Question

Identify developing countries where migration is associated with increased productive investments; (There is a wide range of countries to choose from)?

Answer 1

Answer :

Immigration by high-skilled workers attracts foreign direct investment, helps firms find investment opportunities abroad, and raises per capita income by boosting productivity. However, despite triggering residential investment in the host country, immigration also raises housing costs, with undesirable income distribution effects. Policymakers should thus consider selective immigration policies that attract high-skilled workers, accompanied by redistributive measures that benefit low-income households in the host country and by compensating measures for the home countries that lose high-skilled migrants.

Advantages :

• High-skilled immigration attracts foreign direct investment.
• Immigrants can help multinational firms find investment opportunities abroad.
• Increasing the share of high-skilled immigrants has sizable income effects that can be attributed to productivity gains.
• Foreign-born scientists and engineers, in particular, contribute to innovation and productivity growth.
• Immigration spurs investment in residential housing by increasing housing demand.

Disadvantages :

• Immigration is less likely to promote productivity growth when immigrants are low-skilled.
• The income effects of attracting high-skilled immigrants in scientific and engineering fields on low-skilled native-born workers are fairly small.
• Residential investment triggered by higher immigration is insufficient to prevent housing costs from rising.
• Temporary migrants put most of their savings into remittances, which do not boost investment in the host country.

Motivation :

Modern economic growth theory suggests that the interaction of technological progress and capital accumulation is the ultimate source of long-term economic growth. Whether immigration flows cause changes in labor productivity through investments in capital and research and development (R&D) is an important issue for policymakers. Examining how immigration affects capital formation requires a dynamic perspective that includes the effects on the accumulation of intangible assets (knowledge capital) as well as physical assets. For instance, technological improvements could arise as a result of the immigration of high-skilled workers with science and engineering skills. Moreover, immigrants may help foreign firms find investment opportunities in the host country and foster foreign direct investment (FDI).

Also relevant to migration policy are the potentially differential impacts of temporary and permanent immigration. The income distribution effects through the impact on housing costs also need to be considered. If immigration raises the demand for housing faster than supply is able to expand, owners of land and housing property will gain while tenants will be hurt.

Empirical evidence suggests that immigration of educated workers attracts FDI, helps firms find investment opportunities abroad, and raises per capita income by enhancing labor productivity. The immigration of scientists and engineers, in particular, stimulates innovation in the host country through new patents. The migration of low-skilled workers seems to have less impact on capital formation in host countries. The evidence supports the design of selective immigration policies to attract high-skilled workers, particularly those with science and engineering skills. Greater birthplace diversity in a population through immigration is also found to foster economic prosperity, particularly if immigrants are well-educated.

However, there is the issue of potential brain drain in developing countries that lose their skilled workforce in response to skill-selective immigration policies in host countries. Such emigration may conflict with development goals and may lead to a net skill loss in home countries. Admitting more students from developing countries on student visas in developed countries may be a way to compensate for brain drain.

From a development policy perspective, the main benefit of emigration for the home country may come from remittances, from both high- and low-skilled migrants. Because remittances tend to be higher from temporary migrants than from permanent migrants, providing opportunities for temporary work in developed countries may be conducive to economic development in home countries. However, temporary migrants have less incentive to learn the host country language, which is an obstacle for improving their earnings prospects over time. This point may be particularly relevant for refugees, who should quickly be moved onto the track of permanent residence in the host country after their refugee status is approved.

Despite the many potentially positive effects of immigration, policymakers have to be aware that high levels of immigration can provoke a backlash against liberal immigration policies in host countries, especially if housing prices rise as a consequence. Clearly, not everyone in the host country benefits from the efficiency gains from immigration. Possible measures to redress the imbalance include transfers to low-income households (who typically rent rather than own housing property), possibly financed by increases in taxation of housing property, wealth, and bequests. Thus any undesirable income distribution effects associated with higher housing prices could be addressed by the tax-transfer system instead of by limiting immigration and forgoing the related positive impacts.