An Analysis of Immigration in a Dynamic Macroeconomic Model

Michael Ben-Gad ()

No 195, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: This paper examines the economic effects of immigration using the overlapping dynasties' version of the optimal growth model. We simulate the general equilibrium effects of changes in the overall rate of immigration on factor returns, savings, and consumption and calculate the welfare effects on the veteran population. An increase in the rate of immigration will lead to higher savings by members of the veteran population and higher returns to capital. The increase in capital dampens the wage depressing effects of the increase in labor supply. The results suggest that a failure to calculate the general equilibrium effects of immigration or to consider the evolution of wages and returns to capital along the transition path will lead to overestimates of its impact. The model is also used to evaluate programs designed to encourage immigration by wealthy investors. Finally, the basic model is extended to include a distinction between skilled and unskilled immigrants. The results suggest that if capital and skill are complimentary, immigration by high skilled workers will be beneficial to all native workers while immigration by low skilled workers will harm all natives, skilled as well as unskilled.

Date: 2000-08-01
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