Borders and Boom: The Economics Behind Migration

By Dr. Tanusree Chakravarty Mukherjee

Economics & Migration

International migration has far-reaching economic implications. Approximately 304 million people – about 3.7 per cent of the global population – live outside their country of birth, with roughly half in developing countries. Migration is driven by income gaps, demographics, conflict, and climate change. Economically, it alters labour force dynamics, boosts productivity, drives cross-border capital flows like remittances and investment, and facilitates knowledge transfer.

In OECD countries, studies show that immigration raises output and productivity with minimal negative effects on native employment. It modestly impacts wages and public finances while spurring innovation and entrepreneurship. For origin countries, migration brings in substantial remittances and diaspora investment, alleviating poverty but often resulting in labour and skill losses. In Latin America, for instance, emigration slightly depresses growth, with remittances only partly offsetting long-term labour force declines.

In neoclassical models, migration increases labour supply and initially reduces capital per worker, but rising capital returns drive new investment, restoring productivity. Thus, migration raises output without long-term capital dilution. Skilled migrants further enhance this by raising average human capital and boosting total factor productivity.

Migration also reshapes labour markets. Low-skill migrants often fill manual roles, freeing natives to focus on higher-skilled tasks, raising overall productivity. Studies show such “task specialisation” can lead to higher native wages and output. For example, more care workers can enable more native women to join the workforce.

In endogenous growth models, migration expands the stock of ideas and accelerates innovation. High-skilled migrants contribute to R&D and technology diffusion, with empirical evidence linking them to increased patent filings and new business formation. In the long term, this enhances growth beyond the Solow steady state.

Remittances – USD656 billion in 2023 and USD685 billion in 2024 – have surpassed official aid and rival FDI as critical financial inflows for developing nations. They raise household income, support foreign reserves, and finance consumption and investment. Diasporas also promote trade and reduce information barriers, benefitting home economies.

While global FDI remains volatile and Official Development Assistance (ODA) fell to USD212.1 billion in 2024, remittances have proven a more stable and counter-cyclical financial lifeline. For instance, Malaysia saw RM51.5 billion in net FDI inflows, but remittances remain a more reliable economic buffer.

Migration impacts public finances. An influx of working-age migrants can widen the tax base and support ageing societies. However, fiscal outcomes depend on migrants’ age, skills, and labour-market integration. The net effect is generally slightly positive.

Long-Term Macroeconomic Implications

Demographics and ageing: Migration helps counterbalance low fertility and rising dependency in high-income nations. Migrants are typically younger and working age, easing demographic pressures and supporting social systems. In Europe, immigration accounted for 80 per cent of population growth between 2000 and 2018. Though fiscal benefits may be modest at first, over time they help stabilise the worker-to-retiree ratio.

Innovation and growth: Migration can shift the trajectory of innovation-led growth. By reallocating global talent, it enhances productivity and fosters knowledge spillovers. Prato (2023) finds that migrant inventors patent more and boost the productivity of their collaborators at home. This suggests that openness to skilled migration can raise growth in both sending and receiving countries.

Fiscal sustainability: Increased migration can ease ageing-related fiscal burdens. Younger migrants contribute more to taxes and less to aged-care spending. While there are upfront costs, such as education and welfare, the long-term fiscal effect is usually slightly positive – especially with effective integration.

Maximising migration’s economic potential requires comprehensive, evidence-based policies. Aligning migration with labour market needs through points-based systems ensures better skill matching. Integration efforts – like language training and credential recognition – enhance migrants’ productivity and fiscal contribution. Leveraging diaspora networks, reducing remittance costs, and promoting digital channels can further benefit origin countries. Investing in skills through Global Skill Partnerships and strengthening international cooperation on visas, qualifications, and refugee funding are also key to managing migration effectively and equitably.

Dr. Tanusree Chakravarty Mukherjee is a lecturer in the Accounting, Finance and Economics Department in the Faculty of Business at Curtin University Malaysia, and leads the Faculty’s ‘Green Economy Roadmap and Sustainable Future’ research cluster. Her research spans Applied Economics and Macro/Microeconomics. She is a Fellow of the UK’s Advanced Higher Education Academy and has received research funding from the Malaysian Ministry of Higher Education and Curtin Malaysia for her research projects. She can be reached at tanusree@curtin.edu.my.