Migrants from developing countries benefit greatly from their migration by earning a much higher real income in their destination country. They often also benefit from moving to a country where the quality of institutions is better than at home (in terms of, for example, less corruption, greater political stability and a firmer rule of law). If home country institutions improved some migrants might be more likely to return home, but such a return would depend on how much they value institutional quality.

In December last year, Ngoc Thi Minh Tran, Michael Cameron and Jacques Poot co-authored an article in Letters in Spatial and Resource Sciences about what migrants might be willing to pay for better quality institutions. Tran, Cameron and Poot used a contingent valuation method that is well established in environmental economics, but to their knowledge had not yet been applied to the issue of valuing the quality of institutions. While their results are only based on a small pilot study in which 64 Vietnamese-born adults living in New Zealand were surveyed (representing 1.6% of this population), the article has already been accessed several hundred times.

Essentially, Tran et al. investigated how much a migrant’s income would have to change to make them indifferent between an area with lower-quality institutions and an area with higher-quality institutions. They did this by asking Vietnamese migrants in New Zealand two questions: (1) “Given your perceptions of the difference in institutional quality between New Zealand and Vietnam, what would be the smallest level of weekly income before tax in Vietnam where you would be happy moving back to Vietnam permanently?; and (2) “Now imagine that the institutional quality in Vietnam changed so that it was equal to New Zealand in all ways (and everything else remained the same). If this happened, what would be the smallest level of weekly income before tax in Vietnam where you would be happy moving back to Vietnam permanently?”

The first question allowed the authors to estimate the compensating differential based on the current differences in institutional quality and other amenities between the two countries, as well as migration costs. The second question modifies the institutional quality in Vietnam so that it is equal to that in New Zealand, holding everything else (including migration costs) constant. The difference between the answer to Question 1 and the answer to Question 2 provides an estimate of the willingness of the migrant to accept lower wages in exchange for improved institutional quality in Vietnam.

The estimates show that willingness to pay for an incremental unit improvement in institutional quality in Vietnam is, on average, about NZD 80 per week (approximately 33 percent of the average weekly wage in Vietnam for the same period). Moreover, older migrants are willing to pay more, as are migrants who perceive institutional quality to be more important for the repatriation intentions.

Jacques Poot

March, 2020

Dr Ngoc Thi Minh Tran is a Lecturer at the University of Economics and Law, Vietnam National University – Ho Chi Minh City. This article is based on a chapter of Dr Tran’s PhD dissertation. Michael Cameron is an Associate Professor in the School of Accounting, Finance and Economics at the University of Waikato in New Zealand. Jacques Poot is a visiting professor in the Department of Spatial Economics at the Vrije Universiteit (and a VU graduate), as well as Emeritus Professor at the University of Waikato.

An earlier version of this blog can be found on Michael Cameron’s blog: https://sex-drugs-economics.blogspot.com/2018/09/return-migrants-are-willing-to-accept.html.