The enormous differences in living standards across the world have, over the past half century, prompted, on the one hand, a large analytical effort to understand the key underlying causes of these differences and, on the other, efforts to address them.1 In recent years analytical efforts have increasingly focused on differences in institutional quality as the most important determinant of these disparities in living standards.2 However, these efforts have been more insightful with regard to how institutions matter than they have concerning the practical implications, that is, how to put institutions into place.3
Efforts at alleviating the vast differences in living standards have been a key driver behind foreign aid. While some believe that a large scaling up of investments in poor countries would help them break out of poverty traps, others are skeptical.4 For decades the international community has striven to improve foreign aid as well as find additional mechanisms (such as greater trade access) to further the development prospects of the poor. A recent ambitious attempt to improve the lives of the world's poorest people is the Millennium Development Goals (MDGs), but if the past is any guide, the targets are unlikely to be [End Page 137] met.5 Those concerned with the well-being of the world's poor clearly need more arrows in their quiver, and it is in this spirit that Lant Pritchett has proposed a provocative Plan B: "My plan B is that we begin today to develop mechanisms for enhanced labor mobility so that, when in 2015 MDGs are not achieved (and in many countries there is no progress) . . . these can be scaled up and integrated into an international system that is truly globalized."6 Accepting that "no one would embrace entirely free labor flows," he suggests as a starting point a more politically realistic plan with industry-specific quotas and explicitly temporary visas.7
This paper considers the broad case for a migration-based Plan B.8 We stress that our focus is not specifically on Pritchett's carefully crafted proposal for significantly scaled-up temporary migration, but instead we look at the broader case for using migration as an additional tool to alleviate poverty. A (too) pithy statement of the broader migration-based Plan B might be: If you cannot bring good institutions to the poor, allow the poor to move to the good institutions. Or, as Pritchett asks, "How long must only Bolivia figure on the international agenda and not Bolivians?"9
The importance of institutions enters our discussion of Plan B in a number of ways. First, to the extent that differences in institutional quality are significant determinants of differences in living standards and institutional improvements are hard to "buy" with foreign assistance, it is worthwhile to examine increased migration as an alternative way to increase living standards of migrants. Second, again assuming that institutional differences are key determinants of income differences, there is potential for large income gains to migrants resulting from "institutional arbitrage," as economically debilitating institutional structures are left behind (at least temporarily). Third, there are [End Page 138] potential negative effects of increased migration in the destination countries, including the distributional harm of lowering the income of the less skilled, the fiscal harm from attracting individuals who impose net fiscal costs, and the harm to civic capital from less cohesive communities. Fourth, to the extent that rich countries disproportionately target the highly skilled, there is a risk that institutional development will be further harmed by the absence of institution builders in poor sending countries, suggesting a possible trade-off between the static gains to migrants (and their households in the country of origin) from institutional arbitrage and the dynamics of institutional reform (in the country of origin). And finally, given...