Migration and Economic Growth: A Complex Interrelationship


Cevat Aksoy, Assistant Professor of Economics at King’s College London and Principal Economist at the EBRD, in an interview to GURU spoke about the scale of voluntary and forced international migration, its effects on the economies of source and destination countries, the modalities of the migrants' economic behavior (particularly, their propensity to entrepreneurship) and their contribution to economic development.


 - The sheer size of forced migration (i.e. refugee crisis) in Europe in 2022 is quite stunning: about 4.8 million Ukrainians are reported to have fledto the EU countries within 6 weeks, with another 6 million being internally displacedpersons. This is much more than the total influx of Syrian and other Middle Eastern refugees to Europe over the course of a number of years. Was there a comparable migration in Europe since WW2? Earlier incidents?

 - Sadly, there have been several historical episodes of forced displacement in Europe since WWII, but the largest one was right after WWII, when European borders were redrawn. According to varying estimates between 8 to 12 million ethnic Germans were displaced from Eastern Europe. But, of course, this displacement took place over a much longer time horizon as opposed to the situation in Ukraine, which forced millions to leave their homes in a very short period of time.


 - In a somewhat wider perspective – as the general reckoning goes, only one in ten migrants is driven by circumstances beyond his or her control, i.e. a conflict or war, while the rest are driven by economic considerations. Is this a true statement? How much is known about the motives for migration?

 - This figure is roughly true. The current estimate is that there are about 280 million international migrants in the world (which roughly equates to 3.5 per cent of the global population) and 26 million refugees. According to the International Organization for Migration, the number of people living in a country other than where they were born has tripled since 1970 but, in terms of its share to the world population it has remained stable.

Many studies show that most people leave their home countries for economic reasons, but millions also have been driven away due to conflict, violence and climate change. When it comes to economic reasons, the major determinants are: (i) income differentials between countries of origin and destination, (ii) the corresponding differences in unemployment levels between countries of origin and destination, (iii) getting access to better education, and (iv) the quality of life and amenities in the home country.


 - Normally economic consequences of forced migration are researched in terms of its impact on the labor market – employment and wages in both source and destination countries. Can you describe the consensus viewpoints, as well as disagreements, on these issues in academic research?

 - Forced migrants often have a direct effect on the labour markets as they increase labor supply, but the impact depends on where they are hosted (camps, urban or rural areas), on the host country laws in relation to work permits as well as on the demographic characteristics of refugees. Therefore, there is no uniform quantitative estimate or finding as it tends to be country and context specific.

However, studies on the impact of forced migration on natives’ labour market outcomes suggest that, on average, the effect is positive. For example, a group of researchers from the World Bank conducted a meta-analysis on the topic and found that between 45 and 52 per cent of results show that household well-being for the hosts increases as a result of forced displacement. The analysis of studies on employment and wages shows that between 12 and 20 percent of results are positive and significant, around 63 percent are non-significant and between 22 and 25 percent are negative and significant. The bottom line is that only less than one in five results show negative outcomes for host communities.


 - Do migrants make host countries richer or poorer? Are there any credible estimates in this field? Contribution of immigrants to the wealth (or the GDP) of the destination nations?

 - They do for several reasons. First, migrants boost the working-age population. For example, according to the OECD, migrants represent half of the increase in the workforce in the United States and 70% in Europe over the last decade. Second, migrants also tend to be positively selected in terms of education (i.e., more educated people are more likely to emigrate), which means that they bring new skills and fill important gaps in labour markets. Third, studies show that migrants contribute more in taxes and social contributions than they receive in benefits. Fourth, skilled immigrants contribute to boosting research and innovation, as well as technological progress. All of which makes host countries richer in the medium to long term.


 - Do immigrants who are naturally prepared to accept lower wages than the locals contribute to higher living standards in the host countries? Is there a trade-off between immigration and lower inflation in the host country?

 - There are two main ways that immigration may affect inflation. First, a larger labour force raises growth potential, which helps reduce the strong demand pressures on      inflation. More specifically, any rise in output is followed by a rise in real wages and, thus, marginal costs, which is likely to translate into higher inflation. But this mechanism may not take place if increases in labour demand are met with higher labour supply through immigration. In other words, immigration may curb wage growth which would otherwise have been passed on by firms to consumers.

Given that immigrants tend to self-select into regions and countries with better economic conditions and opportunities, they reduce labour market tightness in the presence of positive demand shocks, which in turn lessens upward wage and price adjustments. Therefore, the mobility of immigrants provides an opportunity for a better output-inflation trade-off.


 - You came to the conclusion that local conditions at the time of arrival affect refugees' integration – could you elaborate?

 - Yes, that’s true. In my recent paper, we study the causal effect of local unemployment and attitudes towards immigrants at the time of arrival on refugees’ multi-dimensional integration outcomes, leveraging a centralized allocation policy in Germany where refugees were exogenously assigned to live in specific counties. We find that both unfavorable attitudes towards immigrants and high local unemployment rates (which proxies local economic conditions) negatively affect refugees’ labor market outcomes and their economic and social integration.

One of the interesting findings we have is that attitudes towards migrants are actually as important as the local unemployment rate when it comes to integration of refugees, which has not been shown before. Overall, these findings help us      understand how conditions at the time of arrival affect refugees’ integration. They also have implications for the design of refugee allocation policies, as gains made in the first few years have long-lasting effects.


 - Can immigration be considered as an alternative to the transfer of technology and foreign investment (both ways – for source and destination countries)? Can migration become a driver of development for source countries?

 - Emigration by skilled workers can potentially leave countries lacking the skills that are necessary to support innovation. However, emigrants often maintain close ties with their country of origin. Not only do they send remittances to family members, they also share acquired knowledge with former colleagues and employers, and the resulting cross-border knowledge flows have the potential to offset the negative impact on innovation. In addition, migrants can also facilitate trade and FDI links. Moreover, migrants who return to their country of origin after a number of years abroad will bring with them any knowledge acquired abroad and may, in some cases, establish new firms. This may have a further indirect effect on innovation. To see which of those two opposing effects of emigration dominates, we, at the EBRD, looked at links between emigration and the frequency with which patents filed in migrants’ countries of origin cite patents filed by inventors in migrants’ destination countries, with such cross border patent citations representing a useful measure of knowledge flows between countries. We found that the number of cross-border citations in patent applications increased significantly.  

International trade is another area that may gain from immigration. In fact, recent research shows a positive effect of immigrant entrepreneurs on exports, which is driven by the fact that co-ethnic networks promote bilateral trade by providing market information.


 - Is the view that there are more entrepreneurs among immigrants than among locals true? (Steve Jobs, Sergey Brin, many others). In the US 45% of the Fortune 500 companies were founded by immigrants. Does it depend more on the host country policies or on the immigrants themselves?

 - Indeed, immigrants are perceived to be very entrepreneurial, promoting economic growth and innovation. And it is true (especially for skilled migrants) for two reasons. First, this pattern is partly driven by the self-selection of migrants, who are less likely to be risk-averse. Migrants are also more likely to identify opportunities for new businesses as they had already spotted the opportunity for migration.

Second, many high-income countries have special visa programs to attract more immigrant entrepreneurs. Especially in Australia, Canada, the UK, the US, business ownership is higher and growing among immigrants than among the native-born population. The over-representation of immigrants among US-based Nobel Prize winners, owners of technology companies and patent applicants certainly makes immigrants’ contribution to the host country's economy more visible.


 - Disruptions caused by immigration and political considerations (unwillingness of the local population to host immigrants) – can they be overcome by government policies? Which policies are more effective, are there examples of evident failures?

 - In fact, government policies are very crucial in shaping attitudes towards immigrants’ as well as promoting their socio-economic integration.

Exclusionary policies, such as limits on refugees’ movement and the right to work, are often justified as reasons to minimize economic and social tensions with host communities. While these policies have a negative effect on refugees’ economic outcomes, their ability to mitigate friction with host communities is unknown. Inclusionary policies, on the other hand, could foster mutual gains and positive relations.

In one of my recent papers, we built an extensive dataset of attitudes and economic outcomes, refugee populations, and policies at the sub-national level covering 2005-2018 and most low- and middle-income countries. We assess the effects of the arrival of large waves of refugees and find little evidence that large refugee arrivals have a negative effect on average attitudes or economic outcomes in the short-term. There are also no significant differences between places with restrictive and inclusive policies, including de jure access to the labor market and opening camps.

In another paper of mine, we study whether high quality local governance can alleviate the environmental impact of large-scale refugee migration. We construct a unique data set on local governance quality from the independent audit reports and find that the deterioration in environmental outcomes (due to mass Syrian migration to Turkey) is driven by municipalities with poor-quality governance. Those provinces fail to invest sufficiently in waste management practices and environmental services in response to increased refugee settlements.

Overall, local and national governance policies can smooth out the refugee integration process and complement the efforts of international organizations.


The views and opinions expressed are the author's personal ones and do not necessarily reflect the official position of the institutions of his affiliation.