DP12842 Immigration and Spatial Equilibrium: the Role of Expenditures in the Country of Origin

Author(s): Christoph Albert, Joan Monras
Publication Date: April 2018
Date Revised: September 2020
Keyword(s): Immigration, location choices, spatial equilibrium
JEL(s): F22, J31, J61, R11
Programme Areas: Labour Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12842

We show that immigrants in the US concentrate in expensive cities, the earnings gap between natives and immigrants is larger in these cities, and these patterns are stronger when prices in the country of origin are lower. To rationalize this empirical evidence, we propose a quantitative spatial equilibrium model in which immigrants spend a fraction of their income in their countries of origin. Our model serves two purposes. First, to develop a new instrument for immigrant shocks that we use to test the model's predictions on native internal relocation responses. Second, to evaluate the consequences of immigration for aggregate productivity.