The Sound You Hear Is Your Paradigm Shifting

by Will Wilkinson on March 30, 2008

Please absorb this extremely important advance in economic methodology and basic intellectual rigor:

Income Per Natural: Measuring Development as if People Mattered More Than Places

by Michael Clemens and Lant Pritchett

It is easy to learn the average income of a resident of El Salvador or Albania. But there is no systematic source of information on the average income of a Salvadoran or Albanian. In this new working paper, research fellow Michael Clemens and non-resident fellow Lant Pritchett create a new statistic: income per natural — the mean annual income of persons born in a given country, regardless of where that person now resides. If income per capita has any interpretation as a welfare measure, exclusive focus on the nationally resident population can lead to substantial errors of the income of the natural population for countries where emigration is an important path to greater welfare. The estimates differ substantially from traditional measures of GDP or GNI per resident, and not just for a handful of tiny countries. Almost 43 million people live in a group of countries whose income per natural collectively is 50 percent higher than GDP per resident. For 1.1 billion people the difference exceeds 10 percent. The authors also show that poverty estimates are different for national residents and naturals; for example, 26 percent of Haitian naturals who are not poor by the two-dollar-a-day standard live in the United States. These estimates are simply descriptive statistics and do not depend on any assumptions about how much of observed income differences across naturals is selection and how much is a pure location effect. Our conservative, if rough, estimate is that three quarters of this difference represents the effect of international migration on income per natural.

The bottom line: migration is one of the most important sources of poverty reduction for a large portion of the developing world. If economic development is defined as rising human well being, then a residence-neutral measure of well-being emphasizes that crossing international borders is not an alternative to economic development, it is economic development.

The whole paper is here.

Note that this isn’t an argument open to some kind of refutation. It’s just a better way of measuring things — a way that makes the way the world works clearer. Seeing this alternative metric in action should help us realize just how much of profound moral importance is obscured by the economic nationalism at the foundations of conventional welfare economics. Soon enough, it simply won’t be an option for honest intellectuals to ignore the perspective Clemens and Pritchett encourage us to adopt. Paul Krugman: hello!

Viewing 9 Comments

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    So, national income is to be measured as a consequence of where you are from, not where you live, work, and earn an income? Wouldn't such a methodology make Jewish people to be the world's richest 'natural,' perhaps followed by the Chinese, and make the Hutu the poorest 'natural'?

    Is a Zimbabwean in London from Zimbabwe, or is he a 'natural' from Shona? And what of mass migrations fleeing civil wars or genocide? How does the 'natural' better measure income than GDP after abrupt mass migrations? Every line on every map of the Middle East was drawn in Whitehall or Paris a century ago. What's 'natural' about being from Libya, Iraq, Jordan, etc, when the past thousand years has been tribalism?

    How is the 'natural' methodology not merely a Trojan Horse, seeking future tax revenue from outside a national economy? Isn't this similar to liberal legislatures in the U.S. attempting to tax the daily earnings of travelling MLB or NFL ballclubs?

    Paradigm shift? Not in identity formation, but perhaps in tax collection.
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    A worthy advance, though still marinated in the same specious nonsense as that which it hopes to supplant.

    If the name of the omnipotent state in which the poor unfortunate statistical unit should happen to find himself should be held fundamentally meaningless for purposes of statistical calculation, should not, then, the name of the omnipotent state within whose territorial ambit he had the misfortune to be born be given equal - and therefore negligible - weight?

    Economic nationalism, indeed.
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    Torgo: but legal borders DO matter for economics since institutions matter. Consider the border of The US and Mexico.
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    At least the way the quote explains it, that measure already exists: Gross National Product (as opposed to Gross Domestic Product). I'm not sure why they authors claim that Gross National Income does not get to this, but I hope it's for more than the differences between income and product in national accounts.

    As a measure of development and welfare, it's iffy at best. Emigration is rarely, if ever, an intended result of a country's policies, it rather tends to be the result of institutional failures. Is Zimbabwe a more developed country if all it's nationals flee and get better jobs in SA? What if migrants get the new nationality? If changes in the immigration rules in the country migrated to affect the measured product of the country migrated from, can this be an useful development/welfare measure?

    And if we want to reduce economic nationalism, then where a person is born should matter less than where that person chooses to live. Voting with one feet should be more relevant than the accident of birth location when evaluating the institutions of a country.

    Finally, while "this isn’t an argument open to some kind of refutation", the rest of that last paragraph is. Just saying! :-)
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    Ram: the authors claim that this is different to GNP because GNP only applies to residents of a country who are overseas temporarily. They are talking about tracking the wealth of all people born in a certain place, regardless of where they choose to settle and become citizens.

    Wilkinson's rhetoric is overblown and overheated. The statistic in question is not important, not meaningful, and not relevant to anything much.

    The results reported are also horribly incorrect in many (probably most) cases, and are at best out of date.

    This "paper" stands to validate what any thinking person already knew: people who are able to do so tend to migrate towards places that give them better wealth-generating opportunities. That's why I am in the US, not Canada (where I grew up) or the UK (where I was born.) These people are merely attempting (shoddily) to measure that well-known effect. It certainly isn't important or insightful.

    Tracking the flow of remittances does a similar job, but probably better.
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    Bartman, too bad you find the analysis shoddy and irrelevant! On shoddiness: No one ever attempted it before, so if you find it poor I urge you and others to improve on it. On relevance: I'm glad you find it irrelevant, because you must therefore already be convinced -- as few people are -- that migration is a form of economic development. For others who aren't as bright as yourself, the point is relevant: Once one realizes that emigration is a principal route out of poverty for people from many countries, as we demonstrate, it becomes less and less ethical for people who have already escaped poverty to block those movements with coercive force, as we do now.
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    Michael:

    The "irrelevant" jab was aimed at Wilkinson's breathless hyperbole.

    It appears to me that you've simply invented a new metric to show that people move from poor countries to rich ones. Your metric might be novel but the point it serves to illustrate is obvious - indeed, self-evident.

    I'm sorry, at first glance I assumed your work a positivist economics paper, and criticized it thusly. After reading your comment, I see that it is in fact normative, and designed to reinforce a previously existing policy position. I mistakenly assumed objectivity, where I should have assumed subjectivity. My error, and I'll take a closer read with that in mind.

    (BTW, as a migrant and as a libertarian, I happen to agree with your policy position, but that's neither here nor there.)

    The reason I find your work shoddy is that I looked at your numbers for several Arab Gulf states (an area I am familiar with), and found your results to be laughably absurd, prima facie. I haven't read the whole thing, which I will do tonight. I'll then e-mail you if I have any constructive criticisms concerning methodology or conclusion.
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    "Once one realizes that emigration is a principal route out of poverty for people from many countries, as we demonstrate"

    Did that really require demonstration? Is there any substantial number of people (in either side of the immigration-reform debate) who don't believe that?

    And will that affect the immigration debate? The core opposition to more open immigration laws does not stem from disbelief about the welfare-improvement characteristics of migration for the immigrants, but from (populist) non-sequiturs about how it harms the welfare of the current residents.

    (Full disclosure: I'm in the US under a work visa and all for opening up the labor markets to more competition.)
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