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Flows of people

Link to economic growth

86%
Proportion of migrants approved for residence who have been to New Zealand before
Source: Statistics New Zealand (2008a)

Short-term travel has a direct impact on economic activity. In many countries, tourism, business travel, and international education form a substantial part of the economy.[24]

Travellers can help build networks. Interpersonal links can be created through business networks, or tourists can gain knowledge of the countries they visit. Short-term business travel is both a sign of global business linkages and may help stimulate closer ties through greater familiarity with markets, and other information and ideas.

Students and researchers can facilitate knowledge transfer. Students and researchers from abroad can bring ideas with them (and could become future citizens). Domestic students studying, or researchers working, abroad can bring new knowledge and experience with them when they return.[25]

25%
Proportion of new New Zealand migrants to the UK earning over £750 per week, compared with 7% for the UK population as a whole
Source: BBC (2005)

Immigrants' net impact on GDP per person is likely to be positive, but small. The effects of migration are complex and can be both positive and negative on economic performance.[26] The main considerations are:

  • Immigrants provide a source of labour. For some countries, such as New Zealand, the labour supply impact can be substantial.[27] The overall impact on labour supply depends on the balance of demographic, participation and employment rate effects. Note that labour supply affects overall GDP, but not necessarily GDP per person.
  • Immigrants have the biggest impact on growth when their skills are fully utilised. Migrants tend to go through an initial adjustment period that can last 5-10 years, as they adjust to a new country, work culture, language, and so on.[28] The speed of this convergence can vary greatly between migrants, often depending on country of origin. Domestic policies, such as those relating to language competency or occupational licensing, may affect skill utilisation.
  • Immigrants are likely to bring spillovers, but these are hard to measure. Some evidence exists that immigration has a weak effect on productivity,[29] but it is not clear how this occurs. Migrants have effectively self-selected to undergo a significant life change, demonstrating a degree of ‘get up and go', which may be associated with entrepreneurialism.[30] Migrants may bring ideas from abroad, create personal linkages, and can increase domestic understanding of foreign markets and country institutions. The last factor effectively reduces transaction costs to trade and investment, and some evidence shows immigrants contribute to developing trade and investment links with their home countries.[31]
  • Immigrants tend to impact positively on public finances, but this is not enduring enough to address the effects of population ageing. Immigrants tend to be younger on average than the native population, which suggests a beneficial fiscal impact.[32] This work takes a ‘snapshot' approach rather than a ‘lifecycle' approach, however, and if they remain within the economy, immigrants will tend to use more public services as they age.
Impact on the net immigration rate of a 1% increase in per capita GDP growth - % of population
Impact on the net immigration rate of a 1% increase in per capita GDP growth - % of population.
Source:  OECD

Overall population appears to matter less for economic performance than effective market size. It is sometimes suggested that a higher population would allow greater economies of scale and higher growth, and could be achieved through higher immigration. However, the more important determinant appears to be ‘effective' market size - that is, the market size achieved through both the domestic market and through international connections, including people flows.[33]

Emigrants represent a loss of labour and skills, but can still provide benefits. While they are gone, emigrants may bring economic benefits through personal or business links between the home and adopted countries.[34] Emigrants may eventually return to their home country, returning with knowledge, experience, and links with their previously adopted country.

For some countries, migration is particularly sensitive to economic growth. Recent OECD work found that a 1% increase in growth in GDP per person would increase net immigration by between 0.17% and 0.22% of the total population for Australia, Austria, Switzerland, and New Zealand, and 0.42% for Ireland.[35]

A range of policy settings can influence migration patterns. The main policy areas that can affect incentives to migrate are set out in Figure 2. The circular diagram reflects the fact that increasingly migration can be characterised as temporary and circular rather than permanent.

Notes

  • [24]Short-term travel covers anyone visiting or leaving New Zealand for less than 12 months, and can include people on short-term work or study visas as well as tourists.
  • [25]Permanent or long-term migration covers people immigrating or emigrating for more than 12 months and can include New Zealanders on their ‘OE’ and foreigners studying, travelling or working in New Zealand for an extended (but potentially non-permanent) period. The impacts of migration can vary greatly according to migration type (e.g. temporary work visa, permanent residency, study permit), making aggregated analysis difficult.
  • [26]The OECD (2008b) emphasised the increasing importance of migration of the highly skilled and recommended developing mobility policies to capture the benefits.
  • [27]New Zealand is currently experiencing a labour market contraction, though until recently businesses had identified skill shortages as a constraint on business since the late 1990s (NZIER, 2009).
  • [28]See, for example, Moody (2006), Winkelmann and Winkelmann (1998).
  • [29]Poot and Cochrane (2004) commented that New Zealand evidence “comes from a macroeconomic causality analysis of net immigration and total factor productivity (TFP) growth, …[which] showed that there was only a weak effect of immigration Granger causing productivity improvements, but a much stronger effect of net migration responding positively at times when TFP growth was faster than usual.”
  • [30]Inkson et al (2004)
  • [31]For example, Girma and Yu (2000) found evidence of a link between trade and migration for the UK. Bryant, Murat and Law (2004) found a similar link for New Zealand. Dolman (2008) found that: “countries tend to trade and invest more with countries from which they have received more migrants”, though “migrants appear to reduce trade with other countries so that the overall effect on aggregate trade seems quite small”.
  • [32]Slack et al (2007)
  • [33]For example, Davis (2008) finds that “the popular identification of scale with a nation’s population size is the result of function forms adopted for analytical convenience, rather than a fundamental insight into the demand for non-rival goods... Either poorly integrated domestic markets or international trade may result in national population size and other macroeconomic variables being poor proxies for the exploitation of non-rival inputs”.
  • [34]Gamlen (2005, 2007) finds that New Zealanders abroad who retain personal links with New Zealand and a sense of shared New Zealand identity are more likely to bring positive spillovers to New Zealand. Gamlen recommends developing a coherent, long-term approach to state-diaspora relations.
  • [35]OECD (2008c)
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