On the Economics and Politics of Mobility

Exit, Voice and Political Change: Evidence from Swedish Mass Migration to the United States. During the Age of Mass Migration, 30 million Europeans immigrated to the United States. We study the long-term political effects of this large-scale migration episode on origin communities using detailed historical data from Sweden. To instrument for emigration, we exploit severe local frost shocks that sparked an initial wave of emigration, interacted with within-country travel costs. Because Swedish emigration was highly path dependent, the initial shocks strongly predict total emigration over 50 years. Our estimates show that emigration substantially increased membership in local labor organizations, the strongest political opposition groups at the time. Furthermore, emigration caused greater strike participation, and mobilized voter turnout and support for left-wing parties in national elections. Emigration also had formal political effects, as measured by welfare expenditures and adoption of inclusive political institutions. Together, our findings indicate that large-scale emigration can achieve long-lasting effects on the political equilibrium in origin communities. Mass Migration and Technological Innovation at the Origin. This essay studies the effects of migration on technological innovations in origin communities. Using historical data from Sweden, we find that large-scale emigration caused a long-run increase in patent innovations in origin municipalities. Our IV estimate shows that a ten percent increase in emigration entails a 7 percent increase in a muncipality’s number of patents. Weighting patents by a measure of their economic value, the positive effects are further increased. Discussing possible mechanisms, we suggest that low skilled labor scarcity may be an explanation for these results.  Richer (and Holier) Than Thou? The Impact of Relative Income Improvements on Demand for Redistribution. We use a tailor-made survey on a Swedish sample to investigate how individuals' relative income affects their demand for redistribution. We first document that a majority misperceive their position in the income distribution and believe that they are poorer, relative to others, than they actually are. We then inform a subsample about their true relative income, and find that individuals who are richer than they initially thought demand less redistribution. This result is driven by individuals with prior right-of-center political preferences who view taxes as distortive and believe that effort, rather than luck, drives individual economic success. Wealth, home ownership and mobility. Rent controls on housing have long been thought to reduce labor mobility and allocative efficiency. We study a policy that allowed renters to purchase their rent-controlled apartments at below market prices, and examine the effects of home ownership and wealth on mobility. Treated individuals have a substantially higher likelihood of moving to a new home in a given year. The effect corresponds to a 30 percent increase from the control group mean. The size of the wealth shock predicts lower mobility, while the positive average effect can be explained by tenants switching from the previous rent-controlled system to market-priced condominiums. By contrast, we do not find that the increase in residential mobility leads to a greater probability of moving to a new place of work

On the Economics and Politics of Mobility

Exit, Voice and Political Change: Evidence from Swedish Mass Migration to the United States. During the Age of Mass Migration, 30 million Europeans immigrated to the United States. We study the long-term political effects of this large-scale migration episode on origin communities using detailed historical data from Sweden. To instrument for emigration, we exploit severe local frost shocks that sparked an initial wave of emigration, interacted with within-country travel costs. Because Swedish emigration was highly path dependent, the initial shocks strongly predict total emigration over 50 years. Our estimates show that emigration substantially increased membership in local labor organizations, the strongest political opposition groups at the time. Furthermore, emigration caused greater strike participation, and mobilized voter turnout and support for left-wing parties in national elections. Emigration also had formal political effects, as measured by welfare expenditures and adoption of inclusive political institutions. Together, our findings indicate that large-scale emigration can achieve long-lasting effects on the political equilibrium in origin communities. Mass Migration and Technological Innovation at the Origin. This essay studies the effects of migration on technological innovations in origin communities. Using historical data from Sweden, we find that large-scale emigration caused a long-run increase in patent innovations in origin municipalities. Our IV estimate shows that a ten percent increase in emigration entails a 7 percent increase in a muncipality’s number of patents. Weighting patents by a measure of their economic value, the positive effects are further increased. Discussing possible mechanisms, we suggest that low skilled labor scarcity may be an explanation for these results.  Richer (and Holier) Than Thou? The Impact of Relative Income Improvements on Demand for Redistribution. We use a tailor-made survey on a Swedish sample to investigate how individuals' relative income affects their demand for redistribution. We first document that a majority misperceive their position in the income distribution and believe that they are poorer, relative to others, than they actually are. We then inform a subsample about their true relative income, and find that individuals who are richer than they initially thought demand less redistribution. This result is driven by individuals with prior right-of-center political preferences who view taxes as distortive and believe that effort, rather than luck, drives individual economic success. Wealth, home ownership and mobility. Rent controls on housing have long been thought to reduce labor mobility and allocative efficiency. We study a policy that allowed renters to purchase their rent-controlled apartments at below market prices, and examine the effects of home ownership and wealth on mobility. Treated individuals have a substantially higher likelihood of moving to a new home in a given year. The effect corresponds to a 30 percent increase from the control group mean. The size of the wealth shock predicts lower mobility, while the positive average effect can be explained by tenants switching from the previous rent-controlled system to market-priced condominiums. By contrast, we do not find that the increase in residential mobility leads to a greater probability of moving to a new place of work

A response to Pettersson-Lidbom’s “Exit, Voice and Political Change: Evidence from Swedish Mass Migration to the United States – a Comment”

In a comment to Karadja & Prawitz (2019), henceforth KP, Per Pettersson-Lidbom (2020), henceforth P-L, argues that the main results in KP are severely biased. He argues that KP's results are biased due to non-classical measurement error in emigration and due to confounders related to the instrument. In this response, we show that P-L's reasoning regarding measurement error bias contradicts the results from his proposed test. More generally, P-L's results cannot exclude alternative and arguably more likely explanations. We present two straightforward tests that both indicate that measurement error does not bias KP's results. Second, we argue that KP controls for confounders in a standard way given the identication strategy. Including fixed effects at the level of the exogenous cross-sectional variation, as P-L does, severely limits the available identifying variation and decreases precision. Nevertheless, we document that KP's results are robust to non-linear frost shock controls, including fixed effects for groups of similar frost shocks. In addition, we show that our results are robust to altering regional fixed effects or dropping them altogether, in contrast to what is suggested by P-L.

The Effect of Exchange Rate Risk on Bilateral Trade Flows

  This paper evaluates the effect of exchange rate risk on the sum of bilateral trade. To distinguish the effect between different types of countries, two groups are defined: advanced and developing economies. Economic theory on exchange rate risk and trade proposes ambiguous effects of increased volatility. However, the ex ante hypothesis is that developing economies are more sensitive to volatility. Contrarily to the hypothesis, the empirical results suggest that advanced economies would benefit up to twice as much from a removal of exchange rate risk. The lower sensitivity of developing countries to exchange rate risk is conjectured to be due to a lower real average income of firms in these areas. The empirical analysis is based on an extended gravity model, which is estimated and subsequently tested for robustness using four different techniques. All estimates imply that exchange rate volatility depresses bilateral trade flows. Further, the result that developing countries are less sensitive to exchange risk is not affected by different specifications of our model.

A response to Pettersson-Lidbom’s “Exit, Voice and Political Change: Evidence from Swedish Mass Migration to the United States – a Comment”

In a comment to Karadja & Prawitz (2019), henceforth KP, Per Pettersson-Lidbom (2020), henceforth P-L, argues that the main results in KP are severely biased. He argues that KP's results are biased due to non-classical measurement error in emigration and due to confounders related to the instrument. In this response, we show that P-L's reasoning regarding measurement error bias contradicts the results from his proposed test. More generally, P-L's results cannot exclude alternative and arguably more likely explanations. We present two straightforward tests that both indicate that measurement error does not bias KP's results. Second, we argue that KP controls for confounders in a standard way given the identication strategy. Including fixed effects at the level of the exogenous cross-sectional variation, as P-L does, severely limits the available identifying variation and decreases precision. Nevertheless, we document that KP's results are robust to non-linear frost shock controls, including fixed effects for groups of similar frost shocks. In addition, we show that our results are robust to altering regional fixed effects or dropping them altogether, in contrast to what is suggested by P-L.

The Effect of Exchange Rate Risk on Bilateral Trade Flows

  This paper evaluates the effect of exchange rate risk on the sum of bilateral trade. To distinguish the effect between different types of countries, two groups are defined: advanced and developing economies. Economic theory on exchange rate risk and trade proposes ambiguous effects of increased volatility. However, the ex ante hypothesis is that developing economies are more sensitive to volatility. Contrarily to the hypothesis, the empirical results suggest that advanced economies would benefit up to twice as much from a removal of exchange rate risk. The lower sensitivity of developing countries to exchange rate risk is conjectured to be due to a lower real average income of firms in these areas. The empirical analysis is based on an extended gravity model, which is estimated and subsequently tested for robustness using four different techniques. All estimates imply that exchange rate volatility depresses bilateral trade flows. Further, the result that developing countries are less sensitive to exchange risk is not affected by different specifications of our model.

Mass Migration and Technological Change

This paper studies the effect of emigration on technological change in sending locations after one of the largest migration events in human history, the mass migration from Europe to the United States in the 19th century. To establish causality, we adopt an instrumental variable strategy that combines local growing-season frost shocks with proximity to emigration ports. Using data on patents, we find that emigration led to an increase in innovative activity in sending localities. Using data on capital and labor inputs in agriculture and industry, we find evidence of an increased capital intensity related to new technologies in both sectors. We argue that these results are consistent with theories of induced (labor-saving) innovation due to high labor costs following emigration