Growth Theory
Mitigating migration

Most neoclassical growth models find that migration reduces the host economy's per capita output and growth on account of decreasing returns to labour in the production function. In Discussion Paper No. 875, Research Fellow Juan Dolado, Alessandra Goria and Andrea Ichino examine immigrants' contribution to human capital accumulation in the form of skills acquired in their home countries. They therefore abstract from migrants' differences from or influence over natives' human capital accumulation after arrival, and they also assume that capital is immobile. These admittedly extreme assumptions bring out the interaction of imperfect assimilation and capital mobility with the effects of gradual migration.

Their theoretical analysis reveals that immigration need not reduce per capita output and growth as a natural population increase does in the Solow model with decreasing returns to labour, because migrants bring their existing human capital with them on entry. If there are other reproducible factors, however, such as physical capital (with which migrants are rarely endowed), their human capital must be very high to offset the migration flow's negative effects.

Descriptive evidence based on education data suggests that the human capital content of international migration flows is indeed high; immigrants are just as skilled as natives on average. Econometric results for 23 OECD countries show that this reduces immigration's negative impact by half relative to an equivalent natural population increase. This also substantially reduces the steady-state output level and increases the speed of adjustment towards it. The authors conclude that the overall impact of immigration on destination countries is often exaggerated, especially if these effects are complemented by those stemming from migrants' different assimilation and accumulation characteristics. If migrants' human capital is high relative to that of the workers that remain in their home countries, however, the consequences of a `brain drain' may be quite severe.

Immigration, Human Capital and Growth in the Host Country: Evidence from Pooled Country Data
Juan J Dolado, Alessandra Goria and Andrea Ichino

Discussion Paper No. 875, November 1993 (HR)