NEW YORK, NY – As the global migrant crisis impacts countries from the United States to Europe and South America, policymakers must find sustainable economic and humanitarian solutions to respond. One recurring policy approach to provide a pathway to legal residency – through a pardon or amnesty. Popular arguments in support of amnesty often focus on humanitarian considerations. However, new research from Columbia Business School shows that pardons could also have positive economic effects for a country that opts to grant migrants pardons.
The study, The Economic Effects of Immigration Pardons: Evidence from Venezuelan Entrepreneurs, finds that an immigration pardon increases immigrant investment in a region through entrepreneurship. In an analysis of data from Colombia’s Permiso Especial de Permanencia (PEP), a 2018 pardon to about 300,000 undocumented Venezuelan immigrants, Columbia Business School Professors Jorge Guzman and Bo Cowgill find that migrants who were pardoned were 1.6% more likely to start a company once granted legal residency compared to migrants who were not given a pardon. In Colombia, as in the U.S., new firms can be created and registered by foreign citizens and do not require legal permanent residence in a country.
"There’s a clear economic incentive to expanding an individual’s legal rights," said Jorge Guzman, Associate Professor of Business at Columbia Business School. "Access to resources such as banking, borrowing, and the court systems are critical to developing a business, but often require legal status to access. When immigrants are granted legal status and access to these resources, we see them start more firms."
To study business formation by migrants in Colombia, Professor Guzman and Cowgill, along with Brown University Professor Dany Bahar, matched immigrants who were granted the PEP pardon and registered through a Colombian census of Venezuelan immigrants with the Colombia firm registry Registro Unico Empresarial (RUES). Then, using each migrant’s PEP registration ID numbers, they were able to identify individuals who were listed as the public legal representative of a business.
"In principle, the pardon could have drawn the immigrants away from entrepreneurship by making it easier to find a normal job," said Columbia Business School Assistant Professor Bo Cowgill. "Our study helps clarify the role of legal protections for immigrant entrepreneurship. By founding a new business, the migrants create investments that can potentially benefit the broader economy."
The professors found that the effects of receiving the PEP pardon increased over time. In 2018 – the first year of the pardon – PEP increased Colombia’s annual rate of business formation amongst non-native Colombians by 0.2 percentage points. That number increased to 0.5 percentage points by 2021 and 0.55 percentage points by 2022, closing in on the rate of business formation by native Colombians, estimated at 0.7% in 2022. Additionally, the researchers find that businesses created by pardoned migrants created 1 to 6 new jobs, which has meaningful economic spillover throughout the country’s economy.
Additional Key Takeaways: The effects of the pardon on entrepreneurship are greater amongst those who have more time to spend on business creation. Older people and heads of households with competing responsibilities were less likely to start a new business than younger people and non-head-of-households. Although these groups are traditionally less entrepreneurial and do not tend to have access to additional capital, they have greater access to time to invest in a venture. Granting legal residency to migrants, beyond permitting their physical presence in a country, is essential for entrepreneurial investment amongst migrant populations.
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit www.gsb.columbia.edu.
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