WPS3906

# **How Important is Selection? Experimental versus Non-Experimental Measures of the Income Gains from Migration**<sup>**1**</sup>

David McKenzie, _Development Research Group, World Bank*_ John Gibson, _University of Waikato_ Steven Stillman, _Motu Economic and Public Policy Research_

## **Abstract**

Measuring the gain in income from migration is complicated by non-random selection of migrants from the general population, making it hard to obtain an appropriate comparison group of non-migrants. This paper uses a migrant lottery to overcome this problem, providing an experimental measure of the income gains from migration. New Zealand allows a quota of Tongans to immigrate each year with a lottery used to choose among the excess number of applicants. A unique survey conducted by the authors in these two countries allows experimental estimates of the income gains from migration to be obtained by comparing the incomes of migrants to those who applied to migrate, but whose names were not drawn in the lottery, after allowing for the effect of noncompliance among some of those whose names were drawn. We also conducted a survey of individuals who did not apply for the lottery. Comparing this non-applicant group to the migrants enables assessment of the degree to which non-experimental methods can provide an unbiased estimate of the income gains from migration. We find evidence of migrants being positively selected in terms of both observed and unobserved skills. As a result, non-experimental methods are found to overstate the gains from migration, by 9 to 82 percent. A good instrumental variable works best, while difference-indifferences and bias-adjusted propensity-score matching also perform comparatively well.

Keywords: Migration, Selection, Natural Experiment JEL codes: J61, F22, C21 World Bank Policy Research Working Paper 3906, May 2006 _The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank.org._ 1 We thank the Government of the Kingdom of Tonga for permission to conduct the survey there, the New Zealand Department of Labour Immigration Services for providing the sampling frame, Halahingano Rohorua and her assistants for excellent work conducting the survey, and most especially the survey respondents. Mary Adams, Alan de Brauw, Chirok Han, Manjula Luthria, Martin Ravallion, Ed Vytlacil and participants at seminars at Columbia University, NEUDC, NZESG, DoL, the University of Canterbury, and the World Bank provided helpful comments. Financial support from the World Bank, Stanford University, the Waikato Management School and Marsden Fund grant UOC0504 is gratefully acknowledged. The views expressed here are those of the authors alone and do not necessarily reflect the opinions of the World Bank, the New Zealand Department of Labour, or the Government of Tonga. * Corresponding author: email: dmckenzie@worldbank.org. Address: MSN MC3-300, World Bank, 1818 H Street N.W., Washington, D.C. 20433, USA. Phone: (202) 458-9332, fax (202) 522-3518.