Does mass immigration destroy institutions? 1990s Israel as a natural experiment

• Published in: Journal of economic behavior & organization Vol. 141; pp. 83 - 95
• Main Authors: Powell, Benjamin, Clark, J.R., Nowrasteh, Alex
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2017
• Subjects: Economic freedom; Immigration; Institutions; Israel; P1; J1; Immigration; Israel; J6; Economic freedom; Institutions
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2017.06.008

•A Case Study and Synthetic Control Study of how mass migration impacted Israel’s economic institutions.•Finds that mass migration from the former Soviet Union was associated with substantial increases in economic freedom.•Finds that political institutions were unchanged by mass migration.•Finds that institutional change was generated mainly through immigrant participation in the political process. The relaxation of emigration restrictions in the Soviet Union and the State’s subsequent collapse led to a large exogenous shock to Israel’s immigrant flows because Israel allows unrestricted immigration for world-wide Jews. Israel’s population increased by 20% in the 1990s due to immigration from the former Soviet Union. These immigrants did not bring social capital that eroded the quality of Israel’s institutional environment. We find that economic institutions’ improved substantially over the decade. Our synthetic control methodology indicates that it is likely that the institutions improvement would not have occurred to the same degree without the mass migration. Our case study indicates that immigrant participation in the political process is the main mechanism through which the migration caused institutional change.