Abstract
Shocks to net migration matter for the business cycle. Using a structural vector autoregression and an estimated dynamic stochastic general equilibrium (DSGE) model of a small open economy, we find that migration shocks make an important contribution to the volatility of per capita GDP. Migration shocks contribute to variability in per capita consumption and investment, and to residential investment and real house prices. Despite the role of migration, other shocks remain more important drivers of these expenditure components and of housing market volatility. In the DSGE model, the level of human capital possessed by migrants relative to that of locals materially affects the business cycle impact of migration. The impact of migration shocks is larger when migrants have substantially different levels of human capital relative to locals. When the average migrant has more human capital than locals, as seems to be common for migrants into developed economies, a migration shock has an expansionary effect on per capita GDP and its components.
Highlights
In recent years, migration flows have been large
Our business cycle results contrast with the cross-country panel data analysis of Brunow et al (2015), who find that decadal averages of per capita gross domestic product (GDP) are unrelated to decadal movements in net migration
Migration shocks matter for the business cycle
Summary
Migration flows have been large. Very large. If migrants have a higher level of human capital than locals, the effects of migration are expansionary on a per capita basis and migration shocks account for a large fraction of the volatility of GDP and its components. Using constructed working-age net migration data for the United States in a vector autoregression, Weiske (2017a) finds that the short-run effects of migration are consistent with standard growth theory, ie real wages fall and investment increases. The. Production GDP seasonally adjusted Private residential investment seasonally adjusted Gross fixed capita formation seasonally adjusted Private consumption seasonally adjusted Working age (15–65 year old) population Net perm./long-term migration 15–65 year old Quotable Value House price index Consumer price index Trade-weighted rest-of-world GDP ngdpp_z nipd_z ni_z ncp_z lhpwa_z –† pqhpi pcpis‡ IWGDP_Z. Net migration per capita in New Zealand is volatile by OECD standards, but is still only about 5 percent as volatile as real GDP
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