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Illegal Immigration, Factor Substitution and Economic Growth

Theodore Palivos, Jianpo Xue and Chong Yip

Discussion Paper Series from Department of Economics, University of Macedonia

Abstract: This paper develops a growth model with illegal immigration in which there exist two types of domestic labor, skilled and unskilled. These two types enter the production via a CES aggregator. In a similar manner, the paper also allows for the possibility of imperfect substitution between native and immigrant labor. Within such a framework it analyzes the e ects of an increase in immigration on the average capital stock, individual wages, asset holdings and the distribution of wealth. Contrary to previous results in the literature, the paper shows that illegal immigration may not necessarily make the distribution of wealth more unequal and unskilled labor worse o . This is so because the end results depend on the elasticities of substitution between di erent types of labor. Thus, assuming erroneously that immigrants and natives are perfect substitutes could lead to results that are not only over-estimated but also of the wrong sign.

Keywords: Illegal Immigration; Economic Growth; Income Distribution; Factor Sub- stitution. (search for similar items in EconPapers)
JEL-codes: O41 F22 E25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-fdg and nep-mig
Date: 2011-06, Revised 2011-06
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