_________________________
6 Although different indicators of government consumption spending could be produced in relation to the different
measures of immigration policy, the empirical results in this research suggest that while the impact of government
consumption spending acts to support foreign investment in the short run, it gradually decreases economic
performance and thereby decreases potential investment from foreign firms over the long run. These findings
basically align with those elsewhere on the negative link between government consumption spending and growth.
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term. These results indicate that more liberal immigration policies can be expected to
significantly reduce unit labor costs.
Table 5:
The Impact of Immigration Policy on Labor Costs in the U.S.
Variables
Refugee ceiling per capita
Restrictive immigration
law
Lawful permanent
resident
Labor cost
t–1
–0.127***
–0.536***
–0.079**
–0.105**
–0.101**
–0.125*
(0.052)
(0.140)
(0.037)
(0.059)
(0.042)
(0.067)
∆
Immigration
policy
t
134.797
81.100
–0.470
–0.709
4.588
–6.280*
(79.708)
(60.722)
(1.391)
(0.873)
(5.408)
(3.237)
Immigration policy
t–1
–
122.425**
–139.450**
2.209**
1.411**
–4.330*
–3.361*
(42.627)
(77.176)
(1.779)
(0.809)
(6.020)
(4.330)
∆
Corporate tax
t
38.964*
23.407**
22.278**
(24.047)
(12.325)
(10.759)
Corporate tax
t–1
–47.676***
1.383
–14.099
(16.911)
(8.976)
(8.599)
∆
Regulation
t
0.0002**
0.0002*
0.0002*
(0.0001)
(0.0001)
(0.0001)
Regulation
t–1
7.67e–06
0.0002***
0.0002**
(0.0001)
(0.0001)
(0.0001)
∆
Government
expenditures
t
–4.017*
2.214*
2.588*
(2.620)
(1.364)
(1.314)
Government
expenditures
t–1
–4.414***
–1.161**
–1.205*
(1.132)
(0.648)
(0.669)
∆
Economic growth
t
–2.095***
–0.161
–0.037
(0.761)
(0.265)
(0.261)
Economic growth
t–1
–1.815**
0.345
0.478
(0.917)
(0.309)
(0.306)
∆
Market size
t
1146.537***
205.278
–136.126
(326.771)
(285.112)
(314.958)
Market size
t–1
–38.269*
–95.973***
–111.625***
(27.327)
(26.975)
(26.645)
∆
Interest rate
t
–1.592***
–0.454
–0.481
(0.335)
(0.374)
(0.359)
Interest rate
t–1
–1.161***
–0.342
–0.216
(0.353)
(0.330)
(0.301)
∆
Inflation
t
–0.883*
–0.054
–0.002
(0.515)
(0.382)
(0.342)
Inflation
t–1
–1.233**
0.202
0.050
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(0.503)
(0.338)
(0.307)
∆
Trade openness
t
0.938**
0.296
0.284
(0.396)
(0.473)
(0.425)
Trade openness
t–1
0.831***
0.816***
1.105***
(0.232)
(0.327)
(0.362)
∆
Union membership
t
–0.562
–0.805*
–0.838
(1.428)
(0.610)
(0.570)
Union membership
t–1
3.884***
–0.416
–0.256
(1.312)
(0.321)
(0.442)
Constant
8.267**
809.675*
8.442***
1850.829***
8.582**
2155.373***
(4.359)
(522.687)
(3.434)
(520.054)
(3.421)
(514.702)
R-Squared
0.535
0.975
0.555
0.952
0.528
0.961
Durbin–Watson
2.212
2.858
2.000
3.030
2.047
3.117
Note
: Prais–Winsten (PW) estimation is used here.
*p
< .10,
**p
< .05,
***p
< .01; one-tailed test. Semirobust
standard errors are in parenthesis.
Five control variables, namely, the differenced corporate tax, regulation, lagged government
expenditure, market size, and trade openness, are statistically significant in two models. The
differenced corporate tax variable is positively correlated with labor costs, suggesting that
higher corporate tax rates and regulations decrease businesses and industrial activities, which in
turn increase labor costs. As expected, the estimated long-term coefficient for government
expenditures is negatively and significantly correlated to labor costs. This suggests that
increased government expenditures are transferred to increase economic resources, which lower
labor costs.
7
Additionally, market size measured as logged population is negatively associated
with labor costs. It is important to note that market size is operationalized as market volume and
potential, which can be measured as population growth (e.g., Campbell and Hopenhayn, 2005).
Indeed, labor market responses to population growth, and thus a larger population would
increase labor supply, thereby decreasing labor costs (e.g., Bloom and Freeman, 1986;
Jorgenson et al., 2008). Last, the long-term positive effects of trade openness on labor costs
suggest that trade openness increases labor costs by raising employee incomes, resulting in
increasing consumption.
8
_________________________
7 Both neoclassical and New Keynesian models indicate that an increase in government consumption spending
accompanies the increase of tax financing, which in turn induces a negative wealth effect by not only reducing net
household wealth but also increasing labor supply. It leads to a fall in labor costs as well as real wages (e.g.,
Angeletos and Panousi, 2009; Barro, 1981; Baxter and King, 1993).
8 Structural changes in the labor market after trade liberalization not only decreases fixed costs of production but also
increases the productivity of goods, which leads to increased wage premiums for skilled labor relative to unskilled
labor due to the increase in profits (Arbache et al., 2004; Comite et al., 2018). Many studies have also shown that a
reduction in trade barriers increases the relative demand for skilled labor by reallocating factors toward more skill-
intensive firms (Burstein and Vogel, 2017; Feenstra and Hanson, 1997).
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5
Conclusions and Discussion
Many studies on FDI explore the association between economic and political incentives and
foreign firms’ location decisions. Major potential determinants are noted, including some cost-
related factors, such as labor costs, financial incentives, including exchange rates, macro-
economic factors, including the size of the current and potential markets, wealth levels, and
trade liberalization (e.g., Kandogan, 2012). However, little evidence is available as to which
political and/or economic rewards can effectively attract more FDI. Firms can be expected to be
rational actors that seek to maximize profits when benefits from all deliberated determinants do
not exceed costs. As a result, there is no single acknowledged most important determinant that
would influence location decisions by foreign firms. I suggest that another factor is overlooked,
namely, immigration policy. The results of this study show an indirect effect of immigration
policies, such that more expansive national immigration policies will attract more FDI by
lowering labor costs. The findings have significant implications for the study of immigration
policy and economic growth. First, the results strongly support the assertion expansive
immigration policy forms a window of opportunity for foreign firms to invest or to expand their
existing plants. This is particularly true for foreign manufacturing firms, as a liberal
immigration policy can lower unit labor costs. Second, it is found that national policymakers
can directly increase FDI in manufacturing by manipulating immigration policy and thereby
improving the national economic condition. These findings suggest that national-level
immigration reforms that have increased legal immigrants have stabilized the labor market and
attracted more foreign firms. Thus, a liberal immigration policy is an important determinant for
foreign firms that may wish to increase their capital in the U.S.
Despite these potentially significant implications, this article has some limitations. First, the
single measures adopted for immigration policy may produce misleading results, as immigration
seems to be influenced by actions on multiple policy levels (e.g., Nicholson-Crotty and
Nicholson-Crotty, 2011). In the future, research must develop more concrete measures of
immigration policy climate insofar as it affects migrant flows. Second, data from the current era
of devolution may lead to different findings. Because the increased discretionary authority
devolved to state governments may increase the opposition to federal immigration policy and
allow them to develop and implement their own immigration policies in response to the
preferences of their citizens, foreign firms may no longer make their investment decision based
solely on the consequence of federal immigration policy. As a result, the positive impact of
immigration policy on FDI inflows would be conditional on the interactions of federal and state
governments. For FDI in the U.S., it is important to examine how the policy levers available to
state governments can make a particular state more attractive to foreign firms.
Despite the limitations of this study, the findings have potentially significant implications
for immigration policy. Countries have sought to attract FDI not only because it adds to their
economic resources and capital formation, but also because it can transfer high-production
technology and skills, innovative performance, and novel organizational and managerial
practices from home countries to host countries. If the U.S. were to adopt a more liberal
immigration policy, it would benefit from the potential increase of FDI in a way that could
lower potential labor costs and secure a stable supply of labor.
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21
Acknowledgements
This work was supported by the Ministry of Education of the Republic of
Korea and the National Research Foundation of Korea (NRF-2018S1A3A2075531).
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Appendix 1. Summary of Major U.S. Immigration Laws
Year
Major highlights
1976
The Immigration and Nationality Act Amendments of 1976 (90 Stat. 2703) adopts the 1965
Immigration and Nationality Act’s system of immigration “preference categories” for
immigrants from Western Hemisphere countries.
1980
The Refugee Act of 1980 (94 Stat. 102) establishes a new statutory system for processing and
admitting refugees from overseas as well as asylum seekers physically present at US borders
or in the country. The law defines a “refugee” as any person outside the person’s country of
nationality who is unable or unwilling to return to that country because of persecution or a
well-founded fear of persecution on account of race, religion, nationality, membership in a
particular social group, or particular opinion.
1986
The Immigration Reform and Control Act (IRCA) (100 Stat. 3359) provides for a 50 percent
increase in border patrol staffing, and imposes sanctions on employers who knowingly hire or
recruit unauthorized immigrants. The law also creates two legalization programs. One allows
unauthorized aliens who have lived in the United States since 1982 to regularize their status;
the other permits people who have worked for at least 90 days in certain agricultural jobs to
apply for permanent resident status. Under these programs, roughly 2.7 million people who
were then illegally residing in the United States eventually become lawful permanent
residents.
1994
The Violent Crime Control and Law Enforcement Act (VCCLEA) (108 Stat. 1791) gives the
US Attorney General the option to bypass deportation proceedings for certain alien aggravated
felons, enhances penalties for alien smuggling and reentry after deportation, and increases
appropriations for the Border Patrol.
1996
The Antiterrorism and Effective Death Penalty Act (AEDPA) (110 Stat. 1214) adds new
crimes to the definition of aggravated felony. AEDPA also establishes the “expedited
removal” procedure for arriving noncitizens who border official’s suspect of lacking proper
entry documents or being engaged in fraud; the procedure is amended later that year by the
Illegal Immigration Reform and Immigrant Responsibility Act.
2001
The USA Patriot Act (115 Stat. 272) broadens the terrorism grounds for excluding aliens from
entering the United States and increases monitoring of foreign students.
2002
• The Enhanced Border Security and Visa Entry Reform Act (116 Stat. 543) requires the
development of an interoperable electronic data system to be used to share information
relevant to alien admissibility and removability. It also requires the implementation of an
integrated entry-exit data system: the US-VISIT program is established to implement this
system.
• The Homeland Security Act (116 Stat. 2135) creates the Department of Homeland Security
(DHS). In 2003, nearly all of the functions of the US Immigration and Naturalization Service
(INS) — the Department of Justice agency responsible for provision of immigration services,
border enforcement, and border inspection — are transferred to DHS and restructured to
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become three new agencies: US Customs and Border Protection (CBP), US Immigration and
Customs Enforcement (ICE), and US Citizenship and Immigration Services (USCIS).
2004
L-1 Visa Reform Act of 2004 added new penalties for abuse of the L-1 intra-company transfer
visa.
2005
The REAL ID Act (119 Stat. 302) establishes statutory guidelines for removal cases, expands
the terrorism-related grounds for inadmissibility and deportation, includes measures to
improve border infrastructure, and requires states to verify an applicant’s legal status before
issuing a driver’s license or personal identification card that may be accepted for any federal
purpose. (States’ protests persuade Congress to delay implementation of the drivers’ license
provisions of the law.) It also bars the use of habeas corpus as a vehicle for challenging
removal orders, thus virtually completing the concentration of judicial review in the courts of
appeals.
2006
Congress enacts the Secure Fence Act after the Senate fails to adopt immigration reform
legislation that had passed the House in 2005. The law mandates the construction of more than
700 miles of double-reinforced fence to be built along the border with Mexico, through the US
states of California, Arizona, New Mexico, and Texas in areas that experience illegal drug
trafficking and illegal immigration. It authorizes more lighting, vehicle barriers, and border
checkpoints and requires the installation of more advanced equipment, such as sensors,
cameras, satellites, and unmanned aerial vehicles, in an attempt to increase control of illegal
immigration into the United States.
Source
: Migration Policy Institute (
https://www.migrationpolicy.org/research/timeline-1790
)
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β
= -0.03**
β
= -133.77*
Labor costs
FDI
Immigration Policy
(Refugee ceiling)
β
= 15.38**
β
= 6.17*
Labor costs
FDI
Immigration Policy
(Restrictive immgration law)
β
= -0.02**
Appendix 2. Path Coefficients Models
Figure A1.
Refugee Ceiling per Capita
Figure A2
. Restrictive Immigration Law
+-
β
= -0.12*
Document Outline - 1 Introduction
- 2 Literature on the Link between Immigration Policy and FDI
- 3 Immigration Policy of the Federal Government and FDI Inflows
- 4 Data and Measurement
- Dependent Variable
- Independent Variables
- Control Variables
- Statistical Method
- Empirical Results
- 5 Conclusions and Discussion
- References
- Appendix 1. Summary of Major U.S. Immigration Laws
- Appendix 2. Path Coefficients Models
- last page article_2020.pdf
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