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“Foreign Aid” vs Immigration in Alleviating Global Poverty

Decades of programmatic experimentation by development NGOs combined with the latest empirical techniques for estimating program impact have shown that a well-designed, well-implemented, multi-faceted intervention can in fact have an apparently sustained impact on the incomes of the poor (Banerjee et al 2015). The magnitude of the income gains of the “best you can do” via direct interventions to raise the income of the poor in situ is about 40 times smaller than the income gain from allowing people from those same poor countries to work in a high productivity country like the USA. Simply allowing more labor mobility holds vastly more promise for reducing poverty than anything else on the development agenda. That said, the magnitude of the gains from large growth accelerations (and losses from large decelerations) are also many-fold larger than the potential gains from directed individual interventions and the poverty reduction gains from large, extended periods of rapid growth are larger than from targeted interventions and also hold promise (and have delivered) for reducing global poverty.

A large part of the explanation of differences in labor productivity across countries is differences in “A”—total factor productivity. Transmitting A from country to country has proven difficult. This implies that labor with the exact same intrinsic productivity will have much higher productivity (and hence justify a higher wage) in a high A than in a low A country. But, by and large, rich countries have passed extraordinarily strict regulations on the movement of unskilled labor. A relaxation of these restrictions could produce the largest single gains in global poverty of any available policy, program or project action. And since these gains to movers are (mostly) due to higher A which (at the margin) is a “public good” (it is non-rival and non-excludable) in the host country these gains are essentially free to the host country (or could be free to the host country under some technical design conditions).

Chosen excerpts by Job Market Monitor. Read the whole story at Alleviating Global Poverty: Labor Mobility, Direct Assistance, and Economic Growth – Working Paper 479 | Center For Global Development

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