Appendix B Methodology to Estimate the Determinants of Bilateral Migration Flows in the European Union

APPENDIX B

Methodology to Estimate the Determinants of Bilateral Migration Flows in the European Union

In the migration gravity equation estimated with results reported in table 3.1, the outcome variable of interest is the log of migration flows from sending country i to receiving country j in year t, for all EU28 and European Free Trade Association countries between 2008 and 2018. The gravity-type, country-pairspecific variables include the population-weighted distance and the time zone differences between the two countries, the size of the countries, and dummy variables indicating a common border, a common language, and a common religion. The regressions also include different potential drivers related to both the labor market and income differentials (gross domestic product per capita, nominal net earnings, inflation rates, and unemployment rates), the economic structure of countries (the value added of the agricultural, manufacturing, and services sectors in total gross domestic product), the legal framework and regulations (the right to work for migrants in the destination country, employment protection legislation, and product market regulations), the depth of the welfare system, and the openness of countries (the share of trade in total gross domestic product). These factors are all introduced as the log of the ratio between receiving country j and sending country i. This is motivated by the fact that is the difference in the values of these variables, rather than the absolute levels per se, that matters in the migration decision. All regressions also include time fixed effects and robust standard errors.

Skilled Migration: A Sign of Europe’s Divide or Integration? examines the trends, determinants, and impacts of migration of high-skilled workers within the European Union in the past two decades. High-skilled migration, whether internal or international, is largely a symptom rather than a cause of the gaps in labor market and educational opportunities, productivity, welfare, and the quality of institutions across the regions. Free movement within the European Union is an incentive for workers and firms to take advantage of these gaps by moving from low- to high-productivity sectors and regions. This process, however, results in winners and losers depending on the extent of the complementarity and substitutability between migrants and natives and on the capacity of the sending regions to realize benefits from return or circular migration and other knowledge spillovers.

This study assesses the economic benefits and the costs of skilled migration in the short and long runs, emphasizing the potential implications of a large outflow of highly qualified workers on the economies of the originating regions. This book uses empirical analysis to present recommendations for labor market and education policies and identify effective ways to address the various costs that migration induces among different skill groups within regions that send migrants and those that receive migrants. These methods must also improve cross-country coordination to more effectively unlock the overall benefits of migration.

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