Emanuela Lotti

The Immigration Surplus Revisited In A General Equilibrium Model With Endogenous Growth

We revisit the work of Borjas (1995) which has provided an influential positive theory of immigration policy. An important feature of his framework is the focus on the skill-composition of immigrants and we retain this feature in our paper. Our contribution to this literature is to extend his analysis in a number of directions. First, we study the immigration surplus in the context of a general equilibrium model in which capital is endogenous and the welfare of the indigenous population is set out explicitly. Second, we introduce several sectors into the model so that changing the skill composition leads to changes in sector shares. Third, related to the second development, we introduce and R&D sector and develop a model with long-term endogenous growth. The result is that growth effects on the Immigration Surplus come to dominate the purely static effects in the original analysis of Borjas, but they are not sufficient to eliminate the emergence of losers among the section of natives competing with immigrants in the labour market.

Informal Labour and Credit Markets: A Survey

This paper reviews the literature on the informal economy, focusing first on empirical findings and then on existing approaches to modeling informality within both partial and general equilibrium environments. We concentrate on labour and credit markets, since these tend to be most affected by informality. The phenomenon is particularly important in emerging and other developing economies, given their high degrees of informal labour and financial services and the implications these have for the effectiveness of macroeconomic policy. We emphasize the need for dynamic general equilibrium (DGE) and ultimately dynamic stochastic general equilibrium (DSGE) models for a full understanding of the costs, benefits and policy implications of informality. The survey shows that the literature on informality is quite patchy, and that there are several unexplored areas left for research.

Migration, skill composition and growth

The UK, with its relatively liberal immigration policies following recent enlargements, has been one of the main recipients of migrants from new EU member states. This paper poses the questions: what is the effect of immigration on a receiving economy such as the UK? Is the effect beneficial or adverse for growth? How differently would skilled (or unskilled) migration affect both receiving and sending economies? What factors would contribute to immigration/emigration benefits/costs and economic growth driven by migration? Who are the winners and losers in both the sending and host regions? We utilize an endogenous growth two-bloc model with labour mobility of different skill compositions to address these questions. We show that migration, in general, is beneficial to the receiving country and increases the world growth rate. With remittances, the sending country in aggregate can also benefit. The only exception is in the case of unskilled migration, which can actually have a detrimental impact on the world growth rate. Winners are migrants, and the skill group in the region that sees its relative size decrease.

GROWTH AND WELFARE EFFECTS OF WORLD MIGRATION

Using a two-bloc endogenous growth model calibrated to two generic sending and receiving countries of equal size, we assess the growth and welfare impact of world migration flows of different skill compositions. The sending country (East) has a lower total factor productivity and a lower endowment of skilled labour. Migration can induce two growth-enhancing effects: an efficiency effect from the more efficient use of labour in the receiving country (West) and a sectoral reallocation effect from a fall in the host country skilled–unskilled wage rates. Despite growth gains, there are both winners (migrants, the representative Western non-migrant household) and losers (the representative Eastern household remaining). Remittances can see the latter group joining the winners.