Essentially, having calibrated their simulation model, Desmet et al. look at the 'balanced growth path' of the world economy. This is the growth path "in which the geographic distribution of economic activity is constant" - in other words, where every grid cell grows at the same rate. It can take a long time for the world economy to achieve this balanced growth path, so their model runs for 600 years into the future (starting from 2000). They also run the model backwards, and can show that it does a reasonable job of replicating the pattern of population and economic development back to 1870.
Looking forward though, they base their analysis on two main scenarios: (1) holding the current pattern of migration restrictions constant; and (2) an immediate change to the free movement of people between countries and places. Both scenarios have interesting results.
In the status quo scenario, they find that:
...over time the correlation between population and productivity across countries becomes much stronger. As predicted by the theory, in the long run, high-density locations correspond to high-productivity locations...
...the high-productivity, high-density locations 600 years from now correspond to today’s low-productivity, high-density locations, mostly countries located in sub-Saharan Africa, South Asia, and East Asia. In comparison, most of today’s high-productivity, high-density locations in North America, Europe, Japan, and Australia fall behind in terms of both productivity and population.In case you find those results surprising, Desmet et al. explain:
This productivity reversal can be understood in the following way. The high population density in some of today’s poor countries implies high future rates of innovation in those countries. Low inward migration costs and high outward ones imply that population in those countries increases, leading to greater congestion costs and worse amenities. As a result, today’s high-density, low-productivity countries end up becoming high-density, high-productivity, high-congestion, and low-amenity countries, whereas today’s high-density, high-productivity countries end up becoming medium-density, medium-productivity, low-congestion, and high-amenity countries; the United States is among them. Australia’s case is somewhat different since its low density and high inflow barriers imply that it becomes a low-productivity, high-amenity country.You can group New Zealand along with Australia in that paragraph. However, the takeaway message from this scenario is that the current pattern of migration restrictions, that keeps people out of high-income countries, serves to drive population density, innovation, and economic growth in the current lower-income countries to such an extent that they overtake the current high-income countries in income per capita by the end of the simulation period. That can be clearly seen from this picture (part of Figure 3 in the paper, and there are videos of the simulation model here - this is the end of Video 1B), where warmer colours represent higher levels of income per capita:
In contrast, if migration restrictions are ended, the areas that currently have high productivity attract migrants, which boosts their population, innovation, and future economic growth. So, in the free migration scenario, Desmet et al. find that:
Because today’s poor countries lose population through migration, they innovate less. As a result, and in contrast to the previous exercise, no productivity reversal occurs between the United States, India, China, and sub-Saharan Africa... Some countries, such as Venezuela, Brazil, and Mexico, start off with relatively high utility levels but relatively low productivity levels. This means they must have high amenities. Because of migration, they end up becoming some of the world’s densest and most productive countries, together with parts of Australia, Europe, and the United States.Coastal areas also benefit greatly when migration is free. Here's the corresponding map for the free migration scenario (part of Figure 7 in the paper, and again in the videos online you can see its evolution - this is the end of Video 3B):
You can see the difference in income per capita between the two scenarios by comparing those two maps. Another interesting point is that the effect of lifting migration restrictions is immediate, with 70.3 percent of people moving immediately once the restrictions are lifted. That demonstrates how restrictive current regulations are. There are also substantial welfare gains from free migration:
In present discounted value terms, complete liberalization yields output gains of 126 percent and welfare gains of 306 percent.While the exact numbers depend on the particular calibration of the model, I think we can safely conclude that there are huge gains in human welfare to be had from lifting migration restrictions. As Michael Clemens noted in this article in the Journal of Economic Perspectives (open access), maintaining migration restrictions leaves trillion dollar bills on the sidewalk.
The results reported in this paper should make high-income country governments seriously reconsider their immigration policies. High immigration restrictions seriously benefit China, India and maritime Asia in the long run, and are detrimental to the future economic growth of the current high-income countries. If high-income countries want to maintain their high-income status, these restrictions need to be reconsidered. However, it would be interesting to see what happens in the simulation model when one country (or a small number of countries; or rather grid cells) lifts restrictions but others do not. Perhaps that is a future exercise, but in terms of providing input to policy decisions, it seems critical.
[HT: Marginal Revolution, last year]
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