Migration and Economic Growth

Published 7 February 2012 / By Carlos Vargas-Silva

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A government is deemed ‘successful’ if national GDP growth is strong. A country is said to be on the right track if it is growing faster than other countries. GDP growth has become a gauge of what is good and bad, for success and failure. The fact that migration has either positive or negative impacts on receiving and sending countries’ GDP growth may lead to conclusions that migration is good or bad. In a new volume titled “Migration and Economic Growth” (co-edited with Mathias Czaika, coming out December 2012, Edward Elgar Publishing) I explore the different channels that relate migration and economic growth.

Over the past five decades, economists’ research efforts on migration and economic growth have mainly gravitated towards two general questions.

1) How and to what extent do economic factors affect migration decisions?

2) How and to what extent does migration affect different economic indicators?

The book breaks these two questions down into an overview of the economic drivers of permanent and temporary migration and the impacts of migration on key determinants of economic growth:

  • capital accumulation
  • labour productivity and returns
  • human capital accumulation
  • technological innovation
  • government budgets.

The discussion below summarises some of the key conclusions reached from evaluating the content of the book.

Economic analysis provides a useful framework to study migration
Economics uses an approach that allows very complicated concepts to be written in relatively simple terms. This approach removes complexity and allows the analysis to focus on the fundamental questions of interest. This is a clear advantage in order to explore a multifaceted topic such as migration and economic growth (see discussion below under the heading “It’s complicated…”).

Economics, like other social sciences, follows the scientific method of stating a refutable hypothesis, testing the hypothesis, and revising the theory based on the results. However, in economics, hypotheses are tested by using advanced statistical techniques. Therefore, it is possible to exactly replicate the analysis.

The methodological transparency of economics is very useful in a controversial topic such as migration, where passions often run high.

The economists' view
In 1985, 82 eminent scholars in the United States from the fields of anthropology, history, political science, psychology, sociology, and economics were surveyed about the economic consequences of immigration to the country.

Of the six professions, economists held by far the most positive opinion on the economic impact of immigration. 81% responded that immigration has had a ‘very favourable’ impact on the nation’s economic growth. This result, although far from representative for any specific discipline, reveals the very positive view that economists often have about the economic impact of immigration.

The theoretical and most of the empirical work done by economists on immigration and economic growth largely reflects the view that immigration has positive growth implications.

Migration is different
International trade has also been acclaimed by the large majority of economists as beneficial to all countries involved. This consensus has gone beyond the economics discipline and there is strong support for international trade in many public opinion surveys. For example, in a recent Pew Research Center survey across 47 developed and developing countries, in all countries there was a majority of the public saying that international trade was good for their countries. The story is very different concerning international immigration. Majorities of the public in 44 of the 47 countries surveyed agreed that immigration should be restricted further.

Migration is peculiar as it involves the movement of individuals. While it is mostly highly welcomed when international trade increases the variety of products available in a country, the case is different when immigration increases the variety of people in the country. Most people would agree with the first one (impact of international trade), while the second one (impact of international migration) is likely to raise many eyebrows.

While there is general agreement among economists that both migration and trade have benefits for economic growth, the public often express different views regarding these flows.

There are important limitations
There is plenty of recognition among economists that an increase in international migration will lead to an increase in global welfare levels (see the related academic work by Michael Clemens, Dani Rodrik or Alan Winters). This increase is to a large degree based on the increase in income of those who migrate. Yet, migration affects both the numerator (i.e. GDP level) and the denominator (i.e. population size) of the GDP per capita equation. Therefore, GDP per capita does not distinguish between stayers and emigrants, or natives and immigrants and may fail to capture the impact of migration on the residents of a particular country. Moreover, there has been plenty of research highlighting the negative economic impacts of immigration on certain groups (e.g. low skill workers) in destination countries (see especially the work of George Borjas).

A simple measure of GDP per capita that does not distinguish between stayers and emigrants, or natives and immigrants may fail to capture the economic impact of migration on the residents of a particular country.

It is very complicated…
Finally, it is important to highlight that the relationship between migration and economic growth is a complex one.

  • First, while migration affects economic growth, economic growth also affects migration. In this two-way relationship, it is often challenging to show causality running in one direction.
  • Second, the impact of migration is not limited to receiving countries, as there are important feedback effects that affect the economic conditions of sending countries. These feedback effects result in a dynamic relationship.
  • Third, there are multiple channels by which economic growth affects migration, and vice versa. Some of the impacts have positive implications, while others may have negative repercussions. Likewise, some of the impacts have short-term implications, while others have long-term ramifications.
  • Fourth, it is easier to observe some of the impacts at the micro level, while others are more obvious at the macro level.

As a result, a multi-level, dynamic, endogenous and comprehensive approach is necessary in order to understand the relationship between migration and economic growth.

Ignoring all these intricate relations may result in analyses that do not provide an accurate description of the key issues. The idea is not to move away from simplicity and return to complexity, but to recognize that feedback effects and interactions are important. What is needed is to simply incorporate a more holistic approach into existing economic models.