Economics of International Migration12 Jan Brzozowski, PhD Cracow University of Economics

International Migration and FDIs Immigrant investment: the role of host country policies Case study: Canadian immigration policy

Immigrant investment Usually immigrants come with low stock of financial capital Still, it’s not about the quantity, but quality of migration flow Selected, less numerous groups of immigrants can be very beneficial to destination country

How to attract immigrant investment? Growth potential of destination economy Favorable entrepreneurship environment (rule of law, good governance, stability, low corruption etc.) Administrative incentives (fiscal instruments, admission procedures, residence&citizenship acquisition etc.)

Examples of favorable immigrant investor policies Cyprus Citizenship by Investment: investment of 2.5 € million or more in real estate enables national citizenship and passport. The property can be sold after 3 years Swiss Immigrant Investor Program: residence permit for invividuals who fund their company and create jobs for Swiss citizens; alternativelly: Lump Sum Taxation (min. 150 thousand CHF) for permanent residents

US: EB-5 Immigrant Investor Visa Program 10 thousand visas EB-5 issued anually Avaliable for individuals who invest 1 million $ or 500 thousand $ in Targeted Emplyment Areas (high unemployment area or rural area) Investment must benefit the US economy: create at least 10 jobs or save jobs in „trubled businesses” After the investment criteria is met – conditional residence permit for 2 years, then possibility to apply for permanent green card

EB-5 VISA STATISTICS ( )

Case study: Canadian policy of attracting immigrant investors

Basic facts 2006: population of 31.6 million, including 6.2 million foreign-born 2011: population of 33.5 million, including 6.8 million foreign-born individuals Immigrants constitute 20.6% of the population (the highest proportion among the G8 countries) Consistent immigration policy in last 30 years: each year ca thousand new immigrants are admitted Economic and humanitarian immigration

Entry mode for economic migrants: points system Main aim: to make sure that immigrant will contribute positivelly to Canadian economy The evaluated elements are: educational attainment (up to 25 points); language facility in English and/or French (up to 24 points); labour market experience (up to 21 points); age (up to 10 points); personal adaptability (up to 10 points). Additional 10 points awarded for employment already arranged in Canada. The passing grade was 67 points out of a possible 100 (for 2008). 1st Jan 2015: new Comprehensive Ranking System introduced (up to 1200 points (core human capital factors, accompanying partner/spouse factors, skill transferability factors and job offer/arranged employment factors)

Within Economic Migrants – 3 cathegories of immigrant entrepreneurs Self-Employed (1969) - small-scale entrepreneurs, expected to establish a business immediately upon arrival. Conditions: business experience and financial capital. The entry treshold was only 30/100. Entrepreneurs (1978) – middle-scale entrepreneurs, expected to have a credible plan for estabilishing a business that will hire at least 1 person,. Conditions: previous firm ownership, net wortk of at least C$300,000 (€195,000). They needed only 35 points to qualify for permanent residence. Investors - larger entrepreneurs, expected to invest a minimum amount of approximately $400,000 (€260,000). The threshold was also 35/100. Special emphasis put on manufacturing sector (considered as underdeveloped in Canada). Still, migrants mostly are active in real estate and commerce sectors.

But how it affected Canadian economy? Initial outcomes very promissing Research on intentions of entrepreneur immigrants arriving to Canada between 1992 and 1995: they intended to create or maintain ca. 24,000 jobs investor immigrants between 1986 and 1996 – hoped to add over $3 billion (€2 billion) of venture capital Enthusiasm of policy-makers: the programme seems to be effective

But Nearly 2/3 of Business Class immigrants – Eastern Asia (Taiwan, Hong Kong, mainland China) Limited language skills + cultural differences

Evidence from Vancouver (Wong and Ng 1998) Beneficiaries of the programme of Chinese- origin They work long hours and achieve low profit rates. Many of their businesses are in precarious circumstances They remain active in the ethnic enclave, few go into the mainstream economy

Ley (2003): study among business imigrants in British Columbia Failed expectations of immigrants, reluctance to open a new business Complaints about Canadian economic environment (high taxes, strong trade unions, too many regulations) Transmission of business skills from one cultural or economic and regulatory setting to another can be problematic!

Hiebert (2008) comparison of Business Class immigrants with other cathegories of immigrants Immigrants who arrived to Canada between 1985 and 2001 and filed a tax return in 2001 Skilled workers had on average higher language skills (87% claimed proficiency in English or French, while in Business cathegory only 55%)

Employment earnings in 2001 (Canadian $) Business immigrants fare not very well on labour market)… Hiebert (2008)

Total income in 2001 Hiebert (2008)

Conclusion Business immigrants have the lowest average income among all immigrant cathegories This can be attributed to underreporting of income (tax evasion), but still the gains for Canadian economy are rather modest Conditions for Immigrant Investor Program have been increased (investment of min. invest C$800,000) On June the federal Immigrant Investor Program and Entrepreneur Program were terminated