DP11526 | Immigration Policies, Labor Complementarities, Population Size and Cultural Frictions: Theory and Evidence

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In this paper we consider a simple model of international migration developed in Fujita and Weber (2010). There are two countries A and B, that differ in population size, degree of labor complementarity between natives and immigrants, as well as cultural attitudes towards immigrants. The countries select immigration quotas for the world population of immigrants. We apply the existence result of Fujita-Weber and show that in equilibrium the larger country attracts more immigrants, while choosing a lower quota than its smaller counterpart. It also turns out that higher degree of labor complementarity between natives and immigrants and a lower degree of cultural friction between two groups yield higher immigration quota. Finally, we test the empiricalvalidity of the model using time-series country-level data and demonstrate that both cross-section and panel data approaches support several of the key theoretical findings.