Dual Citizenship Institution: A Pareto Improvement?

The right to hold dual citizenship is an important political institution that is being adopted by an increasing number of countries. We argue that this right can generate important social and economic benefits beyond its political dimension. Dual citizenship recognition by a country allows members of its diaspora who are citizens of their host countries to retain several legal advantages in their homelands, including unrestricted residency and easy access to investment opportunities, and provides multiple incentives to maintain ties with family, friends and communities, therefore facilitating the development of transnational solidarity and business networks. We assemble a large panel dataset on dual citizenship, and exploit cross-country and cross-time variation in the timing of dual citizenship recognition to estimate its economic impacts. We consider outcomes that reflect cross-national economic activities and so can be directly influenced by the diaspora, and those that would improve as a result of an improvement in the former. We find that in developing countries, dual citizenship recognition favors international labor mobility, increases foreign remittance inflows, increases household consumption, and improves child survival. Additionally, dual citizenship is more effective in improving child survival than other institutional variables such as government stability and the absence of internal and external conflicts. In developed countries, dual citizenship recognition encourages international labor mobility, increases international trade, attracts foreign investment, and raises household consumption. Furthermore, members of the diaspora residing in dual-citizenship-granting countries positively affect economic outcomes in their origin countries. In falsification tests, we find no effect of dual citizenship recognition on outcomes not likely to be affected by the diaspora, including public spending on health and education, which also shows that the diaspora plays little role in homeland politics.