The Regional Economic Effects of Immigration: Simulation Results From a Small CGE Model

The effects of immigration on the host country are pervasive and long-term. It is not surprising that they have been extensively analysed, not least the economic effects which have been the subject of both theoretical and empirical research. While some of the empirical research has had a regional dimension, this has often been incidental to the analysis of the labour market – the effects of immigration on wages and employment prospects of the native-born depend on the regional migration response. In contrast, there has been little analysis of the general effects of immigration on regional economies per se. This paper contributes to the filling of this gap by constructing a small two-region computable general-equilibrium (CGE) model which is used to analyse the effects of various immigration shocks on regional variables such as output, employment, the labour force, unemployment, wages and welfare. We simulate the effects of different types of immigration shocks and distinguish between short-run and long-run effects. We also consider the effectiveness of government intervention designed to alleviate the adverse regional effects of immigration including the possibility that regional governments behave in a welfare-maximising way.