Emigration & Prices

1. Emigration & Prices M2R Thesis Economie de la Mondialisation Supervisors: BiagioSpeciale/ Mathilde Maurel Georgette A. Fernandez Laris

2. Agenda • Revisiting research question and model specification • Database construction • Empirical Strategy & First results

3. General Question: • Examine the impact of Mexican emigration on goods prices. • Benchmark Paper: • “The Effect of Low Skilled Immigration on U.S. Prices: Evidence from CPI Data” • Cortes, Patricia. 2008. “The Effect of Low Skilled Immigration on U.S. Prices: Evidence from CPI Data” Journal of Political Economy 116 (3): 381-422

4. Research Question Revised • Question • What is the impact of Mexican emigration on good’s prices? • Motivation: • Fill-in research gap: • Vast literature on U.S – Mexico Migration • Destination country focus: impact on the labor market outcomes of local or native U.S workers • Source country focus: concentrating on emigration’s impact on remittances, labor market participation and network effects. • No earlier attempts to examine the impact of emigration on Mexican prices • Relevance: • Possibility to test new mechanisms through which emigration impacts the unequal distribution of standards of living across Mexico . • Examine new ways in which emigration can affect the real purchasing power of Mexicans who stay.

5. Model Specification = ) + + + () x j:municipality • i: city agglomerate, composed of many representative municipalities (i=1, 2,..., 45) • j: municipality (j=1, 2,…, 475) • t: time period (t=1, 2) • First time period 1995-2000 • Second time period 2005-2010

6. Database Construction • Prices • Emigration = ) + + + • Source: • Mexican Central Bank (Banco de Mexico) & National Institute of Statistics and • Geography (INEGI) • http://www.banxico.org.mx; http://www.inegi.org.mx/sistemas/bie • Dependent Variable Construction • Consumer Price Indexes for eight product categories classified by object of expenditure Specific goodijk-----Ex: Cereal brand X, 400g sold at store Y Generic goodjk-----Ex: Cereal in flakes Subindexk----Ex: Food, beverages and tobaco INPC= CPI

7. Prices • Emigration = ) + + + • Instrument Data • Source: Woodruff and Zenteno’s Historic State Migration rates (1955-1960) • Fraction of each Mexican state’s population that migrated to the United States over period. • Main Explanatory Variable: municipal level data on emigration • Source: • National Council of Population (CONAPO) & National Institute of Statistics and • Geography (INEGI) • http://www.conapo.gob.mx; http://www.inegi.org.mx/sistemas/bie =

8. Matching

9. Percentage of households with emigrants to U.S by municipality, 2010

10. Trends & Stylized Facts

11. Main Empirical Strategy Challenge: = ) + + + • Biased OLS estimates likely due to: • Omitted Variables Endogeneity • Unobserved economic factors and shocks affect prices and emigration rates simultaneously. • Negative economic unobserved factors related to lower economic conditions across regions might also induce greater emigration rates (negative correlation of error with main explanatory variable) • Negative economic shocks, for example 1995 economic crisis, caused increase in contemporaneous emigration and lagged effects on prices • Both make it hard to disentangle true effect of emigration on prices • Reverse Causality Endogeneity • Feedback effects from prices to emigration: • Very high costs of living induce higher emigration in region (perhaps due to larger marginalization of population), leads to spurious positive correlation between emigration and prices.

12. IV Solution: Imputed Emigration Rates - Non-experimental approach based on Corte’s instrument construction & using historic state emigration rates i: U.S destination city j: source country of origin t: time decade (1980, 1990, 2000) Interpretation: If 1/3 of Mexican immigrants in 1970 in Los Angeles, instrument allocates 33% of all 1990’s Mexicans immigrants to Los Angeles. Model Specification Proportion of immigrants to U.S from source country j settling in city i in 1970 Total immigrants to U.S from source country j at decade t () x Author provided historic emigration rates Source: Woodruff & Zenteno’s

13. Results: Instrument All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses *** p<0.01, ** p<0.05, * p<0.1

14. All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses *** p<0.01, ** p<0.05, * p<0.1

15. Justifying the Instrument • Use of Historic State Emigration rates: • Based on literature’s findings: • Strong historical persistence in regional migration behavior in Mexico • How does it work? • Assessing Instrument Relevance (Strength) • First-Stage F-statistic 1920’s railroad & 1950’s Bracero Program (guest worker program) Make migration more feasible Lower migration costs Early historic patterns Migrant networks (Social Capital) More emigration to U.S

17. Justifying the Instrument Assessing Exogeneity: Cannot directly test exogeneity because I have 1 endogenous regressor and 1 instrument Does instrument fulfill exclusion restriction? * Regional rainfall shocks, as instruments would be much more likely to affect prices through channels other than emigration itself (even using lagged rainfall rates)

18. Results: Price effects All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses *** p<0.01, ** p<0.05, * p<0.1

19. All variables in logs Standard errors clustered at the municipality x year level are reported in parentheses *** p<0.01, ** p<0.05, * p<0.1

20. What lies ahead… • Possible Robustness checks • Examining division of Tradables vs Non-tradables • Examining channels • What are the main channels through which the price effect mechanism runs? Q & A Thank You