Working Paper: CEPR ID: DP12701
Authors: David A. Jaeger; Joakim Ruist; Jan Stuhler
Abstract: A large literature exploits geographic variation in the concentration of immigrants to identify their impact on a variety of outcomes. To address the endogeneity of immigrants’ location choices, the most commonly-used instrument interacts national inflows by country of origin with immigrants’ past geographic distribution. We present evidence that estimates based on this “shift-share” instrument conflate the short- and long-run responses to immigration shocks. If the spatial distribution of immigrant inflows is stable over time, the instrument is likely to be correlated with ongoing responses to previous supply shocks. Estimates based on the conventional shift-share instrument are therefore unlikely to identify the short-run causal effect. We propose a “multiple instrumentation” procedure that isolates the spatial variation arising from changes in the country-of-origin composition at the national level and permits us to estimate separately the short- and long-run effects. Our results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal inference.
Keywords: shift-share instrument; immigration; spatial correlation; past settlement instrument
JEL Codes: C36; J15; J21; J61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| immigration shocks (F22) | local labor markets (J49) |
| immigration shocks (F22) | native wages (J15) |
| lagged immigrant inflow from the 1960s (J11) | wage growth in the 1970s (J31) |
| large immigrant flows (F22) | local wages (J31) |
| long-term adjustment (F32) | local wages (J31) |