4 - Immigration and Economic Growth

Summary

Immigration is sometimes claimed to be a key contributor to economic growth. Few academic studies, however, examine the direct link between immigration and growth. And the evidence on the outcomes that the literature does examine (such as the impact on wages or government receipts and expenditures) is far too mixed to allow unequivocal inferences. This chapter surveys what we know about the relationship between immigration and growth. The canonical Solow model implies that a one-time supply shock will not have any impact on steady-state per capita income, while a continuous supply shock will permanently reduce per capita income. The relationship between immigration and growth obviously depends on many variables, including the skill composition of immigrants, the rate of assimilation, distributional labor market consequences, the size of the immigration surplus, potential human capital externalities, and the long-term fiscal impact of immigration. Despite the disagreements about how to measure all of these effects, however, there is consensus on one important point: Immigration has a more beneficial impact on growth when the immigrant flow is composed of high-skilled workers.