Immigration Inflow and Economic Development in Atlantic Canada

Transcription

1 Immigration Inflow and Economic Development in Atlantic Canada By Wimal Rankaduwa University of Prince Edward Island Economics and Labour Market Integration (ELMI) Domain Atlantic Metropolis Centre 12th National Metropolis Conference Immigration and Diversity: Crossroads of Cultures, Engine of Economic Development Montréal, March 18-21, 2010

2 PURPOSE To undertake an empirical examination into the relationship between immigration and economic growth in Atlantic Canada. To develop an econometric model of economic growth to assess the effect of current immigration inflow on current economic growth rate. The model is formulated within the framework of an aggregate production function and estimate it with the regional data for Atlantic Canada during the period from 1981 to The model relates economic growth rate to the private investment-output ratio and the growth rates of labour, immigration inflow, government investment and exports. Motivated mainly by Previous Studies 1. Rankaduwa (2004)- Productivity in Prince Edward Island Economy: An Empirical Assessment 2. Akbari, Lynch, McDonald, and Rankaduwa (2007) Socioeconomic and Demographic Profiles of Immigrants in Atlantic Canada 3. Rankaduwa (2010)- Immigration and Economic Development in Prince Edward Island

3 Atlantic Canada s Key Development Challenge Rankaduwa (2004) reviewed the relationship between standard of living and productivity in Atlantic Canada, relative to Canada and the United States. There has been a persistent standard of living gap in Atlantic Canada about 28% relative to Canada ( ) about 39% relative to United States ( ). Productivity gaps have been the largest contributor to the standard of living gap in Atlantic Canada. per worker productivity gap is above 15% ( ). Relative to US the gap is about 28% ( ). Atlantic provinces rank among the lowest of Canadian provinces and the US states. per hour productivity gap relative to Canada is about 16% ( ). Closing the standard of living gap (i.e., improving productivity and promoting economic growth) is the main development challenge facing Atlantic Canada.

4 Provincial and Regional GDP per Capita and Productivity Levels Relative to Canada, GDP per Capita and Productivity Levels Relative to Canada % 120% 100% 80% 60% 40% 20% 0% Atlantic Canada NF. & LAB. PEI Nova-Scotia New-Brunswick Québec Ontario Western Canada Manitoba Saskatchewan Alberta British Columbia Canada Real GDP per Capita Per Worker Productivity Productivity per Hour ( )

5 Can Immigration Help Improve Productivity and Promote Growth? Average labour productivity depends on: Human capital (skills, talents etc.) Physical capital (equipments, tools etc.) Land and other natural resources Technology Research and Development Imported (via patents, licenses and imitation) Entrepreneurship, management and organization Political and legal environment Immigrant Inflows can provide resources enhancing productivity in various forms, directly or indirectly: skilled labour, human capital, capital inflow, technology transfer, managerial and entrepreneurial capabilities etc.

6 Atlantic Canada s Immigration Experience Akbari, Lynch, McDonald, and Rankaduwa (2007): Some findings: General Atlantic Canada s share of annual immigration into Canada was about 2% except for few years Immigrants contribution to population growth and labour force increased over time At the time of their arrival, immigrants were younger than the resident nonimmigrant population, and this age difference has widened over time. Composition of Immigrants Family class immigrants comprise the largest category of immigrants Proportion of skilled immigrants increased from 1981 to Average annual share of business immigrants declined during the period. Human Capital Education level of immigrants to Atlantic Canada compared favourably with that of non-immigrants over the period. Proportion of new immigrants with a university degree increased, while the proportion of immigrants with high school or less education decreased.

7 Atlantic Canada s Immigration Experience Akbari, Lynch, McDonald, and Rankaduwa (2007): Some findings Continued. Labour Market Outcomes immigrants are less likely to be unemployed, have higher labour incomes on average, and receive lower amounts of government transfers on average. Recent immigrants are more likely to be in the labour force, be unemployed, and have lower earned incomes on average. This may be partly due to a lack of recognition of educational credentials. It is likely that immigrants contribution to the Atlantic Canada economy is not being fully realized. Skilled Immigrants Inflows of medium- and low-skilled immigrants has shown a declining trend. Inflow of highly skilled has displayed an increasing trend.

8 10,000 ATLANTIC CANADA RELATIVE TO CANADA 9,000 8,000 7,000 Percent 6,000 5,000 4,000 3,000 2,000 1,000 0, Year Real GDP Population Immigration

9 60,000 IMMIGRATION INFLOW GROWTH RATES IN CANADA AND ATLANTIC CANADA 50,000 40,000 30,000 Percent 20,000 10,000 0,000-10,000-20,000-30,000-40, Year Canada ATLANTIC

10 50,000 ATLANTIC CANADA GROWTH RATES 40,000 30,000 20,000 Percent 10,000 0,000-10,000-20,000-30,000-40, Year Real GDP Population Immigration

11 Does Immigration Inflow Promote Economic Growth? Model of Economic Growth: dy/y = a 0 + a 1 dk/y + a 2 dl/l+ a 3 dh/h + a 4 dg/g + a 5 dx/x + U Where, dy/y =Economic Growth Rate dk/y = Private Investment-Output Ratio dl/l=growth rate of Labour dh/h = Growth rate of immigrant inflow dg/g= Growth rate of Government Investment dx/x= Growth rate of Exports U= Error term a 1 = Marginal Product of Capital a 2 = Labour Elasticity of Output a 3 = Immigration Elasticity of Output a 4 = Government Investment Elasticity of Output, and a 5 = Export Elasticity of Output

12 Does Immigration Promote Economic Growth? Continued. Estimated Model R 2 = 0.90, R 2 (Adjusted)=0.74, DW= Variable Name Estimated Coefficient Standard Error T-Ratio (9 df) dk/y dl/l * dh/h * dg/g * dx/x * D * D91*dK/Y * D91*dL/L * D91*dG/G * D91*dX/X * D ** D99*dK/Y ** D99*dL/L * D99*dH/H * D99*dX/X * Constant

13 Does Immigration Inflow Promote Economic Growth? Continued Model Estimates by Sub-period Estimated Coefficient Marginal Product of Capital (a 1 ) Labour Elasticity of Output (a 2 ) Immigration Elasticity of Output (a 3 ) Govt. Investment Elasticity of Output (a 4 ) Export Elasticity Of Output (a 5 ) Constant (a 0 )

14 Does Immigration Inflow Promote Economic Growth? Continued Estimated Mean Values of Variables in the Model by Sub-period Estimates Economic Growth Rate (dy/y ) Private Investment-Output Ratio (dk/y) Growth Rate of Labour (dl/l) Growth Rate of Immigration Inflow (dh/h) Growth Rate of Govt. Investment (dg/g) Growth Rate of Exports (dx/x)

15 Does Immigration Inflow Promote Economic Growth? Continued Estimated Mean Values of Output-Input Ratios by Sub-period Output-Input Ratios Output-Labour Ratio (Y/L) Output-Immigration Ratio (Y/H) Output- Govt. Investment Ratio (Y/G) Output-Exports Ratio (Y/X)

16 Does Immigration Inflow Promote Economic Growth? Continued Estimated Mean Values of Marginal Product by Sub-period Estimated Marginal Product Marginal Product of Capital ( Y/ K) Marginal Product of Labour ( Y/ L) Marginal Product of Immigration ( Y/ H) Marginal Product of Govt. Investment ( Y/ G) Marginal Product of Exports ( Y/ X)

17 Conclusions Growth rate of Immigration inflows is a significant determinant of economic growth rate in Atlantic Canada Immigrant inflow has promoted economic growth in Atlantic Canada. Marginal product of immigrants has changed over time Private investment output ratio, and the growth rates of labour, government investment and exports are also significant determinants of economic growth rate. Past Immigration Inflows contribute to economic growth through their impact on the growth of private investment, labour, government investment and exports. Potential contribution of immigrant inflows to overall economic growth has not been realized A comprehensive regional economic growth strategy in which immigration plays a critical role is necessary to realize full growth potential.