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The Effects of Immigration on the Destination Economy: The Theory

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The Economics of Immigration

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Abstract

When immigrants enter a country, they affect the destination country’s economy in a variety of ways. This chapter surveys theoretical research since the 1960s on the macroeconomic and microeconomic effects of immigration on the destination country. Macro effects are measured by an “immigration surplus” that is usually positive but very small. The “micro” studies have focused on the distributional effects, and these have been substantial in magnitude. Estimates of how immigration affects natives depends on the assumptions of the model used to frame the analysis, such as the production function, number of goods produced, local immigrant consumption, native migration, and the time frame. We appraise the traditional labor market model’s predictions, and then we move to more detailed models that present a more nuanced story. Finally, this chapter examines how economists have begun to model immigration from a longer-run perspective, which requires the explicit recognition of “feedback mechanisms” that supplement the initial labor market effects covered in the traditional models.

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Notes

  1. 1.

    The Cobb-Douglas function is “convenient” because it exhibits constant returns to scale, diminishing returns to each individual factor of production, and the exponents represent the factors’ shares in national output.

  2. 2.

    See the survey of this evidence by Friedberg and Hunt (1995).

  3. 3.

    This point is made by Simon (1989).

  4. 4.

    This diagram was first presented in Van den Berg (2004).

  5. 5.

    Harrison’s model was analyzed later in Simon (1989, pp. 226–28).

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Author information

Authors and Affiliations

  1. Department Economics, St. Cloud State University, St. Cloud, MN, USA

    Örn B. Bodvarsson

  2. Department Economics, University of Nebraska, Lincoln, NE, USA

    Hendrik Van den Berg

Authors
  1. Örn B. Bodvarsson
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  2. Hendrik Van den Berg
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Bodvarsson, Ö.B., Van den Berg, H. (2013). The Effects of Immigration on the Destination Economy: The Theory. In: The Economics of Immigration. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-2116-0_5

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