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 institution 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 find that in developing countries, dual citizenship recognition increases foreign remittance inflows by US$1.19 billion, raises GDP and household consumption, favors international labor mobility, 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 decreases remittance inflows by US$1.44 billion, but increases gross capital formation and foreign direct investment by US$12 trillion and US$828 billion, respectively, raises household consumption, fosters trade, and provides incentives for low- and high-skilled workers to move to foreign countries. Expatriates living in dual citizenship-granting countries positively affect economic outcomes in their origin countries. We find no effect of dual citizenship recognition on public spending on health and education, which suggests that the diaspora plays little role in homeland politics.