Double world GDP

This page describes some academic literature that suggests a median estimate of doubling of world GDP under a regime of free global labor mobility. Much of the literature is speculative, and there are many uncertainties in all estimates. We have also included references to blog posts that critically review the estimates and point out their strengths and weaknesses. There is wide variation in the views of just how much open borders will grow the economy, even among open borders advocates. The case for open borders as presented on this website is robust to this wide range of estimates.

TL; DR

  1. A literature summary by Clemens (2011) cited estimates that free global labor mobility would increase gross world product (GWP), also called “world GDP”, by somewhere in the range of 67-147%. The estimates suggest that even partial liberalizations of migration could yield gains greater than the estimated gains from complete free trade or free capital flows.
  2. Clemens (2011) also does a simple back-of-the-envelope calculation, using conservative estimates, to show a plausible gain of 20-60%.
  3. A doubling of GWP would correspond to about 23 years of economic growth at a 3% rate, or correspond to economic difference between a middle-income country and a First-World country today.
  4. Since the publication of Clemens (2011), others who have worked on estimates of the global economic impact of open borders, or on critiques of the estimates, include John Kennan, Scott Bradford, George Borjas, Nathan Smith, and Carl Shulman. Their respective contributions are discussed below.
  5. To the extent that these estimates are broadly correct, they highlight the case for open borders as well as its importance relative to other causes.

Clemens (2011) estimates of increases to global production: 67-147% in cited papers, quoted as 50-150%

According to the paper Economics and Emigration: Trillion-Dollar Bills on the Sidewalk? (2011) by Michael Clemens at the Center for Global Development, open borders could lead to a one-time boost in world GDP by about 50-150%. This paper is a literature review which summarizes estimates made in numerous other papers, and does not contain any new research findings in of itself. The paper relies on the estimates of gains to world GDP from labor mobility to propose a new research agenda in labor and public economics, focusing on migration issues. The paper was referenced in a blog post by Bryan Caplan. Below is the key Table 1 of the paper:

Table 1 of Clemens' paper

In Table 2 of the same paper, Clemens considers the possible efficiency gains from a partial relaxation of barriers to labor mobility. Clemens writes (on page 2 of the paper, which is page 84 in the journal):

A conservative reading of the evidence in Table 2, which provides an overview of efficiency gains from partial elimination of barriers to labor mobility, suggests that the emigration of less than 5 percent of the population of poor regions would bring global gains exceeding the gains from total elimination of all policy barriers to merchandise trade and all barriers to capital flows.

clemens-table2

Crude plausibility argument for 20-60% gain using back-of-the-envelope calculation

In pages 84-85, Clemens provides a crude back-of-the-envelope calculation of the gains, to show that large gains are indeed quite plausible:

Should these large estimated gains from an expansion of international migration outrage our economic intuition, or after some consideration, are they at least plausible? We can check these calculations on the back of the metaphorical envelope. Divide the world into a “rich” region, where one billion people earn $30,000 per year, and a “poor” region, where six billion earn $5,000 per year. Suppose emigrants from the poor region have lower productivity, so each gains just 60 percent of the simple earnings gap upon emigrating—that is, $15,000 per year. This marginal gain shrinks as emigration proceeds, so suppose that the average gain is just $7,500 per year.
If half the population of the poor region emigrates, migrants would gain $23 trillion—which is 38 percent of global GDP. For nonmigrants, the outcome of such a wave of migration would have complicated effects: presumably, average wages would rise in the poor region and fall in the rich region, while returns to capital rise in the rich region and fall in the poor region. The net effect of these other changes could theoretically be negative, zero, or positive. But when combining these factors with the gains to migrants, we might plausibly imagine overall gains of 20–60 percent of global GDP.

How big is a doubling of world GDP?

In a blog post titled Upward and downward biases in the “double world GDP” estimates of the gains of open borders, Carl Shulman gives a sense of how the postulated gains from open borders compare with current differences across time and space (embedded tables not included here for brevity):

The CIA world factbook gives a 2012 gross world product (GWP) of $84.97 trillion (PPP), and per capita PPP GWP of ~$12,400 (the table below uses a different source).

One way of thinking about doubling GWP is in terms of the per capita income of different countries today. Doubling GWP per capita would bring the world average close to that of economically depressed Greece. Bringing the world average to British or Japanese standards would triple GWP, while global American or Hong Kong per capita incomes would quadruple GWP.

A different comparison is to the time it takes GWP to double at different growth rates. In recent years GWP has been growing at 3-4% per annum (note this is total GWP, not per capita GWP, so it includes the effect of population growth).

A 3% growth rates corresponds to GWP doubling ever 23.45 years, and a 4% rates gives a doubling time of 17.67 years.

So, an effect that doubled total world GDP would be amazing, but not wildly beyond the kind of variation we see across space today and across time in recent history.

Links to cited papers for the open borders estimates

Name of paper with link Author Year of publication Estimate of gain to world GDP Location of estimate in paper
Efficiency and distributional implications of global restrictions on labour mobility : Calculations and policy implications (gated) Bob Hamilton and John Whalley 1984 147.3 table 4, row 2
The Economic Costs to International Labor Restrictions: Revisiting the Empirical Discussion Jonathon W. Moses and Bjorn Letnes 2004 96.5 table 5, row 4 (assume elasticity of substitution to be 1.0)
Efficiency Gains from the Elimination of Global Restrictions on Labour Mobility: An Analysis using a Multiregional CGE Model Ana Marie Iregui 2005 67 table 3 (may have label 10.3 in gated versions) (first row, homogeneous labour column)
TFP Differences and the Aggregate Effects of Labor Mobility in the Long Run (gated) Paul Klein and Gustavo J. Ventura 2007 121.69 table 3 (last row, efficient allocation column)

John Kennan’s 2012 paper

John Kennan, an economics professor at the University of Wisconsin-Madison, wrote a paper titled Open Borders (ungated PDF) a year after Clemens’ paper came out (the original version came out in August 2012, but the paper was updated in October 2012). The data used in the paper is available at Kennan’s research page. Here is the abstract of Kennan’s paper:

There is a large body of evidence indicating that cross-country differences in income levels are associated with differences in productivity. If workers are much more productive in one country than in another, restrictions on immigration lead to large efficiency losses. The paper quantifies these losses, using a model in which efficiency differences are labor-augmenting, and free trade in product markets leads to factor price equalization, so that wages are equal across countries when measured in efficiency units of labor. The estimated gains from removing immigration restrictions are huge. Using a simple static model of migration costs, the estimated net gains from open borders are about the same as the gains from a growth miracle that more than doubles the income level in less-developed countries

Kennan’s is the first paper to incorporate place premium estimates (included in a paper by Clements, Pritchett, and Montenegro) into a model of how the world would look under open borders. The previous literature cited by Clemens in his double world GDP paper did not use place premium estimates, primarily because these estimates (and for that matter even the concept of place premium) simply weren’t available at the time those papers were written.

Discussions of the paper:

  • John Kennan’s Open Borders by Nathan Smith, Open Borders: The Case, February 11, 2013. Quote from near the end:

    The goal here is to guess what open borders would look like in practice, and the theoretical work is an instrument for guessing in a methodical and informed way where intuition and experience are of little help. Now, two big things we would like to know about open borders are (a) how many people would move, and (b) how much would world GDP actually increase. If I’m not mistaken, Kennan could easily derive estimates of these things from his model. But he doesn’t. He doesn’t tell us how world GDP would rise under open borders, in the short or the long run. He doesn’t tell us how many people would move, or where they would come from. I think Kennan’s model implies a short-run increase in world GDP of about 65%, and I’m pretty sure in the long run world GDP would double. Since the increase in the effective labor supply comes from growth in the populations of rich countries where labor productivity is high, I think Kennan’s model implies that rich countries’ populations would more than double due to immigration under open borders.

    I pretty much believe Kennan’s model, though of course it’s a simplification. The biggest criticism it’s open to is that the factors that make labor productivity high in rich countries depend on the composition of the population in those countries and wouldn’t survive vast influxes of people. Let in a few million immigrants and they’ll assimilate to high labor productivity, but let in tens or hundreds of millions and they’ll drag labor productivity down. Note that while Kennan’s model does not predict that labor productivity in rich countries would fall, it does predict that wages would fall. It wouldn’t surprise me if labor productivity fell a bit too, but I doubt it would fall that much, even if from the perspective of public opinion, the effects of open borders seemed like a catastrophic social upheaval. The case of California seems instructive here: there’s been a huge demographic change, and all sorts of apocalyptic rhetoric, and the state has become a bit less of a beacon than it was, but California’s First World status hasn’t changed at all. Of course, California doesn’t have open borders, but I expect open borders would be a more intense version of the same phenomenon: enormous perceived social upheaval, but no general fall in living standards for natives. It depends a lot on how it’s managed.

  • Upward and downward biases in the “double world GDP” estimates of the gains of open borders by Carl Shulman, Reflective Disequilibrium, January 26, 2014.

Scott Bradford’s 2012 paper

Another paper that came out after Clemens’ literature summary was The Global Welfare and Poverty Effects of Rich Nation Immigration Barriers by Scott Bradford (2012).

Discussions of the paper:

George Borjas’ critique (in his book and a 2015 paper)

George Borjas, an immigration economist at the Harvard Kennedy School, wrote a detailed academic critique of the estimation exercises in his book Immigration Economics (Harvard University Press page, Amazon). A similar critique can also be found in Borjas’ 2015 Journal of Economic Literature essay titled “Immigration and Globalization: A Review Essay”. The gated version is here and an ungated version is here.

Discussions of the critique:

Carl Shulman’s summation

Upward and downward biases in the “double world GDP” estimates of the gains of open borders by Carl Shulman, Reflective Disequilibrium, January 26, 2014, offers great perspective on the relation between estimates of global economic gains and migration flows. The whole post is worth reading.

Here is Shulman’s own summary of his post:

I discuss recent estimates that open borders could double gross world product through increases to migrant productivity. Such a doubling would be extreme, but not out of the range of our experience: it would be equivalent to raising world per capita income to the level of Greece (U.S. levels would quadruple world product), or a couple decades of continued economic growth. However, it would require the great majority of the developing world to migrate. I discuss the migration levels required for the estimates, polling and historical data bearing on migration levels, and population and economic growth trends that affect the estimates. Over several decades, the impact estimates seem too high, requiring implausible quantities and rates of migration, although potential effects remain large. Over the longer term, boosts such as population growth in poor countries and increased education for second generation migrants increase the maximum potential of migration beyond doubling world output, but development in poor countries, changes in place premium, and other changes may reduce gains over time.

Nathan Smith’s draft

Nathan Smith, an Open Borders: The Case blogger and economist at Fresno Pacific University, is working on a paper with his own economic model of open borders. The draft is available here. Some related blog posts and discussions are included below:

Here is the paragraph where Smith summarizes the existing literature and describes how he hopes his contribution will differ:

Many writers have attacked migration restrictions, and advocated open borders, from an ethical standpoint, including Joseph Carens in The Ethics of Immigration, Teresa Hayter in Open Borders: The Case Against Immigration Controls, and myself in Principles of a Free Society. What I propose to do here is different, namely, to describe as best I can what a world of open borders would look like. Because current policy is very far from open borders, constructing such an estimate involves large feats of extrapolation, and a heavy reliance on economic theory to sort these out. It is well-known that international migrants can enjoy very large increases in wages and living standards. One of the best contributions to this literature, “The Place Premium: Wage Differences for Identical Workers across the US Border,” by Michael Clements, Claudio E. Montenegro, and Lant Pritchett (December 2008), finds, for selected developing countries, that the “place premium”—the ratio of what workers could earn at home relative to the US—ranges from 1.99 in the Dominican Republic, to 6.25 for India, to 11.92 for Egypt, to 14.85 for Nigeria, to 15.45 for Yemen. But these results apply at the margin and under the status quo. They cannot legitimately be interpreted as indicative of what would happen to all Egyptians, or Nigerians, if controls on migration were removed worldwide. An educated guess about that can only be made in the context of a comprehensive theory of how the world economy works, fitted to the data as well as possible, but able to be solved for equilibrium when policy is changed. Several academic papers attempt to do this. Naturally, my opinions about the best approach differ from those of other authors. For example, I think Klein and Ventura (2007) underestimate international human capital differences, I dislike the ad hoc procedure by which Kennan (2012) incorporates cultural constraints on migration into his model, and I think Bradford (2012) uses an indefensibly high estimate of the direct costs of migration. Apart from these differences of method, however, these authors simply do not describe a world of open borders in sufficient detail to help readers much in imagining what a world of open borders would be like. This paper presents a much more detailed (though of course, let it be borne in mind, quite tentative, speculative, and fallible) simulation of how open borders would change the world.

Relation with the case for open borders

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