Investor as Immigrants:
Reexamining the immigration policy of Japan from theexperiences of the United States and Canada

By Rick Liu
A thesis submitted to the
Graduate School of Public Policy,
The University of Tokyo

Supervised by Professor Hideki Kanda
Graduate Schools for Law and Politics,
Graduate School of Public Policy,
The University of Tokyo1

Acknowledgement
I would like to express my gratitude to my advisor Professor Hideki Kanda for thecontinuous support of my study. His patience, encouragement and experience in the field has
not only guided me but also inspired me to approach the subject matter in different
perspectives.
I would also like to thank my family, my mother Nancy Wang and younger brother
Steven Liu, who supported my decision to come to Japan in order to pursue studies in the areaof public policy.

2

Abstract
According to A Nation of Immigrants published in 1958 by former US president
Kennedy, immigrants were “American History”. Indeed, immigration can be said as part of
the national development for the United States. Without immigrants, colonial states of the
British Empire in North America would not become United States of America as one knows
today. To Canada however, immigration is regarded as an area of public policy (Hawkins,
1988, p.34) that serves various purposes by the authorities. First, immigration is considered toposition Canada as a multi-culture accepting nation that can be well recognized by its people,
in particular, the founding citizens from the British and France. Hence, multiculturalism is
implanted to sustain the nation. Other notable reasons are economic. Though immigration is
not identically categorized for the US and Canada on the North American continent,
immigrants played an indispensible role in both countries. Today, both nations alike
implement immigration policies to attain economical goals and growth.
The paper attempts to examine in a bird’s eye view the economical roles immigration
plays in North America and how policies have evolved and applied in recent times. Equations
in line with the policies are examined. As one will observe, immigration policies devised by
the authorities in North America adjusts their programs according to the changing economical
conditions. Given that neoclassical economical theoretical framework states that theeconomical output or gross domestic product (GDP) is composed of primarily labor, human3capital and tangible capital. The study will show that immigration policies applied in North
America shifts the point of focus from attracting labor exclusively, to human capital and thentangible capital. Upon demonstrating that immigration policies of the North Americancountries have significantly contributed to their respective economies, the study will examine
Japan as it is the only nation among the G7 member countries that continues to decline such
immigration polices despite the decrease of its domestic labor, human capital and tangible
capital. Finally, the study would like to acknowledge that immigrant policy such as theimmigrant investor program established and implemented by the United States of America
and Canada provides one of the ways for the Japanese authority to combat population
declines and national deficit.

4

Table of Contents
1. Introduction………………………………………………………………………………… 7
1.1 The Demand for labor………………………………………………………………. 7
1.2 Theoretical framework: the demand for labor……………………………………… 9
1.3 Theoretical framework: population…………………………………………...…… 10
1.4 Demand for human capital…………………………………...…………...……….. 12
1.5 Demand for human capital exceeds supply…………………………...…………… 13
1.6 Population contributes to economical progress………………………………...….. 16
1.7 Theoretical framework: incorporating human capital………………………..….… 18
2. Immigrant investor programs of the US and Canada compared…………..…………...…. 19
2.1 Immigrant investor program – Canada………………………………………...….. 20
2.2 Contribution to the Canadian economy……………………………………………. 21
2.3 Consumption contribution to Canada……………………………………………… 22
2.4 Government revenue and investment contribution to Canada……………….….… 23
2.5 Net export contribution to Canada…………………………………………...…… 25
2.6 Economical impact of the immigrant investor program to Canada as at 2010...….. 25
2.7 The immigrant investor program of Canada, as of 2012………………………..… 27
2.8 Immigrant investor program – United States of America………………….……… 28
2.9 Contribution to the United States economy……………………………...………... 32
5

2.10 Government revenue contribution to the US.......................................................... 33
2.11 Investment contribution to the US........................................................................... 35
2.12 Consumption contribution to the US…………………………………………..… 36
2.13 Net export contribution to the US………………………………………….…..... 36
2.14 Economical impact of the immigrant investor
program to United States as at 2010………………………………….……. 36
2.15 Summary of comparisons………………………………………………………… 38
3. Conclusion: suggesting Japan to reconsider its immigration policy…………………….. 40
3.1 The Demand for labor in Japan............................................................................... 40
3.2 Demand for skilled labor in Japan……………………………….…………….….. 42
3.3 Attracting individual foreign capital to Japan…………………………….………. 45
3.4 Positive effect on reducing national deficit of Japan……………………………… 46
References…………………………………………………………………………………… 53

6

1. Introduction
As defined by dictionary, the term “immigration” stands for the movement of non-native
people into a country in order to settle there. It can be said that the modern immigration“begins in Europe, (…) before the industrial revolution.” (Hofstetter, 1984, p.31). Peasants,
labors, and families change their settlements to urban areas in correlation with theavailabilities of economical opportunities. As the economy expand exponentially along withthe border, opportunities also stretch greatly into more far reaching lands for foreign citizens.

1.1 The Demand for labor
The earliest governing bodies that advertise immigration and its opportunities to the
public, was perhaps the local colonial governments in North America of the British Empire in
1609. The demand for settlement to the American continent was critical at the time as labor
was in great need to “cultivate the virgin land of the new world.” (Jacobson, 1998, p.48).
Since population was indispensible to process raw materials back to the mother country andalso consume the finished goods produced as a result, one of the major incentives for nations
throughout history was to establish colonies in order to pursue economical interests.
In fact, the demand for people was so great during the colonial era until 1775 to theextent that new settlers were provided with free transportation, food equipment, land andother supplies. And to create a greener grass on the other side image, colonial government
7

devised official schemes to increase property values, and rents on a long term basis. Other
benefits include the intangibles such as the right to vote, religious freedom and the absence ofmilitary service. To further secure new settlers, bounties or rewards were provided torecruiting agents who successfully attain headcounts of newcomers willing to relocate to the
new world.
And since the new world of North America was divided up with different colonial
governments, different states and Canada battled for immigrants. The following quotationreflects the intensity of the immigration competition in 1874: “congressmen debated a
proposal to reserve a huge tract of western land for thousands of Mennonites as an
inducement for them to come to the United States rather than to Canada.” (Jacobson, 1998,
p.56). At the time, the United States seemed to gain the upper hand in the battle for
immigrants as “Canada did not exert an independent pull on European migrants destined to
North America; rather, flows coming to Canada were part of a general transatlantic movement
to this continent.” (Green, 1976, p.5).
As social problems such as ethical and warfare between nations start to take place, sodoes the number of immigrants permissible at the time. The Quota Act of 1921 “limits theannual number of entrants of each admissible nationality to 3% of the foreign born of thenationality according to Census” (Jacobson, 1998, p.63). But even at a time of restriction,
economical motives cannot be overlooked. The same year, the US congress introduced the8principle of family unity to the immigration policy allowing families of US citizens to enterand settle in US if desired and this represented the non-quota category.

1.2 Theoretical framework: Demand for labor (L)Indeed, the era in need of immigrant labor to support the economy can be reflected by
the Cobb-Douglas production function devised in 1927 (Mankiw, 2009, p.57).

The notations are as follows:
A is the productivity level reflected by the technology of the nation
K is the amount of capital a nation possesses
L is the number of labor in the nation
α is a constant gauging the distribution of capital and labor.

To be particular, immigration policy at the time corresponds to the economical
conditions since vast number of labor (L) was in demand to develop the unexplored land of
America. Equivalently, L also becomes part of the expanding population of the North
American continent.
91.3 Theoretical framework: Population
Coupled with the great depression and high unemployment of population in the North
American continent, the immigration program had observed labors in excess of economy
demand. At this point, the economic state could be better expressed with a variation of theabove function, namely, the Solow growth model (Mankiw, 2009, p.213).

(δ+ n ) K = Y

The notations are as follows:δ is the amount depreciation or wear out of capital annually.
n is population growth rate.
K is capital.
Y is economical output.

According to the model, increasing population reduces income level per worker in any
country. To understand, a numerical example is helpful. Here, hypothetical data is shown toprovide validity. Assume the following:10

Case 1:
Population is 1,000
Population growth (n) is 2%
Capital (K) is $100.
Depreciation (δ) is $50

Solow model:($50 + 2%) * $100 = $5,002

Economy output (Y) / Population after growth = Individual income$5,002 / (1,000 * 1.02) = $4.904

Case 2:
Population is 1,000
Population growth (n) is 3%
Capital (K) is $100.
Depreciation (δ) is $50

Solow model:
11

($50 + 3%) * $100 = $5,003

Economy output (Y) / Population after growth = Individual income$5,003 / (1,000 * 1.03) = $4.8573

As revealed above, the higher the population growth, the less income each member ofthe population receives. Indicated by the hypothetical cases, each individual obtains $4.904 ofincome where population growth is 2% while one only collects earnings of $4.8573 if the
population grows at 3% annually.
Characterized by the growth of unskilled labor and hence, population in the late 1950s,
US and Canada have continued to accept labor immigrants. However, both countries began tofavor immigrants who are highly trained and skilled even unemployment of the unskilled
remained high during the period.

1.4 The demand for human capital
According to the Government of Canada Annual Report 1958-59, “Although total
opportunities for foreign labor were down, nevertheless there were still many vacancies for
professional, skilled and service workers which could not be filled by Canadians.” In fact, thedemand for the skilled labor was so critical that the number “can be absorbed in almost
12unlimited numbers” (Green, 1976, p.35).
With US gaining the lead in developing immigration policy based on individual
characteristics, the national origins quota system were abolished with the Hart-Cellar Act of1965. Under such act, immigrant applicants were given no preferential treatment regardless ofnationality and applicants were to be admitted on a first-come, first served basis (Jacobson,
1998, p.70). Before US introduced the above said policy, the Canadian government has
noticed that the US has becoming more positioned to take a more and more liberal approachin its immigration policy. In the Canadian Senate committee took place in 1946, nationaldifficulties and countermeasures towards the US policy is discussed “there was a desperate
shortage of trans-Atlantic shipping, (…) No official action had been taken on Canada’s role inhelping refugees and displaced persons in Europe, although the United States had taken swift
action in Decemeber 1945. No change had been made in the Immigration Act and theregulations which were highly restrictive. No word had been heard from the Liberal
government on Canada’s immigration policy, (…)” (Hawkins, 1988, p.82).

1.5 Demand of human capital exceeds supply
What really alarmed Canadian authorities was the shortage of skilled labor in the 1950s.
After the war, “the supply of immigrants from Europe had been declining (…), due first to thebrightening economic climate in the United Kingdom and Europe, and secondly to a lack of13

initiative on Canada’s part.” (Hawkins, 1988, p.74). Such conditions had put forth theCanadian government to expand heavily into immigrant recruiting programs overseas.
Ensured that immigrants will generate returns or national income for Canada, recruitment
expenditures were categorized as investments.

To measure effectiveness of overseas recruitment, the Canadian government devised thefollowing formula (Green, 1976, p.52):

Effectiveness of immigration recruitment (E) = ( IA * $100 ) / EX

The notations are as follows:
E is effectiveness of immigration recruitment
IA is immigrant arrivals to Canada
EX is expenditures spend on immigrant recruiting effort

14

Source: Green, 1976, p.52

To interpret, Italians became a major source of immigrants to Canada in the 1960s.
Conversely, since the authority did not intend to alter ethical demographics of the Canadian
population, less immigrant recruiting effort could be observed in Asia.
In short, such overseas recruiting effort was deemed necessary at the time for several
reasons but two major motives were as follows. First, there was a clear shortage and demandfor high skilled labor that cannot be filled by local Canadians. Second, better economical
outlook in Europe and the USA after WWII would endanger the steady supply of immigrants
to fuel economical growth in the long run causing further scarcity of labor. Foreign citizens
make decisions to immigrate based on freewill. If no proactive action on immigration is takenby the Canadian authority, the country will no longer be competitive on the international
15

scene. At the time, the government of Canada had realized that immigration had “ceased to bea (Government of Canada’s) buyers market. (…) Promotion is meaningless and unethical if
immigrants are to be encouraged one year and discouraged the next, (…) this was simply badbusiness. ” (Hawkins, 1988, p.73-74).

1.6 Population contributes to technologic progress
In line with the direction of a positive outlook on immigration on the North American
continent, the academia also begins to view population as a key driver in advancing economic
prosperity since the skilled population such as engineers, inventors, scientists and thinkers areindispensible for societies to progress. According to Michael Kremerian, a large population isa prerequisite for technological advance (Kremer, 1993, p.7). The Kremerian model states:

A= P* g

The notations are as follows:
A is technological progress of a nation
P is the population
g is the productivity of an individual16

According to the above, the technological progress is positively correlated withpopulation. Without population, technological progress will cease to exist and eventually leadto dismiss of the entire nation since one does not exist without the other.
Nevertheless the traditional Solow model stated earlier (see section 1.3) indicates that
population has negative effect on citizens standard of living since the share of earnings isfixed and more people living in the same nation only makes the pie thinner. Even so, theKremerian model revels that the productivity of an individual (g) also contributes totechnological progress of a nation. Hence, if (g) attains adequate levels, it can offset
population as the major source of technological progress (A). In other words, in pursuingeconomical growth, Canada is adopting suitable immigration policies by attracting skilledlabor yet without fundamentally altering the population characteristics of the nation as it
determines the paramount mix of (p) and (g).
Looking at the Kremerian model once again, it can be discovered the higher the
productivity of an individual (g), the more the growth of the technological progress of anation. Thus, an individual who possess more productivity (g) contributes more compared tothe average population (P). One can categorize this type of persons as skilled labor but since
their contribution to the economy is beyond average, they are also considered as an asset or
human capital to the nation.

17

1.7 Theoretical framework: Incorporating human capital
Human capital can also be reflected mathematically as well. Utilizing the Cobb-Douglas
production shown earlier as base, it is suggested that human capital can be incorporated into aquantifiable model in 1992 (Mankiw; Romer; Weil, 1992, p.11):

Y = A * [ K ^ (α) ] * [ L ^ (β) ] * [ H ^ ( 1 – α – β ) ]The notations are as follows:
A is the productivity level reflected by the technology of the nation
K is the amount of capital a nation possesses
L is the number of labor in the nation
H is the human capital in the nation
α is a constant gauging the distribution of capital.
β is a constant gauging the distribution of labor.
1 - α - β represents the residual constant gauging human capital

In short, the model classifies human capital apart from the traditional population
category. Consequently, human capital serves a role different from population. While positive
population growth (n) structures the standard of living of each individual in the economy to18

be lower, human capital (H) now provide the task of contributing positively to the grossdomestic output (GDP) of an economy.
Having implemented immigration policies aiming at expanding economical growth bysatisfying labor (L), and later human capital (H), the Canadian government has taken anotherstep forward in introducing another class of immigration plan known as the immigrant
investor program to capture the remaining part of the equation, the tangible capital (K) in1985. In contrast to North American experiences in immigration, this time, the Canadianauthorities took the lead and the US launched a comparable program or EB-5 program(employment based immigration – fifth preference) five years later as part of the Immigration
Act of 1990.

2 Immigrant investor programs of US and Canada compared
Here, the paper will proceed to provide an overview of the immigrant investor program
in both US and Canada. Since Canadian authorities went in front of introducing this kind of
immigration in 1985, the Canadian immigrant investor program will be explained first,
followed by the US program, which is initiated in 1990.

19

2.1 Immigrant investor program – Canada

Source: Ware, Fortin & Paradis, 2010, p.10

In the above program description at 2010, the potential investor is required to invest
CAD400,000 and own a minimum of CAD800,000 at the time of application and prove thathe or she possesses an adequate business experience. The fund will be returned to theapplicant guaranteed without interest after living in Canada for five years. During the five
year period, the government of Canada will manage the fund on investor’s behalf in
expanding the local economy. The investor need not to be active in managing the funds during
the five year period. Hence, the program is uniquely characterized by its “passive nature.”
It will be known in the next sections that the immigrant investor program of the UnitedStates can be characterized as “active” since it requires the immigrant to invest into theprivate companies (hence, the economy) directly without any publically owned channels in
the investing process. Therefore, the US program entails more risk to the investor as theinvested funds required by the plan is not guaranteed in any way by the United States20

government. In exchange, immigrants investing in to the United States EB-5 will have morechoices in selecting investments.
Coming back to describing the Canadian program, below are examples on how
provincial governments utilize the invested funds.

Source: Ware, Fortin, Paradis, 2010, p.19

2.2 Contribution to the Canadian economy
How this scheme benefits the overall Canadian economy is explained here. Given thenational income accounts identity (Mankiw, 2009, p.27):

Y = C + I + G + NX

The notations are as follows:21

Y is gross domestic product (GDP).
C is consumption
I is investment
G is government revenue
NX is net exports

GDP (Y) can be defined as the sum of consumption (C), investment (I), government
purchase / spending (G) and net exports (NX), or Y = C + I + G + NX. Hence, the net
contribution that the Canadian government receives can also be categorized in the same way.
The paper now proceeds to look at how the immigrant investor program contributes to theoverall Canadian economy in the year of 2010 in each category of the equation.

2.3 Consumption contribution to Canada
In terms of consumption, it is estimated that over 90% of the immigrants make realestate purchases in Canada upon their arrival as shown in the table below (Ware, Fortin &Paradis, 2010). The property purchase, combined with durable expenditures for family andpersonal use, accumulates up to CAD721,500 per family as at 2010.

22

Source: Ware, Fortin & Paradis, 2010, p.26

2.4 Government revenue and investment contribution to Canada
Regarding government revenue, since the investor is to invest CAD400,000 with 0%interest, the government of Canada will receive a gain from the difference between the five
year Canadian bond yield as at 2010 (given 4%) and 0%; due to time value of money:

FV / [ ( 1 + r ) ^ t ] = PV

The notations are as follows:
FV is future value of money23

r is interest rate yieldt is time in annuals
PV is the present value of money

In other words, as at 2010,
FV = CAD400,000
r = 4%
t = 5 years

Utilizing time value of money,
CAD400,000 / [ ( 1 + 0.04 ) ^ ( 5 ) ] = CAD328,771

The government of Canada will be entitled the difference of CAD400,000 and
CAD328,771 or CAD71,229. Subtracting related administrative cost of CAD26,437 as at2010, total net benefits per family to the Canadian government or (G) totaled at CAD44,792
for the year 2010.
To be more precise, since the government of Canada prorates and distributes theinvestment (I) of CAD400,000 into the Canadian business community for investment purpose
during the five year investment period, the combined net amount of investment (I) and24

government (G) received from the program totaled CAD44,792.

2.5 Net export contribution to Canada
Last but not the least, Canadian net export (NX) also enjoyed an annual increase of
CAD15,000 as a result of business expansions inside the Canadian economy in the area ofinternational trade. Recall that the program requires the potential investor to possess a level ofbusiness experience at the time of application, a number of investor immigrants have brought
their knowhow and business contacts from the former country of residence to Canada. The
knowledge transfer has thus benefited numerous Canadian companies annually.

2.6 Economical impact of the immigrant investor program to Canada as at 2010
To summarize, annual increases in GDP can be broken down with:

Consumption (C) = CAD721,500
Sum of Investment (I) and Government revenue (G) = CAD44,792
Net Export (NX) = CAD15,000

Putting the equations together, annual economical impact to the Canadian economy perfamily is:25

(C) + (I) + (G) + (NX)
CAD721,500 + CAD44,792 + CAD15,000 = CAD781,292

Given the number of families admitted in 2010 approximately totaled 2,500 families, thetotal aggregate economical contribution to the Canadian economy annually is nearly CAD2
billion.

Another approach to achieve the same conclusion is provided by Canadian economists:
Roger Ware, Pierre Fortin and Pierre Emmanuel Paradis. Their methodology is based on thefollowing equation (Ware, Fortin, Paradis, 2010, p.32):

Benefit – Costs =[ foreign cash inflows – program costs ] + [ productive use of investor funds ] + [ asset
purchase and consumption + production + integration – social costs ].

Using the same figures, this paper verifies that the Canadian immigration investor
program indeed contributes positively to the Canadian economy by categorizing economical
growth in terms of consumption (C), investment (I), government (G) and net exports (NX)26

with national income accounts identity of [ Y = C + I + G + NX ]. It showed an alternative
way to derive the same conclusion the program’s net economical contribution to Canada isnearly CAD2 billion.

2.7 The immigrant investor program of Canada, as of 2012.
At the time of this writing, the Canadian government has doubled hence marked up therequired amount of investment from CAD400,000 to CAD800,000 and the required net worthof an immigrant investor to be at least CAD1,600,000 as shown below from the web pageextracted from the government of Canada (CIC, 2013):

Source: Government of Canada, Citizenship and Immigration Canada (CIC), 2013.

With net economical contributions from the program fuels annually to the Canadian
economy, it is not surprising to see that this is one of the policies that append to the Canada’s
27

declining debt to GDP ratio as it is expected to reach 33% at 2016 according to theInternational Monetary Fund (IMF) mentioned by Diane Brady in her Bloomberg article “Is
Canada too smug about its economic future?” dated 25June2012.

2.8 Immigrant investor program – United States of America
In the US, the immigrant investor program is known as EB-5. It is part of the
Immigration Act of 1990 to promote non-US citizens to invest in the US. Under the program,
applicants interested in becoming an US citizen must invest non-borrowed $1 million in a US
business that will create 10 jobs for the domestic population in the US as shown from the US
government website below (USCIS, 2013):

Source: US Government, US Citizenship and Immigration Services (USCIS), 201328

Source: US government, US Citizenship and Immigration Services (USCIS), 2013

Form I-526 is required to initiate the process and can be obtained from United States
Citizenship and Immigration Services (USCIS) offices or the designated website without costto the applicant as shown in the below information taken from the US government (USCIS,
2013):

Source: US Government, US Citizenship and Immigration Services (USCIS), 201329

To ease research burden and streamline the investment process, “regional centers” serveas the one point contact between foreign investors and eligible companies that invites foreign
capital. The regional centers are private firms approved by the US government to serve as the
middlemen in the immigration by investment process. The regional center definition is givenby the US government shown below (USCIS, 2013):

Source: US Government, US Citizenship and Immigration Services (USCIS), 2013

There are nearly 300 of the centers all over the United States and each one has its own
expertise in their local area and particular knowledge in specific industries as shown in thedescription given by the US government below (USCIS, 2013).

30

Source: US Government, Citizenship and Immigration Services (USCIS), 2013

Once approved, the applicant will be required to invest as prescribed and will also be
granted a relevant visa to stay in the US for two years. The investor is allowed to apply thevisas to all dependants if he/she chooses. After living and investing consistently andconsecutively for two years, the US government will examine the investment conditions of
the applicant and if the investment is satisfactory made without illegal activities, permanent
residence status (green card) will be granted to the investor and the dependents.
After the investment period of five years, the applicant will have the right to apply for
the United States Citizenship. Upon naturalization, the investor is free to continue or
withdraw the investment without affecting his or her status as an US citizen.

312.9 Contribution to the United States economy
How this scheme benefits the overall United States economy is explained here. The
figures will be mainly based on the “Study of the United States Immigrant Investor Pilot
Program (EB-5)” conducted by the ICF International. Available annual figures derived fromthe 2010 study are based on investments made between the years of 2001 to 2006. Since theimmigration policies implemented by both nations are not exactly identical, the figures might
not correspond to the immigration investor program of the other country. Nevertheless, it isbelieved that a reasonable comparison can take place. Given the national income accounts
identity (Mankiw, 2009, p.27):

Y = C + I + G + NX

The notations are as follows:
Y is gross domestic product (GDP).
C is consumption
I is investment
G is government revenue
NX is net exports

32

As before, GDP (Y) can be defined as the sum of consumption (C), investment (I),government purchase / spending (G) and net exports (NX), or Y = C + I + G + NX. Hence,
the net contribution that the US government receives can also be categorized in the same way.
The paper now proceeds to look at how the EB-5 immigrant investor program contributes tothe overall US economy annually in each category of the equation.

2.10 Government revenue contribution to the US
The federal government of the United States received over USD100 million in tax
revenues. Of which, over 50 percent are composed of social insurances taxes, 36 percent are
personal taxes and the rest are composed of corporate taxes and indirect business taxes. Suchamounts are demonstrated in the graph shown below (ICF International, 2010):

Source: ICF International, 2010, p.24
33

The State governments also obtained a significant amount of tax revenues through theimmigrant investor EB-5 program; up to over US62 million in taxes is collected by theauthority. On average, 67 percent of the total taxes received are indirect business tax, 21
percent attribute to personal taxes while the rest are composed of taxes related to theinvestment such as taxes from dividends, corporate profits as shown in the below table (ICF
International, 2010).

Source: ICF International, 2010, p.25

Finally, as major source of federal and state tax revenues are generated from the34

investments made, personal consumptions and medical insurances registered as prescribedunder the United States immigrant investor program and local authorities, time value ofmoney calculations are not relevant with regards to EB-5.

2.11 Investment contribution to the US
As required, EB-5 investors are obligated to make at least USD1 million investment into
the US economy. With an average of about 69 immigrants made investments to the UnitedStates economy every year through EB-5, the amount under the investment category is at an
average of USD69 million annually and approximately up to USD416 million in the period
between 2001 to 2006 year end as shown in the table below (ICF International, 2010):

Source: ICF International, 2010, p.21
35

2.12 Consumption contribution to the US
While no details on the specifics of items that the immigrants spend on consumption, theamount in this category is up to USD284 million from 2001 to 2006. Given that the amountrepresents the six year period, approximately USD47.4 million is generated per year on
personal spending. With 69 immigrants annually, each investor contributes up to USD681,160
for the US economy every year.

2.13 Net export contribution to the US
And since no studies or survey is conducted with regards to how the EB-5 program
affects international trade, this category is not relevant to be included.

2.14 Economical impact of the immigrant investor program to United States as at 2010
From 2001 to 2006, the EB-5 program has contributed up to USD862 million into the
US economy. As one of the program aims is to generate employment, the goal is fulfilled asshown. The industry in which the jobs are been created is directly related to the field ofinvestment selected by the immigrant. With majority of investments concentrated in the realestate industry, the subject sector also observe the largest number of jobs generated asdemonstrated in the table below (ICF International, 2010).
36

Source: ICF International, 2010, p.21

To summarize, annual increases in GDP can be broken down as follows:

Consumption (C) = USD284 million
Investment (I) = USD416 million
Government revenue (G) = USD162 million

In all, putting the equations together, annual economical impact to the United States economy
from 2001 to 2006 in aggregate is:(C) + (I) + (G)USD284 million + USD416 million + USD162 million = USD862 million

37

Divide the above with 6 (six years from 2001 to 2006):
USD862 million / 6 years =USD143.7 million of annual contribution to the GDP of the US economy

And with the number of investor immigrants averaged at 69, the annual contribution to the
US economy per approved investment is approximately:
USD143.7 million / 69 families =USD2 million

2.15 Summary of comparisons
For simplicity, below is a summary of the figures discussed; GDP Contribution of the
Immigrant Investor Program of US and Canada compared on a per year basis:
Countries:

Consumption

Investment

Government

Net Export

GDP

(C)

(I)

Revenue(NX)

Contribution(G)US$47,400,000$69,400,000$27,000,000

(Y)
Not

$143,800,000

Available
Canada$1,803,750,000$111,980,000$37,500,000 $1,953,230,000

Assume USD1 = CAD1
38

Now, the Cobb-Douglas production is presented again below (Mankiw; Romer; Weil, 1992,p.11):Y = A * [ K ^ (α) ] * [ L ^ (β) ] * [ H ^ ( 1 – α – β ) ]Our study has revealed that countries discussed have exerted great efforts to complete
the above formula. National needs of the equation also evolve with the times and economical
environment. As early as 1609, labor (L) was greatly sought by colonial governments tocultivate untouched lands of North America. Later, during the 1950s after World War II, thegovernments have discovered the need to fill positions of human capital (H) as certain
specialized tasks can only be performed by immigrants. Finally, the presence of tangible
capital (K) is indispensible to increase domestic investment and allow the subject economies
to continue growth of the gross domestic output (Y). The introduction of immigrant investor
program is crucial in this development as it attracts (H) and (K) as a bundle package to attaina bigger (Y). With the global landscape becoming ever more competitive, obtaining (H), (K)and (Y) has become a major public policy for nations. Of the recent trend, policies regarding
immigration have expanded from only focusing on refugees to attracting capital. In fact, toensure consistent capital inflow, major developing countries have joined the contest for39

immigrant investors including Mainland China, Hong Kong, Singapore, Taiwan, Malaysia
and other EU countries. Concerning the number of such programs is on the rise, attracting
foreign capital to a particular economy is becoming more competitive and more countries
have concluded that the economical benefits of such programs clearly outweigh the cost.
At last, the paper will proceed to focus on Japan, the only developed G7 country without
an investor immigration policy.

3. Conclusion: suggesting Japan to reconsider its immigration policy
Now the paper shifts the focus from the North American economy to Japan, the third
biggest economy in the world and the biggest advanced economy in Asia. Alike the North
American counterparts, Japan also experienced a shortage of labor historically and had
foreign labor to fuel its economy.

3.1 The Demand for labor in Japan
The period in which Japan began to accept an influx of labor can be observed beginningin the late 1910s due to the economical boom from the first world war. The Chinese andKoreans represented the majority of foreign labor as recruited workers from trading
communities. To cope, the government of Japan initiated immigration policies focusing on
foreign labor restrictions and deports conditions under the Imperial ordinance No.352 or the40

first immigration act in the modern history of Japan. Nonetheless, foreign labors were
accepted subject to economical situations and the labor market. Hence, when economicalboom was experienced, mutual beneficial relationship was observed from increased
production compensated by acceptable wages as influenced by market forces. However, sinceforeign labors were at large unskilled, they often fell into the victim of layoffs during theperiods of recession and also became an unwanted category by various domestic stakeholders
in Japan such as their original employers, contractors and domestic workers.
In this nature, many viewed foreign workers as seasonal or replaceable hence thegovernment of Japan did not recognize them as long term participants in the Japanese society.
Therefore while deport conditions were in effect, naturalization or assimilation policies
towards foreign labor were nonexistent.
In 1938, the National Mobilization Law (Kokka Sodoin Ho) gave the Japanese
government direct controls on the recruitment, deployment and management of labor. The
collective deployment of colonial labor was approved by the cabinet in 1939 and the policy
continued until 1945. Hence, supply of foreign labor was largely replaced by involuntarily
recruitment from colonies. Market forces in the labor market were absent until 1950 post
WWII. From 1950 and into 1970s, labor shortages were filled by inter-industrial, internalmigration and a handful of second generation Chinese and Koreans (Douglass & Roberts,
2000, p.42-44).
41

3.2 Demand for skilled labor in Japan
Nevertheless, with the Eugenic Protection Act (Yuseihogoho) of 1948 sanctioning
abortion on demand, the resulted sudden decline of 40% birthrate (Matsutani, 2006, p.4-5)
contributed to the exhaustion of labor and human capital in the 1980s. As such, Immigration
Control and Refugee Recognition Law (ICRRL) was revised in 1990 so as to expand
categories of legal residence and employment of skilled labor. In essence, the immigration
principals of Japan were based as follows:

Source: Douglass and Roberts, 2000, p.60

One can observe that the above immigration principles are in stark contrast with theimmigration policies implemented on the North American continent in which citizenship are
granted after a few years of consecutive stay and family unity being as one of the main42

principles embedded in the Western immigration policies, developed in the 1920s (see section
1.1 The demand for labor). Even though the government of Japan has identified the need to
attract foreign labor to fuel the economy, utilization of foreign labor is essentially different
with the North American counterparts. Foreign labor, skilled or unskilled, only offer shortterm benefits to the economy of Japan at best. To the government, long term stay of foreignlabor, including education for the children of migrant workers represents social cost
outweighing economical benefits. In fact, one research from the Japanese academia asserts
that: “foreign workers are a stopgap solution that would simply postpone Japan’s
demographic day of reckoning. They might allow Japan to forestall the shift to negative
economical growth. They might even alleviate the funding shortfall in the nation’s pension
system. But like government bonds issued to fund fiscal deficits, they would simply shift the
problem to future generations. To whatever extent they alleviated problems for Japan today,
they would magnify the problems of economic decline and pension underfunding that will
confront posterity.” (Matsutani, 2006, p.17).
This view thus asserts that even economical benefits of foreign labor or human capitalbring more harm to Japan than good. In sharp contrast, authorities in the North American
continent have a different interpretation. Already in the 1950s, the government of Canada
already categorized human capital as investments that contribute definite long term
economical benefits and are indispensible to maintain national competiveness on an
43international stage (see section 1.5).
Since no major changes have affected the revision of the ICRRL in 1990, one can referto the below to understand the seriousness and severity of labor and human capital in the longrun as shown from the data extracted from the United Nations (Matsutani, 2006) and OECD
(Chung, 2010):

Source: Matsutani, 2006, p.11

44

Source: Chung, 2010, p.41

3.3 Attracting individual’s foreign capital to Japan
Before 1985, one might find hard to observe the positive relationship between
immigration and tangible capital. But as one can observe in section 2 of this paper, authorities
on the North American continent successfully bundled tangible capital and immigration into
one package. Rather, without the convenience of extended stay in the country of interest,
typical individual investors might be reluctant to place investments in a foreign country, as
shown:

45

Trading volume by investor type Tokyo, Osaka & Nagoya; units in 1,000 shares

Source: Tokyo Stock Exchange, 2013

The above data indicates that foreign individual investors were only composed of lessthan 0.3 percent compared with their institutional counterparts for the year 2012. One canobserve sharp contrast with individual investments received by the US and Canadianauthorities with the presence of the immigrant investor program (see sections: 2.1, 2.11).

3.4 Positive effect on reducing national deficit of Japan
It is revealed that Japan’s total debt has exceeded over USD14 trillion (assuming
approximately CAD1 = USD1) or attaining over 200% of GDP. If Japan is to adopt anequivalent immigrant investor policy as in US or Canada, it will be possible to narrow down
Japan’s debt to GDP ratio. Assuming that the achieved economical impacts corresponds to thetype of investor program, one can derive the number of years required for Japan to equalize
total economical surplus and deficit with the present value of the growing annuity formula:

PV = ( pmt * n ) / ( 1 + r )46

The notations are as follows:
Pmt is the annual payment or economical contribution for the immigrant investor programr is the growth of potential immigrant investors selecting Japan
PV is present value required to attain (or eliminate) the Japanese deficit of USD14 trillion
n is the number of years required

Assume that Japan takes immediate actions to implement the said immigrant investor
program, the number of years (n) it requires to achieve the complete removal of the national
deficit differs depend on the policies selected:

Hypothetical case 1: if Japan to adopt the US EB-5 policy
Given the national deficit of Japan (PV) at USD14 trillion, the growth of immigrant
investor settling in Japan (r) at 10 percent and annual economical contribution as a result of
the immigrant investor program at USD143.8 million, the number of years required for Japanto eliminate her debt can be derived as follows:

USD143.8 million * n / 1 + 10% = USD14 trillionn = 10,800 years
47

From the above, if Japan adopts the EB-5 system and assuming that it has achieved its
intended results, it will take up to 10,800 years to reach a breakeven point equalizing national
surplus and national deficit.

Hypothetical case 2: if Japan to adopt the Canadian immigrant investor program
Presuming that the Japanese authorities apply the Canadian model of the immigrant
investor program, given again that the national deficit of Japan (PV) at USD14 trillion, thegrowth of immigrant investor settling in Japan (r) at 10 percent and annual economical
contribution as a result of the immigrant investor program at nearly USD2 billion, the numberof years required for Japan to eliminate her debt can be derived as follows:

USD2 billion * n / 1 + 10% = USD14 trillionn = 7,700 years

From the above, if Japan adopts the Canadian system and assuming that it has achieved
its intended results, it will take up to 7,700 years to reach a breakeven point equalizing
national surplus and national deficit.

48

For simplicity, the comparison can be better observed as follows:
Countries

Economical contribution

Years for the Japanese
government to achieve
breakeven(n)

US

USD143.8 million

10,800 years

CanadaUSD2 billion

7,700 years

Regrettably, the government of Japan merely eyes and targets local citizens as the only
source of government revenue and primary solution to the country’s problems and more taxes
increases and pension decreases are expected post 311 earthquake. In other words, theJapanese authorities spending leads to more taxes and Japanese are worst off gradually. In thepresence of this trend, more Japanese choose to leave the country. According to the Ministryof Foreign Affairs of Japan (MOFA), the number of Japanese departing the nation
permanently increases by 2% per year, mounting over 1,130,000 of Japanese population as at
2009; as at the end of 2011, the total number of Japanese leaving the country permanently isover 1,175,000. The above, accompanied with natural declining population, only adds fuel tothe fire. To maintain sustainable Japan, the government should think critically with regards tocollecting revenue from alternative sources. Otherwise, Japan will only have a one-sided
49

population outflow that contributes more to the underperformance of its demographic
dividend. Possessing declining population in essence, according to the Harvard University
Professor, N.Gregory Mankiw, quoting from works of Michael Kremer, a nation such as theFlinders Island with a “few people to contribute new innovations, Flinders Island had the least
technological advance and, in fact, seemed to regress. Around 3000 B.C., human society on
Flinders Island died out completely.”
The study does not imply that the government of Japan must take the said immigrant
investor programs word for word. In fact, the authorities can adjust and tailor such programs
to its national needs. For instance, the government of Japan can require potential applicants toinvest in real estate or stocks without guaranteeing investment returns as seem in the
Canadian model. Also, the number of investing applicants to be admitted and the amount ofinvestment can be adjusted accordingly by the needs of the economical environment. If it isunprepared to introduce the immigrant investor program to the world, it can test market in
specific regions or countries. For instance at the initial stage, the government of Japan can
exclusively permit applications from citizens of the developed G7 members countries, or
consider citizens from the neighboring countries or regions such as Korea, Singapore, Taiwan,
Hong Kong or China, etc.
One might argue against the such policy as there could be costs associated in setting
such program in Japan while the number of potential applicants cannot be guaranteed. There50

are several reasons to counter this argument. Human beings constantly seek to improvestandard of living. As depicted by Norman Rockwell in his “four freedom” series, individuals
fight and aim to obtain the freedom from want. Japan is one of the developed countries withthe highest living expectancies, GDP per capita and hence standard of living. Any sensible
accomplished investor would be interested in living and settling down in Japan. Below is ananalysis showing possible immigrant investors around the globe:

Source: Ware, Fortin, Paradis, 2010, p.42

Major motives that will induce potential investors to Japan will be similar, if not
identical, to the motives of immigrant investors who would otherwise choose US or Canada.
In summary, the reasons are that the countries discussed, both US and Canada, are firstclass countries that possess a better quality of life, new professional and educational
opportunities, stability and respect for rules of law. Therefore, as a developed neighbor, Japanpossesses almost identical quality traits that attract the same cohort of potential immigrant
investors. Different regions have different settling demands, and perhaps in Asian developing51

regions, possessing a stake in Japan could also be a symbol of status or insurance for theinvestor. In all, the government of Japan must have flexibility in adjusting to the demands ofeach market. The initiative here is that the authorities must continuously evaluate its national
strengths in comparison with the rest of the world. Upon acknowledging what it is, it isnecessary to form a bridge between its supply and the global immigrant market. If the country
continues to remain idle in the attaining labor (L), human capital (H) and tangible capital (K)in accordance with the production equation, Japan will remain a country that “resembles
Europe in the 1960s, based on the long-accepted maxim of international law that every
sovereign nation has the right to “forbid the entrance of foreigners within its dominions, or toadmit them only in such cases and upon such conditions as it may see fit to prescribe.”(Hofstetter, 1984, p.30). It is the responsibility of the Japanese government to consider andobserve countries not only the United States and Canada with regard to policies relating to an
immigrant investor program as one of the possible ways to: “stopping and reversing the rise in
the debt-to-GDP ratio” as warned by the OECD economics reports of 2013.

52

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[4] Green, Alan G., “Immigration and the Postwar Canadian Economy”, The Macmillan
Company of Canada, 1976
[5] Mankiw, N. Gregory, “Macroeconomics”, Worth Publishers, 2009[6] Hawkins, Freda, “Canada and Immigration – Public policy and public concern”,
McGill-Queen’s University Press, 1988
[7] Kremer, Michael, “Population Growth and Technological Change: One Million B.C. to1990”, Quarterly Journal of Economics 108, 1993
[8] Mankiw, N. Gregory, David Romer and David N. Weil, “A Contribution to the Empirics ofEconomic Growth”, Quarterly Journal of Economics 107, 1992
[9] Citizenship and Immigration Canada, Government of Canada, 2013[10] US Citizenship and Immigration Services, US Government, 2013[11] Ware, Roger, Pierre Fortin and Pierre Emmanuel Paradis, “The Economic impact of theimmigrant investor program in Canada”, Analysis Group, 2010[12] Brady, Diane, “Is Canada too smug about its economic future?”, Bloomberg, 25June2012[13] “Study of the United States Immigrant Investor Pilot Program (EB-5)”, ICF
International, 2010[14] Riley, Charles, “Even Abenomics can’t ignore Japan debt”, CNN Money, April23, 2013.
[15] Matsutani, Akihiko, “Shrinking-Population Economics”, LTCB International House ofJapan, 2006[16] Douglass, Mike and Glenda S. Roberts, “Japan and Global Migration”, Routledge, 2000
[17] Chung, Erin Aeran, “Immigration and Citizenship in Japan”, Cambridge University Press,
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Exchange, 201354