ESTIMATING THE IMPACT OF SKILL-DIFFERENTIATED MIGRATION ON LONG-TERM ECONOMIC GROWTH IN A GLOBAL CGE-OLG MODEL

Abstract

The paper attempts to estimate the impact of skill-differentiated migration on long-term economic growth in 17 regions containing 165 countries. The author contructs a global CGE-OLG model with 100 overlapping generations calibrated based on the UN demographic projections up to 2100 specifying total population, age structure, migration flows and age distribution of migrants. The model accounts for data on skill distributions of locals and migrants as well as budgetary data, major pension system indicators and cash flows from fossil fuels extraction. These are factors altering long-term growth, labor productivity and tax burden. Estimates of migration contribution to GDP growth in the US, the UK, Canada and Australia outweigh those of adverse dynamics of fertility and mortality and reach 32.8, 26.3 and 63.5percent of GDP respectively in 2100. The impact of migration on growth is divided into two channels: total population growth effect and skill distribution effect. It is shown that population growth has a positive influence on GDP while the skill distribution effect may be ambiguous depending on the direction that it takes the actual skill distribution relative to the optimal. For Russia, the predicted positive net migrant inflow generates a 7.7% GDP gain by 2100 due to total population increase. It also leads to an increase in the share of unskilled labor, which in turn brings the country closer to the optimal distribution of production factors, reduces the cost of unskilled labor and adds another 2.5% to the GDP. This is followed by a decline in welfare of low-skilled individuals and welfare gains for high-skilled labor.