The Macroeconomic Impact of Migration: A Simulation-Based Approach

This paper studies the impact of migration on welfare in a general equilibrium model using a simulation-based approach. Agents make decisions regarding the acquisition of skill and migration on the basis of their idiosyncratic characteristics and different migration regimes. Migration in turn has an impact on skilled and unskilled wages in migrant sending and receiving economies. The model also incorporates the effect of skill levels and migrations on subsequent technological changes in both economies. The macroeconomic implications of the model are studied under a variety of different parameterizations and the paper analyzes the non-equilibrium dynamics of various immigration policies in terms of various conceptions of welfare. Results indicate that the optimal policy depends greatly on the type of welfare function employed. Notably, under a variety of different parameterizations, if recipient country GDP per capita is used to describe welfare, more open migration policies are optimal whereas if minimizing inequality among recipient country citizens is the primary objective, closed border policies are optimal. For other definitions of welfare, optimal policies are more sensitive to changes in parameters and assumptions. The paper examines the importance of various assumptions and finds that endogenous skill-based technology change, technology transfer, and remittances are among some of the critical assumptions.