Reversal of migration flows: A fresh look at the German reunification

Abstract

We investigate the dynamic effects of interregional labor market integration on migration flows, capital formation, and the price for housing services. The co-evolution of these variables depends on initial conditions at the time of labor market integration. In an initially capital-poor economy, there may be a reversal of migration flows during the transition to the steady state, while housing costs are increasing over time. Although capital may accumulate while labor emigrates early in the transition, the causal effect of immigration on capital investments and housing costs is positive. We present new data on the evolution of net migration flows and rental rates for housing in East Germany after 1990. Our results are consistent with the presented evidence in the reverse migration scenario.

How does immigration affect housing costs in Switzerland?

“…Continuing annual information on the permanent resident population by nationality and municipality is available only from 1990 onward. 20 To identify the MS-regions and cantons with more than 20% of second homes in 2012, that we exclude in the sensitivity analysis, we use the data from the Grossmann et al (2017). Additional control variables with data sources are as follows.…”

How immigration affects investment and productivity in host and home countries

“…There have been substantial migration flows from East to West Germany, while capital accumulated faster in the East [5]. The pattern can be explained by neoclassical growth theory [6]. Consider a low-productivity region with a capital stock per capita that is below its long-term level.…”

“…The land area available for residential construction can be extended only within naturally determined limits. Consequently, land VOLKER GROSSMANN | How immigration affects investment and productivity in host and home countries prices are likely to grow in line with housing demand [6]. Ultimately, despite its effect on residential construction, immigration thus leads to higher rental rates for housing.…”

“…The author thanks Aderonke Osikominu, anonymous referees, and the IZA World of Labor editors for many helpful suggestions on earlier drafts. Previous work of the author (together with various co-authors) contains a larger number of background references for the material presented here and has been used intensively in major parts of this article [6], [12], and Felbermayr, G., V. Grossmann, and W. Kohler. "Migration, international trade and capital formation: Cause or effect?"…”

Inequality, survival to adulthood, and the growth drag of pollution

“…Migration from B to A would increase housing prices there and establish a stopping rule of migration flows with wealthier households living in A. As lifetime utility depends then on the evolution of housing prices over the life cycle, the described approach is already close to intractability in much simpler OLG frameworks, seeGrossmann et al (2017). Accordingly, xcrit is exogenous.…”