The economic effects of immigration—a dynamic analysis

Abstract

This paper examines the economic effects of immigration using a neo-classical growth model with overlapping dynasties. We demonstrate that in contrast to the predictions of the static models often used in the analysis of immigration, in a dynamic model with endogenous capital accumulation, shifts in factor prices that result from changes in immigration policy will be very modest. Consequently, benefits to natives from immigration are much smaller than previous studies have found—and smaller still if labor supply is elastic. On the other hand, the adverse effects on wages are much smaller as well—implying that in a model with only two inputs, immigration plays a much smaller role in redistribution from labor to capital than previously thought.