Macro Economic Consequences of Global Migration

Introduction
The model
Results of the baseline
Exogenous migration scenario
Endogenizing migration flows
Future developments
Macroeconomic consequences of global migration

in an ageing world: A general equilibrium analysis
Vladimir Borgy(1)(2) , Xavier Chojnicki(2)(3)

Gilles Le Garrec(4) and Cyrille Schwellnus(5)
Financial support of the European Commission through the Enepo project (FP6)
(1) (2)
Banque de France, CEPII,
(3) (4) (5)
EQUIPPE, University of Lille, OFCE, OECD
OECD-CEPII Conference - October 23-24, 2008

Work in progress
V. Borgy, X. Chojnicki, G. Le Garrec and C. Schwellnus Macroeconomic consequences of global migration, October 2008
Introduction
The model
Motivation
Literature
Methodology
Future developments
Motivation
Problematic: Evaluation and analysis of the demographic and
macroeconomic consequences of migratory flows in the context of an
ageing world
Framework: Applied international general equilibrium model with

overlapping generations of rational households: Ingenue2
(Cepii-Ofce-Cepremap)
Originality:
Treatment of international migration in a multi-country model
⇒ Analysis of the consequences on both the destination and origin
regions
Treatment of international migration as endogenous
⇒ Relationship between migration flows, income differentials and
other push and pull factors
Temporal horizon of the study: 2000-2050

Introduction
The model
Motivation
Literature
Methodology
Future developments
Motivation
ageing world

Originality:
regions

Introduction
The model
Motivation
Literature
Methodology
Future developments
Motivation
ageing world

Originality:
regions

Introduction
The model
Motivation
Literature
Methodology
Future developments
Motivation
ageing world

Originality:
regions

Introduction
The model
Motivation
Literature
Methodology
Future developments
Literature
Partial equilibrium analysis:
Demographic projection: United-Nations, Eurostat, World Bank,

National institutes, Etc.
Consequences of migration: Destination countries: Borjas (1999);

Origin countries: Commander and al. (2003)
General equilibrium models:
Closed economy: Storesletten (2000), Lundborg and Segerstrom

(2002), Chojnicki et al. (2005)
Open economy: Fehr, Jokisch and Kotlikoff (2003, 2004)
Introduction
The model
Motivation
Literature
Methodology
Future developments
Literature
Partial equilibrium analysis:
Demographic projection: United-Nations, Eurostat, World Bank,

National institutes, Etc.
Consequences of migration: Destination countries: Borjas (1999);

Origin countries: Commander and al. (2003)
General equilibrium models:
Closed economy: Storesletten (2000), Lundborg and Segerstrom

(2002), Chojnicki et al. (2005)
Open economy: Fehr, Jokisch and Kotlikoff (2003, 2004)
Introduction
The model
Motivation
Literature
Methodology
Future developments
Methodology
Construction and calibration of the CGE-OLG world model: we

assume no migration in the benchmark
Calibration of a conventional exogenous migration scenario based on

UN data: we compare the results to the benchmark for destination
and receiving regions
Estimation of the determinants of international migrations: income

differential, network effects, demographic structure, geography,
culture, etc.
Introduction of these determinants into Ingenue2 where these

determinants are endogenously determined
Introduction
The model
Motivation
Literature
Methodology
Future developments
Methodology



culture, etc.

Introduction
The model
Motivation
Literature
Methodology
Future developments
Methodology



culture, etc.

Introduction
The model
Motivation
Literature
Methodology
Future developments
Methodology



culture, etc.

Introduction
The model
The demographic bloc
Theoretical framework
Technological diffusion
Future developments
PART 1
DESCRIPTION OF THE MODEL
Introduction
The model
Future developments
World regions
Introduction
The model
Future developments
Dependency ratio
World population forecast: The ageing process is not synchronous.
OECD countries will be the first to experience large increase in their
dependency ratio.
1,0
0,9
0,8
0,7
0,6
0,5
0,4
0,3
0,2
0,1
0,0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
N. America W. Europe Japan S. America Mediterranean

Africa Russia China India E. Europe
Introduction
The model
Future developments
Theoretical framework of Ingenue2 (1)
Individual behavior
Overlapping generations
Life cycle motive for saving with rational expectations
Existence of voluntary bequests
Exogenous labour supply: Age-profile of participation to the labour
market
The public sector
A public PAYG system for retirement exists in each region : in the

baseline scenario, net replacement ratios are fixed and social contribution
rates are rising with ageing.
Introduction
The model
Future developments
Theoretical framework of Ingenue2 (1)
Individual behavior
Overlapping generations
Life cycle motive for saving with rational expectations
Existence of voluntary bequests
Exogenous labour supply: Age-profile of participation to the labour
market
The public sector
A public PAYG system for retirement exists in each region : in the

baseline scenario, net replacement ratios are fixed and social contribution
rates are rising with ageing.
Introduction
The model
Future developments
The individual life cycle
! !
"! #$
!
!
% & #$ #
Introduction
The model
Future developments
Theoretical framework (2): The production side
= + Utilization of the regional final good
= Production of the regional final good
Production of the = −
regional intermediate
good :
µ
µ− µ−
Production of the world good : = γ µ µ
Introduction
The model
Future developments
3 regions are catching up at a sustained pace: Eastern Europe, Chinese
and Indian World
1,0
0,8
0,6
0,4
0,2
0,0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

Introduction
The model
GDP growth rate
Net saving
Regional interest rate
Future developments
PART 2
RESULTS OF THE BASELINE
Introduction
The model
GDP growth rate
Net saving
Future developments
GDP growth rate

General slowdown in growth because the working age population growth
rate diminishes in all regions but Africa.
6
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Introduction
The model
GDP growth rate
Net saving
Future developments
Net saving
The world Saving-Investment equilibrium is tilted more and more toward
a lower equilibrium rate.
30
25
20
15
10
0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Introduction
The model
GDP growth rate
Net saving
Future developments

The downward trend profile of interest rates is due to global ageing.
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Introduction
The model
Results of the baseline Methodology
Exogenous migration scenario Exogenous migration results
Future developments
PART 3
EXOGENOUS MIGRATION SCENARIO
Introduction
The model
Future developments
Calibration of migration flows (1)

We first retrieve and aggregate United-Nations net migration data
for each regions until 2050.
3 types of regions are distinguished:
1 Pure immigration zones (WE and NA)
2 Pure emigration zones (South America, Africa, Mediterranean,
Chinese and Indian world)
3 Intermediate zones (Eastern Europe and Russian world)
Migration flows compatible with our regional model are calculated

removing intra-regional flows (ex: German migration to France) as
well as non-pertinent flows (ex: WE migration to NA).
Distribution of migration flows by origin regions are based on WB
data (Docquier&Marfouk, 2005) and complete with the recent WB
report on Eastern Europe and the former Soviet Union
(Mansoor&Quillin, 2006) as well as with Salt (2005).
Introduction
The model
Future developments


Introduction
The model
Future developments


Introduction
The model
Future developments


Introduction
The model
Future developments
Figure: Yearly migration flows by origin and destination countries in 2005 (in
thousand)
Destination Countries
Western Europe North America Eastern Europe Russian World Total Emigration
Mediterranean World 256.8 86.1 0.9 53.2 397.0
Origin Countries
Indian World 58.5 107.0 0.3 54.6 220.5

Chinese World 41.7 316.7 1.2 0.0 359.6
Eastern Europe 53.0 21.6 - 0.0 74.5
Russian World 36.7 46.5 21.9 - 105.0
Latin America 51.8 649.3 0.1 0.0 701.3
Africa 125.3 69.8 0.1 0.0 195.3
Total Immigration 623.8 1297.1 24.6 107.8 2053.3
Sources : Docquier and Marfouk (2005), Salt (2005), United-Nations (2006), World Bank (2006); Authors' calculations
Migration perspectives: Calibration on UN temporal evolution

between 2005 and 2050. Constant emigration rates between 2050
and 2100. After 2100, migration flows progressively reduce and are
nil in 2150.
Introduction
The model
Future developments
Figure: Yearly migration flows by origin and destination countries in 2005 (in
thousand)
Destination Countries
Western Europe North America Eastern Europe Russian World Total Emigration
Mediterranean World 256.8 86.1 0.9 53.2 397.0
Origin Countries
Indian World 58.5 107.0 0.3 54.6 220.5

Chinese World 41.7 316.7 1.2 0.0 359.6
Eastern Europe 53.0 21.6 - 0.0 74.5
Russian World 36.7 46.5 21.9 - 105.0
Latin America 51.8 649.3 0.1 0.0 701.3
Africa 125.3 69.8 0.1 0.0 195.3
Total Immigration 623.8 1297.1 24.6 107.8 2053.3
Sources : Docquier and Marfouk (2005), Salt (2005), United-Nations (2006), World Bank (2006); Authors' calculations
Migration perspectives: Calibration on UN temporal evolution

between 2005 and 2050. Constant emigration rates between 2050
and 2100. After 2100, migration flows progressively reduce and are
nil in 2150.
Introduction
The model
Future developments
Results of exogenous migration scenario (1)

Figure: Total population
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Introduction
The model
Future developments

Figure: Dependency ratio (retirees in % of total working age): difference from
baseline
0.05
0.00
-0.05
-0.10
-0.15
-0.20
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Introduction
The model
Future developments

Figure: GDP growth rate: difference from baseline scenario
1.00
0.80
0.60
0.40
0.20
0.00
-0.20
-0.40
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Introduction
The model
Future developments

Figure: Evolution of net saving (in % of GDP): difference from baseline scenario
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
-0.50
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
Introduction
The model
Future developments

Figure: Evolution of GDP per capita level (2000-2050) (% point difference
from baseline scenario)
4%
3%
2%
1%
0%
-1%
-2%
1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Introduction
The model Methodology
Results of the baseline Specification
Exogenous migration scenario Econometric results
Endogenizing migration flows Results with endogenous migrations
Future developments
PART 4
ENDOGENIZING MIGRATION FLOWS
Introduction
Future developments
Methodology
Gravity equation: Bilateral migration flows

increase with migration incentives (income/capita differentials,
share of young, inequality, poverty)
decrease with migration costs (geographical, cultural)
Quantitatively, what is the elasticity of migration flows with re-

spect to income per capita differentials after controlling for other
observed and unobserved determinants?
Introduction
Future developments
Baseline specification
Regress bilateral emigration rate on its determinants:
(mig /pop)dot = β0 + β1 (yd /yo )t−1 + β2 (syrd /syro )t + β3 ageot

+β4 ineqot + β5 (ineqo )2t + β6 povdt + β7 distdo
+β8 comlangdo + β9 colonydo + β10 (stockdo,t−1 /popot )
+β11 (stockdo,t−1 /popot )2 + κdt + κo + κt + dot
Introduction
Future developments
(1) (2) (3) (4)
Dependent variable Emigration rate
Estimation method OLS OLS Tobit Tobit
gdp per capita diff 0.006** 0.007** 0.007** 0.011***
(0.003) (0.003) (0.003) (0.003)
hum cap diff 0.027*** -0.001 0.042*** 0.021**
(0.009) (0.008) (0.011) (0.009)
origin share young pop -0.347 -0.301 -0.019 -0.195
(0.406) (0.409) (0.389) (0.376)
origin gini -0.002 -0.002 -0.001 -0.000
(0.003) (0.003) (0.003) (0.003)
(origin gini)2 0.000 0.000 0.000 0.000
(0.000) (0.000) (0.000) (0.000)
origin pov -0.221*** -0.286*** -0.248** -0.374***
(0.079) (0.107) (0.103) (0.113)
network 0.036*** 0.037*** 0.036*** 0.038***
(0.006) (0.006) (0.006) (0.006)
(network)2 -0.000*** -0.000*** -0.000*** -0.000***
(0.000) (0.000) (0.000) (0.000)
ln distance -0.117*** -0.114*** -0.142*** -0.142***
(0.022) (0.022) (0.023) (0.023)
colonial link 0.134 0.128 0.159 0.166
(0.120) (0.124) (0.111) (0.113)
common language 0.072** 0.062* 0.102*** 0.094***
(0.033) (0.033) (0.034) (0.034)
Destination FE Yes No Yes No
Destination-Year FE No Yes No Yes
Origin FE Yes Yes Yes Yes
Year FE Yes Yes Yes Yes
N 13,295 13,295 17,321 17,321
R2 0.58 0.60 0.49 0.56
Robust standard errors in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
Introduction
Future developments
Interpretation
Depending on the specification, marginal effects of in-

come/capita differentials on emigration rate range from 0.006
to 0.011
(yd /yo )
Using σ ≡ β1 (mig /pop)do this results in an elasticity ranging
(yd /yo )
from 1 to 1.57 at the sample median of (mig /pop)do
This in the ballpark of Mayda (2006) who estimates an elastic-

ity of the emigration rate with respect to destination country
GDP of 1.9
Introduction
Future developments
Methodology
Computing the endogenous migrations flows using a dynamic

feedback loop, in order to take into account the endogenous
adjustments of the economic variables of the model that enter the
econometric relation.
Introduce elasticity of international migration with respect to income

differentials in the Ingenue2 framework ⇒ endogenous migration
flows: What are the differences with the conventional migratory
scenario?
With this interaction between the demographic part and the

economic part of the model, we are then able to project dynamic
migration flows, in relation with the research priorities defined by the
National Research Council in 2000 in order to improve the
projections of international migrations.
Introduction
Future developments
Methodology
Simulation with
constant migration
flows in the t+n
period
New population
Gdp/capita
structure for each
differential
region
New migration Modify

flows by regions in regions'emigration
t+1 rate
Introduction
Future developments
Endogenous migration flows (1)
2006-2010 2011-2015 2016-2020 2026-2030 2036-2040 2046-2050

Mediterranean World UN 06 -397 -419 -449 -372 -364 -360
Endo. Flows -397 -418 -440 -482 -537 -609
Indian World UN 06 -220 -239 -248 -203 -215 -204
Endo. Flows -220 -230 -236 -244 -255 -271
Chinese World UN 06 -360 -414 -363 -285 -339 -307
Endo. Flows -360 -365 -364 -360 -363 -366
Latin America UN 06 -701 -721 -729 -640 -644 -639
Endo. Flows -701 -740 -768 -828 -926 -1 042
Africa UN 06 -195 -224 -251 -211 -193 -188
Endo. Flows -195 -228 -258 -311 -366 -426
Eastern Europe UN 06 -75 -72 -53 -53 -79 -59
Endo. Flows -75 -69 -65 -57 -51 -48
Russian World UN 06 51 50 34 27 42 30
Endo. Flows 51 48 44 38 34 34
Western Europe UN 06 624 666 674 564 593 555
Endo. Flows 624 658 692 748 810 893
North America UN 06 1 297 1 387 1 352 1 142 1 213 1 155
Endo. Flows 1 297 1 362 1 405 1 494 1 645 1 825
Sources: United-Nations (2006) ; Authors' calculations
Introduction
Future developments

Figure: Evolution of migration flows (% difference from UN scenario)
200%
150%
100%
50%
0%
-50%
2000
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050
2055
2060
S. America Mediterranean Africa China India E. Europe
Introduction
Future developments

Figure: Comparison of different migration flows in 2050
2 000
UN 06
1 500 Constant Emig rates
Endogenous flows
1 000
500
-500
-1 000
-1 500
. ica E. E. A.
d W
ian
W
ese
W in A Afr ern nW rn rth
Me Ind in Lat st ssia ste No
Ch Ea Ru We
Introduction
The model
Future developments
Future developments
Explain migration flows by other factors included in the Ingenue2

model: stock of migrants in the host regions (network effect),
number of young in the origin regions, other variables?
Change the assumption of perfect assimilation ⇒ different

participation rate between natives and migrants?
Introduction of remittances: particularly important for some small

emigration countries (>10%/GDP)
What about consequences of return migrations?

Macro Economic Consequences of Global Migration

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Introduction

Macroeconomic consequences of global migration

Vladimir Borgy(1)(2) , Xavier Chojnicki(2)(3)

OECD-CEPII Conference - October 23-24, 2008

Framework: Applied international general equilibrium model with

Temporal horizon of the study: 2000-2050

Framework: Applied international general equilibrium model with

Temporal horizon of the study: 2000-2050

Framework: Applied international general equilibrium model with

Temporal horizon of the study: 2000-2050

Framework: Applied international general equilibrium model with

Temporal horizon of the study: 2000-2050

Demographic projection: United-Nations, Eurostat, World Bank,

Consequences of migration: Destination countries: Borjas (1999);

General equilibrium models:

Closed economy: Storesletten (2000), Lundborg and Segerstrom

Open economy: Fehr, Jokisch and Kotlikoff (2003, 2004)

Demographic projection: United-Nations, Eurostat, World Bank,

Consequences of migration: Destination countries: Borjas (1999);

General equilibrium models:

Closed economy: Storesletten (2000), Lundborg and Segerstrom

Open economy: Fehr, Jokisch and Kotlikoff (2003, 2004)

Construction and calibration of the CGE-OLG world model: we

Calibration of a conventional exogenous migration scenario based on

Estimation of the determinants of international migrations: income

Introduction of these determinants into Ingenue2 where these

Construction and calibration of the CGE-OLG world model: we

Calibration of a conventional exogenous migration scenario based on

Estimation of the determinants of international migrations: income

Introduction of these determinants into Ingenue2 where these

Construction and calibration of the CGE-OLG world model: we

Calibration of a conventional exogenous migration scenario based on

Estimation of the determinants of international migrations: income

Introduction of these determinants into Ingenue2 where these

Construction and calibration of the CGE-OLG world model: we

Calibration of a conventional exogenous migration scenario based on

Estimation of the determinants of international migrations: income

Introduction of these determinants into Ingenue2 where these

N. America W. Europe Japan S. America Mediterranean

Theoretical framework of Ingenue2 (1)

The public sector

A public PAYG system for retirement exists in each region : in the

Theoretical framework of Ingenue2 (1)

The public sector

A public PAYG system for retirement exists in each region : in the

The individual life cycle

Theoretical framework (2): The production side

= + Utilization of the regional final good

= Production of the regional final good

N. America W. Europe Japan S. America Mediterranean

GDP growth rate

N. America W. Europe Japan S. America Mediterranean

N. America W. Europe Japan S. America Mediterranean

Regional interest rate

Calibration of migration flows (1)

Migration flows compatible with our regional model are calculated

Calibration of migration flows (1)

Migration flows compatible with our regional model are calculated

Calibration of migration flows (1)

Migration flows compatible with our regional model are calculated

Calibration of migration flows (1)

Migration flows compatible with our regional model are calculated

Calibration of migration flows (2)