The relaxation of emigration restrictions in the Soviet Union and the state’s subsequent collapse led to a large exogenous shock to Israel’s immigrant flows because Israel allows unrestricted immigration for world-wide Jews. Israel’s population increased by 20 percent in the 1990s due to immigration from the former Soviet Union. These immigrants did not bring social capital that eroded the quality of Israel’s institutional environment. We find that economic institutions improved substantially over the decade. Our synthetic control methodology indicates that it is likely that the institutions' improvement would not have occurred to the same degree without the mass migration. Our case study indicates that immigrant participation in the political process is the main mechanism through which the migration caused institutional change.

A growing empirical literature supports the importance of strong private property rights, a rule of law, and an environment of economic freedom for promoting long-run prosperity. But little is known about how immigration impacts these institutions. This chapter empirically examines how immigration impacts a nation’s policies and institutions. We find no evidence of negative and some evidence of positive impacts in institutional quality, as measured by the economic freedom index, as a result of immigration.