penditures and Trade Shares in
GDP
(4): Secondary and Tertiary, -0.21(0.22) -0.08(0.05) 0.02(0.05) 0.01(0.04) -0.05(0.04) -0.11(0.06)
IV1
(5):(4)+ initial Human Capital -0.15(0.18) 0.01(0.03) 0(0.06) 0.02(0.03) -0.01(0.03) -0.01(0.03)
(6): (5)+ Changes in Gov. Ex- -0.15(0.18) 0(0.03) -0.01(0.05) 0.02(0.03) -0.01(0.03) -0.01(0.03)
penditures and Trade Shares in
GDP
(7): Tertiary, IV1 -0.06(0.06) -0.07(0.04) 0.03(0.04) 0.01(0.03) -0.03(0.03) -0.06(0.04)
(8):(7)+ initial Human Capital -0.06(0.06) 0.01(0.03) 0.02(0.04) 0(0.03) -0.02(0.02) -0.03(0.03)
(9): (8)+ Changes in Gov. Ex- -0.06(0.06) 0.01(0.03) 0.02(0.04) 0(0.03) -0.02(0.02) -0.03(0.03)
penditures and Trade Shares in
GDP
Number of Observations 30 44 42 164 117 74
(10): All, IV2 0.02(0.02) 0.01(0.01) 0(0.01) 0.08***(0.01) 0.04***(0.01) 0.04***(0.01)
(11): (10)+ Gov. Expenditures 0.02(0.02) 0(0.01) 00.01) 0.09***(0.01) 0.04***0.01) 0.03**(0.01)

27
and Trade Shares in GDP
(12): (11)+ Financial Develop- 0.01(0.01) 0(0.03) 0.02(0.01) 0.05**(0.02) 0.03(0.02) 0.02(0.03)
ment and Political Stabiity
(13): Secondary and Tertiary, -0.01(0.02) 0(0.01) -0.01(0.01) 0.02(0.012) 0.01(0.01) 0.02(0.02)
IV2
(14): (13)+ Gov. Expenditures -0.02(0.02) -0.01(0.01) 0(0.01) 0.02(0.01) 0.01(0.01) 0.01(0.01)
and Trade Shares in GDP
(15): (14)+ Financial Develop- 0(0.02) -0.01(0.03) 0.01(0.02) -0.04*(0.02) -0.01(0.02) -0.02(0.03)
ment and Political Stabiity
(16): Tertiary, IV2 -0.01(0.02) 0(0.02) -0.01(0.01) -0.02(0.01) 0(0.01) 0.02(0.02)
(17): (16)+ Gov. Expenditures -0.02(0.02) -0.01(0.02) 0(0.01) -0.03*(0.01) -0.01(0.01) 0.01(0.02)
and Trade Shares in GDP
Number of Observations 63 93 89 341 247 156
(18): (17)+ Financial Develop- 0.01(0.02) -0.05(0.05) 0.014(0.02) -0.08***(0.02) -0.04(0.02) -0.05(0.04)
ment and Political Stabiity
Number of Observations 20 30 34 140 86 50
The dependent variable for IV 1 approach is the growth of average human capital and the explanatory variable is the change in labor force due to emigration. In IV 2 approach the dependent
variable is a logarithm of average human capital and the explanatory variable is logarithm of emigrants as a share of total labor force. Each cell is the result of a separate regression. The units of
observations are migrant receiving countries in 1990 and 2000. In IV 2 approach each regression includes year fixed effects. The method of estimation is Instrumental Variable approach. Instrument
for IV 1 is a change in labor force due to the imputed number of emigrants. Instruments for IV 2 are dummy variables for colonial relationship and low-income countries; the average distance
from destination countries, with the exception of selective countries: Australia, Canada, and the U.S.; a minimum distance from selective countries; and a country size, in terms of population
including both residents and emigrants. The numbers in parentheses are heteroskedasticity robust standard errors of the coefficients and (*) indicates significance level at 10, (**) at 5, and (***)
at 1 percent. “All” shows regression results for all emigrants, “Secondary and Tertiary” includes only emigrants and labor force with secondary and tertiary educations, and “Tertiary” includes
only emigrants and labor force with tertiary education.
 Table 8: Estimation Results for TFP by Different Education and Country Groups
Estimation approach Low Income Lower Middle Income Upper Middle Income All All Non-High Income Low and Lower Middle Income
(1): All, IV1 0.83(2.17) 1.89**(0.64) -0.31(0.57) 1.39**(0.52) 1.21*(0.49) 1.98**(0.59)
(2):(1)+ initial TFP and Hu- 2.21(1.84) 1.95**(0.56) -0.08(0.49) 1.12*(0.46) 1.07*(0.47) 1.96**(0.61)
man Capital
(3): (2)+ Changes in Gov. Ex- 1.4(1.4) 1.96**(0.57) -0.49(0.56) 1.06*(0.47) 0.76*(0.46) 1.97**(0.62)
penditures and Trade Shares in
GDP
(4): Secondary and Tertiary, -0.19(0.4) 1.02*(0.45) -0.3(0.26) 0.55(0.34) 0.36(0.26) 0.92*(0.41)
IV1
(5):(4)+ initial TFP and Hu- 0.05(0.44) 1*(0.39) -0.17(0.19) 0.52(0.32) 0.3(0.23) 0.83*(0.39)
man Capital
(6): (5)+ Changes in Gov. Ex- 0(0.4) 1.02*(0.38) -0.28(0.19) 0.46(0.31) 0.26(0.23) 0.82*(0.4)
penditures and Trade Shares in
GDP
(7): Tertiary, IV1 -0.02(0.16) 0.7*(0.27) -0.14(0.17) 0.15(0.15) 0.16(0.16) 0.34(0.24)
(8):(7)+ initial TFP and Hu- 0.08(0.18) 0.65*(0.27) -0.01(0.14) 0.15(0.12) 0.13(0.14) 0.28(0.21)
man Capital
(9): (8)+ Changes in Gov. Ex- 0.13(0.21) 0.67*(0.27) -0.14(0.15) 0.15(0.13) 0.11(0.13) 0.29(0.21)
penditures and Trade Shares in
GDP
Number of Observations 30 44 42 164 117 74
(10): All, IV2 0.09(0.08) 0.09**(0.03) 0.08*(0.04) 0.38***(0.04) 0.26***(0.03) 0.25***(0.04)

28
(11): (10)+ Gov. Expenditures 0.1(0.08) 0.11**(0.03) 0.08(0.05) 0.38***(0.04) 0.26***(0.03) 0.23***(0.05)
and Trade Shares in GDP
(12): (11)+ Financial Develop- 0.13(0.1) 0.21(0.17) -0.02(0.05) 0.3***(0.09) 0.23*(0.1) 0.33*(0.13)
ment and Political Stabiity
(13): Secondary and Tertiary, 0.02(0.08) 0.09**(0.03) 0.1*(0.04) 0.15**(0.05) 0.16***(0.03) 0.16***(0.04)
IV2
(14): (13)+ Gov. Expenditures 0.03(0.08) 0.1**(0.03) 0.11*(0.05) 0.12*(0.05) 0.14***(0.04) 0.14**(0.05)
and Trade Shares in GDP
(15): (14)+ Financial Develop- 0.25*(0.09) 0.23(0.14) 0(0.05) 0.01(0.09) 0.11(0.09) 0.16(0.11)
ment and Political Stabiity
(16): Tertiary, IV2 -0.02(0.07) 0.08*(0.04) 0.1*(0.05) -0.07(0.05) 0.07(0.04) 0.1(0.05)
(17): (16)+ Gov. Expenditures -0.01(0.07) 0.08*(0.04) 0.11(0.07) -0.12*(0.06) 0.05(0.05) 0.08 (0.05)
and Trade Shares in GDP
Number of Observations 63 93 89 341 247 156
(18): (17)+ Financial Develop- 0.28**(0.08) 0.21(0.22) 0(0.04) -0.17*(0.08) 0.01(0.11) 0.14(0.15)
ment and Political Stabiity
Adj. R-squared
Number of Observations 20 30 34 140 86 50
The dependent variable for IV 1 approach is the growth of TFP and the explanatory variable is the change in labor force due to emigration. In IV 2 approach the dependent variable is a logarithm
of TFP and the explanatory variable is logarithm of emigrants as a share of total labor force. Each cell is the result of a separate regression. The units of observations are migrant receiving
countries in 1990 and 2000. In IV 2 approach each regression includes year fixed effects. The method of estimation is Instrumental Variable approach. Instrument for IV 1 is a change in labor
force due to the imputed number of emigrants. Instruments for IV 2 are dummy variables for colonial relationship and low-income countries; the average distance from destination countries,
with the exception of selective countries: Australia, Canada, and the U.S.; a minimum distance from selective countries; and a country size, in terms of population including both residents and
emigrants. The numbers in parentheses are heteroskedasticity robust standard errors of the coefficients and (*) indicates significance level at 10, (**) at 5, and (***) at 1 percent. “All” shows
regression results for all emigrants, “Secondary and Tertiary” includes only emigrants and labor force with secondary and tertiary educations, and “Tertiary” includes only emigrants and labor
force with tertiary education.
 Table 9: Estimation Results for Employment-Population Ratio by Different Education and Country Groups
Estimation approach Low Income Lower Middle Income Upper Middle Income All All Non-High Income Low and Lower Middle Income
(1): All, IV1 0.13(0.31) 0.14(0.1) -0.52(0.31) 0.13(0.14) 0.01(0.04) 0.22*(0.09)
(2):(1)+ initial Employment- -0.05(0.42) 0.03(0.12) -0.29(0.22) 0.05(0.12) -0.09(0.11) 0.04(0.12)
Population Ratio and Human
Capital
(3): (2)+ Changes in Gov. Ex- 0(0.39) 0.03(0.12) -0.28(0.24) 0.01(0.12) -0.11(0.11) 0.03(0.12)
penditures and Trade Shares in
GDP
(4): Secondary and Tertiary, 0.01(0.07) 0.1(0.05) -0.21*(0.09) 0.03(0.06) -0.02(0.06) 0.11*(0.05)
IV1
(5):(4)+ initial Employment- -0.01(0.07) 0.05(0.06) -0.17*(0.07) -0.01(0.05) -0.06(0.05) 0.04(0.05)
Population Ratio and Human
Capital
(6): (5)+ Changes in Gov. Ex- -0.01(0.08) 0.04(0.06) -0.17*(0.07) -0.02(0.05) -0.06(0.05) 0.04(0.05)
penditures and Trade Shares in
GDP
(7): Tertiary, IV1 -0.01(0.03) 0.07*(0.03) -0.13(0.08) 0.01(0.04) -0.03(0.03) 0.03(0.03)
(8):(7)+ initial Employment- -0.01(0.02) 0.03(0.04) -0.09(0.06) 0.01(0.03) -0.02(0.03) 0.01(0.02)
Population Ratio and Human
Capital
(9): (8)+ Changes in Gov. Ex- 0(0.02) 0.03(0.04) -0.09(0.06) 0(0.03) -0.03(0.03) 0.01(0.02)
penditures and Trade Shares in
GDP
Number of Observations 30 44 42 164 117 74

29
(10): All, IV2 0.03(0.02) -0.02(0.02) -0.02(0.02) 0.01(0.01) -0.02*(0.01) -0.03*(0.01)
(11): (10)+ Gov. Expenditures 0.02(0.02) -0.02(0.01) -0.02(0.02) 0.02*(0.01) -0.02*(0.01) -0.03*(0.01)
and Trade Shares in GDP
(12): (11)+ Financial Develop- 0.02(0.02) 0(0.04) -0.07*(0.03) 0.01(0.02) -0.01(0.02) 0.03(0.02)
ment and Political Stabiity
(13): Secondary and Tertiary, 0.03(0.02) -0.02(0.02) -0.02(0.02) -0.01(0.01) -0.03(0.01) -0.03(0.02)
IV2
(14): (13)+ Gov. Expenditures 0.02(0.02) -0.02(0.01) -0.02(0.02) 0(0.01) -0.02(0.01) -0.02(0.02)
and Trade Shares in GDP
(15): (14)+ Financial Develop- 0.02(0.02) -0.02(0.04) -0.07*(0.03) -0.01(0.02) 0(0.01) 0.02(0.01)
ment and Political Stabiity
(16): Tertiary, IV2 0.04(0.02) -0.03(0.02) -0.01(0.02) -0.02(0.02) -0.03(0.01) -0.02(0.02)
(17): (16)+ Gov. Expenditures 0.03(0.02) -0.03(0.02) -0.01(0.03) -0.01(0.02) -0.02(0.02) -0.01(0.02)
and Trade Shares in GDP
Number of Observations 63 93 89 341 247 156
(18): (17)+ Financial Develop- 0.03(0.02) -0.03(0.05) -0.06(0.03) -0.03(0.02) -0.01(0.02) 0.02(0.02)
ment and Political Stabiity
Number of Observations 20 30 34 140 86 50
The dependent variable for IV 1 approach is the growth of employment-population ratio and the explanatory variable is the change in labor force due to emigration. In IV 2 approach the
dependent variable is a logarithm of employment-population ratio and the explanatory variable is logarithm of emigrants as a share of total labor force. Each cell is the result of a separate
regression. The units of observations are migrant receiving countries in 1990 and 2000. In IV 2 approach each regression includes year fixed effects. The method of estimation is Instrumental
Variable approach. Instrument for IV 1 is a change in labor force due to the imputed number of emigrants. Instruments for IV 2 are dummy variables for colonial relationship and low-income
countries; the average distance from destination countries, with the exception of selective countries: Australia, Canada, and the U.S.; a minimum distance from selective countries; and a country
size, in terms of population including both residents and emigrants. The numbers in parentheses are heteroskedasticity robust standard errors of the coefficients and (*) indicates significance
level at 10, (**) at 5, and (***) at 1 percent. “All” shows regression results for all emigrants, “Secondary and Tertiary” includes only emigrants and labor force with secondary and tertiary
educations, and “Tertiary” includes only emigrants and labor force with tertiary education.