SFB 303 Discussion Paper No. A - 196

Author: Ritzen, Jozef M.M., and Hendrik P. van Dalen
Title: The Economic Consequences of Selective Immigration Policies
Abstract: The divergence in demographic development between Europe and many other parts of the world is likely to lead to selective immigration of welltrained labour from developing countries into Western Europe. The decline in the birth rate in the past decades in Western Europe can generate shortages of well-trained youngsters on the labour market. Public policy might choose to counter this by selective immigration, although an expansion of (re)training efforts definitely is a viable alternative. The policy alternative of a selective immigration policy is studied here with a two-country economic growth model: one country is rich, with a low rate of population growth. The other is poor with high population growth rate. The model distinguishes three factors of production (physical capital, skilled and unskilled labour). With a constant-return-to-scale technology the factors are employed to produce one good. The welfare effects are considered both for the country of emigration and of immigration. An optimal immigration policy is likely to be restricted to skilled labour. A constant migration flow from the poor country to the rich country is shown to be a Pareto inferior policy. When training costs are at a relatively low level and differ across the two countries the welfare position of the receiving country deteriorates. A potencial Pareto improvement does exist in this particular setting for large migration flows. The low population growth country benefits only from a selective immigration policy when training costs are relatively high. The analysis shows that migration of skilled labour between countries with different population growth rates has three effects. these are the effects of changes in the effective population growth rate, a free rider effect in the country of immigration and a capital substitution effect. The latter implies that physical capital investment by rich countries in pour countries declines with immigration. The net result of these effects in terns of welfare of each of the countries and total world welfare depends heavily on the technologies in use and the cost of training.
Creation-Date: August 1988
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