From Positive to Negative "Mass": The Push and Pull Impact of Bilateral Foreign Aid on Bilateral Immigration

I've written before about the impact of foreign aid on immigration, a subject that, to date, hasn't received thorough attention by political scientists, economists, or international political economists. Though the intersection of foreign aid and immigration has gone understudied, a fuller understanding of the consequences the former has for the latter would go a long way in helping policymakers in wealthy donor countries better measure the usefulness of foreign aid as an immigration policy tool.

So far, research has shown both that donors use foreign aid to promote development in migrant-sending countries in an effort to reduce the demand for bilateral migration and that migrants residing in donors lobby their host countries to send more aid to their various countries of origin. The impact that foreign aid has on the demand to immigrate, however, has not received much serious consideration by scholars.

The Curvilinear Impact of Foreign Investment on Bilateral Migration

I've previously shown that, to the contrary of donor intentions, foreign aid is associated with an increase in bilateral migration: that is, when donors increase foreign investment, the result is an increase in migration from the country that was on the receiving end of said foreign investment. However, in my thesis, I showed that the modeled impact of foreign aid on immigration has slightly more explanatory power when one assumes the relationship between foreign aid and immigration is curvilinear rather than linear. In other words, more than simply having a positive, linear effect on bilateral migration, bilateral foreign investment has an inverse-U curvilinear effect on bilateral migration.

The curvilinear impact of foreign aid on immigration is presumably a consequence of two important, though divergent, characteristics of foreign investment: 1) it magnifies the donor's wealth because it touches the recipient in a more direct way than the perception of donor wealth from afar, and 2) if properly used, it promises economic development for the recipient.

The balance of these characteristics is largely determined by quantity: the total rate of bilateral investment must be substantial enough for the perceived promise of development to outweigh the attention an increase in foreign investment brings to the donor. At lower rates of investment, the latter outweighs the former, and as a result the rate of bilateral migration increases. At higher rates of investment, the former outweighs the latter, resulting in a decline in bilateral migration.

What I have yet to explore, until now, is whether the curve of bilateral foreign aid's effect on bilateral migration varies between donors as a consequence of donor wealth. Is the equilibrium point between characteristics 1 and 2 of foreign aid higher for wealthier countries since they have more wealth to project?

The Impact of Foreign Aid on Immigration: the Wealthiest vs. the Least Wealthy Donors

The answer to the above question appears to be yes. The below figure displays the model predicted rate of bilateral migration into the wealthiest (The US, Japan, Germany, France, Italy, and the UK) and into the least wealthy (New Zealand, the Netherlands, Norway, Switzerland, Finland, and Denmark) donors included in my dataset. The models control for numerous factors that have a likely impact on bilateral migration.

Among the least wealthy donors, the threshold from positive to negative impact is reached at a much lower rate of bilateral investment. If I show the rate of change in the dependent variable as bilateral foreign aid varies, the points at which bilateral foreign investment reach critical mass per model is slightly clearer. Not only does the expected rate of change in the magnitude and direction of bilateral foreign aid's impact cross the threshold from positive to negative at a much lower rate of total investment for the least wealthy donors, the predicted point at which the effect of foreign aid from the wealthiest donors reaches critical mass exceeds the maximum level of bilateral foreign investment observed within the set of cases included in the analysis.

Foreign Aid: A Double-Edged Sword

Like most human activities, the consequences of which rarely are straightforward, the allocation of foreign investment has greater significance than the mere monetary value of said investment. More than a material good that has the potential to promote development, aid is a symbol of affluence, of abundance. Donor status signals to other countries the possession of wealth sizeable enough to permit, for lack of a better term, altruism. As a result, recipients of aid are forced to consider, not only the material benefits the reception of aid carries, but also the economic inequality between themselves and the donor that merits the allocation of aid.

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For technical details and R code used for this analysis, see my GitHub repository for this project.