Academic journal article International Journal of Economic Development

The Economic Impact of Migration: A Survey

Academic journal article International Journal of Economic Development

The Economic Impact of Migration: A Survey

Article excerpt

Abstract

This survey reviews both theoretical and empirical papers that examine the economic effects of labour mobility. We address three broad sets of issues: firstly, the effect that immigration has on the host country's labour market. Although the possible adverse effects that immigration can have on the wage and employment levels of natives are typically examined, immigration may also have a role to play in raising skill levels. This leads to the second broad issue: the effect of migration of a particular skill composition on the long-term (endogenous) growth of the host country. Finally, immigration can have a major economic impact on the source country. These effects can either be positive or negative depending on the interplay between the effects of growth, remittances and the brain drain.

INTRODUCTION

Immigration is one of the most important issues in the contemporary global economy. (1) It is estimated by the United Nations that over 175 million people now reside outside the country of their birth. This clearly has major economic and political implications for both the sending and receiving countries. Coppel et al. (2001) identify four major of international population movements. Firstly, there is the effect that immigration has on the host country's labour market. Although the possible adverse effects that immigration can have on the wage and employment levels of natives are typically examined, immigration may also have a role to play in reducing skill shortages in certain key sectors of the economy. Secondly, immigration is likely to influence the budgetary position of the receiving country because the amount recent arrivals receive through health, education and welfare systems is unlikely to exactly balance the increased tax revenues from new workers. Thirdly, it is argued that immigration may be a solution to the ageing population problem that faces many OECD countries. Finally, immigration can have a major economic impact on the source country. These effects can either be negative, in terms of a brain drain (though a brain drain can be beneficial if it creates incentives for human capital investment in the source country), or positive since migrants' remittances are thought to be an important economic development tool for many labour exporting countries. The overall balance of these effects is therefore likely to have a major influence on the immigration policies that are implemented, both in the source and host countries.

In this survey we review the theoretical and empirical literature on the economic effects of international migration, focusing in particular on the influence that immigration can have on growth rates in the host and source countries. Without some restriction, this is a vast literature so some constraints must be placed on the scope of our survey. First, we exclude any consideration of papers that study the determinants of migration in an attempt to understand the pressures for migration or migration equilibria. (2) The level of migration (controlled or otherwise) is a given throughout this survey. Second, where possible our empirical evidence relates to the European migration experience. (3)

We structure the rest of the survey around four sections. Section 2 examines level effects based on the strictly static framework adopted by Borjas (1995) and reviews papers where migration affects transitional but not long-term growth. Section 3 then looks at a much smaller literature on the effects of migration on long-term growth. The section concludes with results from a current project involving the authors. Section 4 discusses the policy implications that emerge from the papers that have been surveyed and Section 5 concludes.

The Immigration Surplus

The immigration surplus is the term coined by Borjas (1995) to refer to the increase in income of the indigenous population of the host country following immigration. The simplest model to assess the magnitude of the immigration surplus is as follows. …

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