Immigration Does Not Decrease Economic Freedom

A common criticism of immigration reform (here, here, and here) is that it will decrease economic freedom in the United States, by increasing the voting pool for the Democratic Party.  Leaving aside the issue of which party supports economic liberty, if any, it’s important to see what the actual impacts of immigration are on economic freedom in the United States and the world.  The political effects of immigrants after they arrive are less certain than the economic benefits.  Do immigrants decrease economic freedom in their new countries?  The bottom line: fears of immigrants decreasing economic freedom seem unfounded.

Since 1980, wealthy countries have seen rises in immigrant populations.  Immigrants are drawn to economic prosperity, higher wages, and better standards of living so it’s not surprising that wealthier countries have higher percentages of immigrants.  I excluded numerous small countries and petro-states like the UAE and Kuwait from the analysis.

I looked at the 25 wealthiest nations in the world in 1980 (by per capita GDP PPP) and considered their economic freedom rating and the percent foreign born.  I then tracked those same countries every 5 years until 2010.  Here are the averages for all 25 nations:

World

Year

Economic Freedom Rating

GDP Per Capita (PPP)

Immigrant (%)

1980

6.27

$20,875

10.11

1985

6.44

$21,475

10.72

1990

7.05

$23,912

11.61

1995

7.39

$24,671

11.95

2000

7.65

$28,788

11.82

2005

7.68

$30,454

13.96

2010

7.15

$30,481

14.37

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

From 1980 to 2010, the average economic freedom rating for those 25 nations increased by .88 points and their foreign born populations increased by 4.27 percentage points, while per capita GDP increased by $9,606.  The Great Recession makes those numbers appear less remarkable because of the decrease in economic freedom between 2005 and 2010 that accompanied the slowdown in growth.    

 

And when we zoom in on the United States:

United States

Year

Economic Freedom Rating

GDP Per Capita (PPP)

Immigrant (%)

1980

7.92

$25,510

7.20

1985

8.11

$28,562

8.19

1990

8.53

$31,899

9.31

1995

8.50

$33,874

10.71

2000

8.65

$39,545

12.34

2005

8.21

$42,516

13.29

2010

7.70

$42,079

13.84

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

From 1980-2010, the United States’ economic freedom rating fell by .22 and the foreign-born population increased by 6.64 percentage points.  The entire loss in economic freedom occurred post 2005 while the foreign-born population rose by .55 of a percentage point, the smallest increase in any 5-year period.  It seems highly unlikely that a .55 percentage point increase crossed a threshold that caused the economic freedom rating to decrease so much.   

Remember that the claim made by many opponents of immigration reform is that more immigrants will cause a decrease in economic freedom.  A linear regression (OLS) of the economic freedom rating and the percent of immigrants in the United States produced a coefficient of -0.0013908 with a t-value of -.02.  The R-squared for that regression is 0.0001.  That means that factors other than immigration explain 99.99 percent of the decrease in America’s economic freedom rating.  On its face, the hypothesis that an increasing percentage of immigrants in the United States will decrease economic freedom does not hold much water.

 

Sources: Economic Freedom of the World: 2012 Annual Report, World Bank Development Indicators

Excluding small countries, here are the wealthiest nations in the world in 1980:

1980

Richest Excluding Small Countries

GDP per capita, PPP

Income % Immigrant EF Rating

1

Saudi Arabia

33,903

19.60%

2

Switzerland

29,363

16.90%

7.99

3

Norway

26,205

3.00%

5.79

4

Bahamas

26,045

11.40%

6.26

5

United States

25,510

7.20%

7.92

6

Canada

23,070

15.50%

7.68

7

Netherlands

22,271

3.50%

7.23

8

Iceland

21,847

2.50%

5.25

9

Bahrain

21,139

28.90%

7.42

10

Belgium

20,793

9.10%

7.06

11

Denmark

20,790

3.20%

6.39

12

Austria

20,714

9.50%

6.33

13

Sweden

20,362

7.50%

5.68

14

France

20,264

10.70%

6.09

15

Australia

19,784

19.70%

6.86

16

Italy

18,814

2.00%

5.37

17

United Kingdom

18,154

6.00%

6.57

18

Finland

17,858

0.80%

6.65

19

Japan

17,835

0.70%

6.88

20

New Zealand

17,391

15.10%

6.35

21

Greece

17,043

1.80%

5.76

22

Gabon

17,007

13.90%

4.50

23

Spain

15,368

1.60%

6.10

24

Trinidad and Tobago

15,310

5.70%

4.83

25

Israel

15,028

36.90%

3.48

  Average

20,875

10.11%

6.27

Sources: World Bank, Cato Economic Freedom of the World Index.

In 1980, 9.4 percent of people living in all countries (including small ones like Monaco and the United Arab Emirates) were immigrants, compared to 10.1 percent in the richest countries.  The average economic freedom rating in the world was 5.4 compared to 6.27 for the richest.  In 1980, the 25 richest countries in the world had more immigrants and more economic freedom than the average nation. 

2010

Richest Excluding Small Countries

GDP per capita, PPP

Income % Immigrant EF Rating

1

Norway

46,906

10.00%

7.53

2

United States

42,079

13.50%

7.70

3

Switzerland

39,072

23.20%

8.07

4

Netherlands

36,925

10.50%

7.58

5

Ireland

35,993

19.60%

7.92

6

Austria

35,313

15.60%

7.55

7

Canada

35,223

21.30%

8.09

8

Australia

34,602

21.90%

8.14

9

Sweden

34,125

14.10%

7.62

10

Germany

33,565

13.10%

7.53

11

Belgium

32,882

9.10%

7.47

12

United Kingdom

32,814

10.40%

7.87

13

Iceland

32,779

11.30%

7.02

14

Denmark

32,379

8.80%

7.76

15

Finland

31,310

4.20%

7.89

16

Japan

30,965

1.70%

7.61

17

Equatorial Guinea

30,493

1.10%

18

France

29,484

10.70%

7.39

19

Italy

27,083

7.40%

6.73

20

Spain

26,901

14.10%

7.40

21

Korea

26,774

1.10%

7.20

22

Israel

25,995

40.40%

7.25

23

Slovenia

25,053

8.10%

6.62

24

Oman

24,559

28.40%

8.00

25

New Zealand

24,400

22.00%

8.38

  Average

32,307

13.32%

7.60

Sources: World Bank Development Indicators, Economic Freedom of the World: 2012 Annual Report.

In 2010, 11 percent of people living in all countries were immigrants.  The average economic freedom rating in the world was 6.84, 1.44 points higher than in 1980.  The 25 richest countries in 2010 had a greater percentage of immigrants and a higher economic freedom rating than the rest.

These results are not surprising.  To the extent that economic freedom produces greater economic prosperity, immigration will likely increase.  Given the results from the regression analysis, there is practically zero evidence that immigrants have caused a decline in economic freedom.  Other factors, such as an increase in the regulated state, likely explain changes in economic freedom more than the intensity of immigration. 

Opposing immigration reform for the reason that new immigrants will decrease economic freedom is a popular excuse in some circles – but there is surprisingly little evidence to support this myth.  Moreover, merely pointing out that immigrants are more likely to vote for the Democratic Party is insufficient because actual policy shifts count more than partisan political outcomes.  Those who claim immigrants will decrease economic freedom have yet to prove it. 

Upcoming: A comparison between economic freedom in American states and immigration.