## ch3

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---

### Introduction and authorship
- Authors: Paula Beltran Saavedra, Nicolas Fernandez-Arias, Shushanik Hakobyan, Samuel Mann, Neil Meads, and Carolina Osorio Buitron, under the guidance of Aqib Aslam, and with support from Shan Chen, Camara Kidd, Xiaomeng Mei, and Johannes Rosenbusch.
- Contributions from Desire Kanga, Roland Kpodar, Manasa Patnam, and Annalaura Sacco. External consultants: Lorenzo Caliendo, Fernando Parro, and Timo Tonassi. The authors thank Michael Clemens for his invaluable comments.
- Scope: Examines spillovers from changes in migration and refugee policies in destination economies to other jurisdictions, focusing exclusively on “regular”/“legal” cross-border movement of migrants and refugees. Irregular/“illegal” movement is excluded due to severe data constraints.

### Key statistics and global trends
- Global stock of legal migrants and refugees as of 2024: 304 million.
- Share of global population represented by that stock: 3.7 percent.
- Proportion who are refugees or asylum seekers: about one in six.
- Distribution by host economy type:
  - About 40 percent of migrants reside in emerging market and developing economies.
  - About 75 percent of refugees reside in emerging market and developing economies.
- Historical trend: Stock of legal migrants and refugees in 2024 is almost double that observed in 1995.
- Regional composition:
  - Flows of both migrants and refugees between emerging market and developing economies have increased and now account for almost half of overall net flows.
  - During 2020–24, most gross flows were between economies within the same region and income group.
- Refugee hosting:
  - About two-thirds of the stock of refugees are hosted in neighboring countries.
  - Four out of the top five hosts are emerging market and developing economies.

### Drivers, acceptance, and discourse
- Drivers: Pull and push factors—including geopolitical shocks and natural disasters, which have increased in frequency—along with migration and refugee policies in destination economies that alter frictions and costs/benefits of migration decisions.
- Acceptance and discourse:
  - Acceptance of migrants and refugees has been deteriorating in several major destination economies (see Migrant Acceptance Index changes, 2016–23).
  - Media coverage of migration and refugees has increased and driven policy discourse (mentions series across nine languages).
  - Survey evidence: Intention to migrate remains robust despite constraints on reaching preferred destinations; many migrants intend to move to advanced economies but often end up in nearby economies within the same income group.

### Channels of policy spillovers
- Four main channels:
  - Categorical substitution: Stricter policies alter the composition of flows (shifts between migrants and refugees).
  - Destination substitution/deflection: Restrictions divert migrants and refugees to other destinations or leave them stranded in transit economies.
  - Origin substitution: Migrants and refugees from other origin economies fill gaps left by restrictions on targeted origins.
  - Origin suppression/deterrence: Stricter policies dissuade migrants from traveling altogether.

### Empirical magnitudes and general findings
- Spillovers can be significant for flows of people, but relatively modest for output for the average economy.
- Empirical magnitudes:
  - Policy tightening that deters inflows by 20 percent in one set of economies can result in a significant deflection of people—increasing inflows to other economies by 10 percent cumulatively over five years.
  - Tighter policies that reduce migrant inflows by 20 percent over five years can be partly offset by a 30 percent increase in the typically smaller inflows of refugees over the same period.
  - Deflected flows to the final destination—equivalent to an average increase in the immigrant share of its population of about 0.2 percentage points—are associated with a 0.2 percent increase in output after five years.
  - If other countries tighten only their refugee policies, the resulting diversion of refugees does not generate meaningful output gains in the final destination.
  - Stronger refugee integration policies can deliver better outcomes, notably among emerging market and developing economies.

---

### External Regulations — gravity-model evidence
- Gravity framework (194 economies, 1995–2020) results:
  - Tightening that deters 20 percent of migrant and refugee inflows in one set of destination economies leads to an increase of almost 10 percent in others over five years.
  - Effects slightly more pronounced for advanced economies than for emerging market and developing economies (EMDEs).
  - Largest when internal regulations are tightened and relatively modest when enforcement of controls is stricter.
- Output associations:
  - A 2 percentage point rise in the share of deflected migrant and refugee inflows in the destination economy’s population is associated with an increase in output in that economy of about 2 percent over a five-year period.
  - For the average destination economy—where inflows are close to 2 percent of the population—a 10 percent increase in inflows equates to an increase in output of about 0.2 percent.
  - Output effects hold regardless of which type of regulation tightens (external, internal, controls).
- Refugee-specific evidence:
  - Tightening refugee policies to reduce refugee inflows by 60 percent over one year is associated with an increase in refugee inflows into other economies of close to 8 percent within one year.
  - Deflected refugee inflows do not generate meaningful output gains on average because of absorption challenges; stronger integration policies (naturalization, ease of movement) raise output effects, especially for EMDEs.

### Categorical substitution and heterogeneity
- Tightening migration policies leads to categorical substitution toward refugees:
  - A tightening designed to reduce average annual migration flows by about 4 percent into a destination economy over one year can be partly offset with an increase of more than 25 percent in the typically smaller refugee inflows to that economy.
  - Additional refugee inflows lead to modest short-term output effects because refugees face greater integration challenges and skill mismatches.
- Short- to medium-term output responses:
  - Additional flows are associated with output increases in advanced economies.
  - Output impact in EMDEs is muted when integration is not accounted for, reflecting weaker absorption capacity and relatively larger refugee inflows in EMDEs.
- Empirical literature: High-skilled immigration is associated with better economic outcomes, including higher wages for natives and enhanced firm performance.

### Modeling spillovers — spatial dynamic general equilibrium exercises
- Model distinguishes legal pathways (migrant and refugee) and varying degrees of labor market integration, with outcomes driven by agglomeration versus congestion.
- Exercise 1 (targeted migration-policy tightening) assumptions and consequences:
  - Assumption: tighter policies reduce the stock of migrants from targeted origin economies by 20 percent over the short to medium term relative to the baseline.
  - Consequences:
    - Origin suppression: 0.25 percent more of the native population remains in origin economies.
    - Categorical substitution into refugees: low-skilled refugee flows increase by 4 percent; high-skilled refugee flows increase by 0.5 percent.
    - Migrants account for 0.3 percent of the population from the origin countries and roughly half of that amount when measured in percent of the population in the destination economy.
    - Destination substitution: low-skilled refugees to alternative destinations increase by 2 percent.
  - Aggregate effects:
    - Implementing jurisdiction: short- to medium-term output declines modestly by close to 7 basis points (0.07 percentage points) relative to baseline.
    - Origin and bordering economies: small increases in output in the short to medium term; lower output per worker in origin and bordering economies results from greater congestion.
    - Long term: output in the implementing jurisdiction remains lower relative to baseline as capital accumulation slows and output per worker declines; targeted origin economies also incur long-term costs from lower output per worker.
    - Bordering economies can replenish capital over the long term and realize higher output per worker relative to baseline.
    - Global output: declines by about 2 basis points in the short to medium term and by about 7 basis points over the long term relative to the baseline.

### Distributional and welfare implications
- Output per worker: a 2 percentage point rise in the share of deflected inflows is associated with a decline in output per worker of just under 0.2 percent over five years (imprecisely estimated).
- Within advanced economies and EMDEs, impacts on GDP per worker are small and negative but imprecisely estimated.
- Overall welfare trade-offs:
  - Targeted tighter migration policies reallocate labor away from countries where workers would be more productively used, slightly lowering global output.
  - The balance between agglomeration gains and congestion costs, plus capital adjustment frictions, shapes long-term outcomes and yields conservative estimates of output effects.
- Interpretation caveats: reverse causality from flows to policies, measurement error from incomplete bilateral policy data, and complexity from multiple spillover channels and alternative legal pathways.

---

### Real Income Effects for Natives — distributional effects
- Capital owners in implementing jurisdictions: real incomes will be lower than the baseline because of the decline in the labor supply and associated productivity losses.
- Capital owners in origin and bordering economies: will benefit.
- Native low-skilled workers in the implementing destination economy: will benefit from protection afforded by tighter migration controls.
- Increase in low-skilled labor in origin and bordering economies: depresses real incomes in those locations.
- High-skilled workers in origin economies: adversely affected because of congestion when there are fewer opportunities to migrate.
- High-skilled workers in destination economies: worse off relative to baseline because the inflow of complementary low-skilled workers has decreased.
- Negative welfare impact on natives in origin economies: reflects fewer opportunities to relocate to higher-productivity destinations.
- Migrants and refugees: stand to lose in all locations from restricted mobility.

### Cooperation versus unilateral tightening — scenarios and trade-offs
- Baseline calibration: a large historical episode of forced displacement in which additional inflows impose short- to medium-term congestion costs that may be more than implementing jurisdictions would accept.
- Scenario definitions:
  - Scenario 1: Bordering emerging market and developing destination economies temporarily increase policy barriers to reduce short- to medium-term net inflows by 25 percent relative to the baseline.
  - Scenario 2: A large nonbordering (advanced) destination economy temporarily increases policy barriers to reduce short- to medium-term net inflows by 25 percent relative to the baseline.
  - Scenario 3 (cooperation): Both destination sets agree to take more inflows; each jurisdiction temporarily tightens policies to reduce short- to medium-term net inflows by 12.5 percent relative to the baseline.
- Short- to medium-term outcomes (Scenarios 1 and 2):
  - Tighter policies reduce congestion in the implementing jurisdiction, boosting per capita consumption relative to the baseline (short term).
  - Aggregate consumption impact is negative in the short to medium term, as the labor force shrinks relative to the baseline.
  - Smaller labor force leads to lower investment, amplifying the initial decline in aggregate consumption.
  - Long-term cost: once the capital stock adjusts, smaller agglomeration effects lower total factor productivity.
- Outcomes under cooperation (Scenario 3):
  - Both destinations experience more congestion in the short to medium term and stronger agglomeration effects in the long term.
  - Because the labor force does not shrink as much as in the first two scenarios, aggregate consumption decreases by less over time.
  - Coordinated policies can produce stronger long-term benefits for destination economies.

### Timing labels used in analysis
- “Short to medium term” refers to results for 2025.
- “Long term” refers to results in 2075.

### Key contextual quantities and findings
- Migration and refugee flows constitute a small share of the population of advanced destination economies—averaging about 2 percent over five years.
- In mid-2024, the stock of forcibly displaced persons reached a record high of 123 million globally, with the number of those internally displaced—at just over half that total—marking its 12th consecutive year of increase.
- Nearly two-thirds of refugees under the UNHCR mandate and other people in need of international protection come from just four countries: Afghanistan, Syria, Ukraine, and Venezuela.
- Nearly 73 percent of refugees are hosted in emerging market and developing economies, with half the global total in just 10 such economies.
- Among the nearly 27 million internally displaced persons each year over the past 20 years, about two-thirds of these displacements were triggered by natural disasters.
- Natural disaster shocks studied include droughts and tropical cyclones and are modeled as increases to the 75th percentile of the sample distribution in the exercise referenced.

### Policy implications and recommended actions
- Improve integration of migrants and refugees to maximize gains for destination economies:
  - Address integration challenges that are more severe for refugees than for migrants due to unexpected nature and scale of inflows, delays in granting refugee status, and limited access to local labor markets.
  - Strengthen incentives to take up formal work—through well-designed tax and transfer systems and improved access to public health and education services—especially in emerging market and developing destination economies that receive a disproportionate share of refugees.
  - Minimize domestic barriers to occupational mobility and reduce administrative delays that cause harmful gaps in employment history.
  - Provide language training and improve recognition and transferability of qualifications.
  - Provide access to job search services and invest in education to allow for upskilling and (re)training of new entrants.
- Prioritize productive public spending and structural reforms to alleviate congestion:
  - Prioritize public investment in infrastructure and health and education services to minimize strain from large inflows.
  - In the wake of unexpected inflows, work with international partners to provide humanitarian support and capacity development.
  - Complement humanitarian and public spending with domestic reforms to increase private sector development to better absorb inflows, notably where fiscal space is limited.
- Consider international cooperation to distribute short-term hosting costs more evenly across countries and alleviate burdens on individual economies; such cooperation stands to benefit emerging market and developing economies that tend to lack fiscal space and absorptive capacity.
- Recognize limits of migration and refugee policies:
  - Restrictive policies can cut off opportunities to boost productivity and potential output while shifting congestion elsewhere.
  - Migration and refugee policies cannot fully address pressures from forced displacement or structural bottlenecks, including labor market imbalances associated with sectoral and demographic shifts.

---

### Box 3.1 (continued) — demographics, fiscal and wage dynamics
- Demographic trends:
  - Advanced economies are projected to see old-age dependency rise from 20 older people for every 100 working-age individuals at the turn of the century to 50 by the end of 2050.
  - Many low-income developing countries remain in early stages of demographic transition with a youth bulge, but high informality, lack of jobs, and limited social protection prevent full absorption of young people into workforces.
- Migrant demographics and fiscal contributions:
  - Globally, 78 percent of migrants and refugees are of working age, compared with only 63 percent of native populations.
  - Fertility rates of migrants are higher than those of natives, providing a longer-term boost to the working-age population.
  - Immigrants can have a positive net fiscal contribution over the medium term when adequate integration measures are in place.
  - Overcoming constraints on refugees’ economic participation could lower costs of assistance in low- and middle-income countries by about 75 percent.
- Illustrative projections:
  - A multiyear wave of 6 million immigrants would reduce the US federal deficit by $0.9 trillion by 2034 (US CBO 2024).
  - An increase in annual net migration from 129,000 to 245,000 arrivals would reduce public debt as a share of GDP by 30 percentage points (UK OBR 2023).
- Migration, inflation, and wages:
  - A surge in high-skilled migration of about 0.7 percent of the population triggers a boost in investment, with inflation increasing up to 0.25 percentage point within three years of the shock.
  - A similar surge in low-skilled migration has very little impact on inflation.
  - Wage effects in simulations:
    - A surge in low-skilled immigration: marginally increases wages of high-skilled native workers and decreases wages for low-skilled native workers by less than 1 percentage point over the long term.
    - A surge in high-skilled migration: marginally decreases wages of high-skilled native workers by up to 1.5 percentage points and slightly increases wages of low-skilled native workers over the long term.
  - Downward pressures on wages for natives with skills matching migrants are modest and may be attenuated by frictions and imperfect substitutability.

---

### Low-Skilled Immigration — impulse-response depiction and data notes
- Impulse-response depiction:
  - Horizontal axis shows quarters.
  - Responses are in percentage deviations from the detrended steady state.
  - The solid line is the median and the shaded area the interquartile range.
  - Figure panels compare Low-Skilled Immigration and High-Skilled Immigration.
  - Axis tick labels (quarters): 0, 5, 10, 15, 20, 25, 30, 35, 40.
  - Vertical axis tick labels (percentage deviation scale): −2.0, −1.5, −1.0, −0.5, 0, 0.5.
- Data sources for the impulse responses:
  - Luxembourg Income Study Database
  - National authorities
  - Organisation for Economic Co-operation and Development
  - United Nations Department of Economic and Social Affairs
  - IMF staff calculations

*Source: https://www.imf.org/-/media/files/publications/weo/2025/april/english/ch3.pdf*

### Introduction

### ch3 - Introduction

### Overview and authorship
- Authors: Paula Beltran Saavedra, Nicolas Fernandez-Arias, Shushanik Hakobyan, Samuel Mann, Neil Meads, and Carolina Osorio Buitron, under the guidance of Aqib Aslam, and with support from Shan Chen, Camara Kidd, Xiaomeng Mei, and Johannes Rosenbusch.
- Contributions from Desire Kanga, Roland Kpodar, Manasa Patnam, and Annalaura Sacco. External consultants: Lorenzo Caliendo, Fernando Parro, and Timo Tonassi. The authors thank Michael Clemens for his invaluable comments.
- Scope: Examines spillovers from changes in migration and refugee policies in destination economies to other jurisdictions, focusing exclusively on “regular”/“legal” cross-border movement of migrants and refugees. Irregular/“illegal” movement is excluded due to severe data constraints.

### Key statistics and global trends
- Global stock of legal migrants and refugees as of 2024: 304 million.
- Share of global population represented by that stock: 3.7 percent.
- Proportion who are refugees or asylum seekers: about one in six.
- Distribution by host economy type:
  - About 40 percent of migrants reside in emerging market and developing economies.
  - About 75 percent of refugees reside in emerging market and developing economies.
- Historical trend: Stock of legal migrants and refugees in 2024 is almost double that observed in 1995.
- Regional composition:
  - Flows of both migrants and refugees between emerging market and developing economies have increased and now account for almost half of overall net flows.
  - During 2020–24, most gross flows were between economies within the same region and income group.
- Refugee hosting: About two-thirds of the stock of refugees are hosted in neighboring countries; four out of the top five hosts are emerging market and developing economies.

### Drivers, policy evolution, and public discourse
- Drivers: Pull and push factors—including geopolitical shocks and natural disasters, which have increased in frequency—along with migration and refugee policies in destination economies that alter frictions and costs/benefits of migration decisions.
- Acceptance and discourse:
  - Acceptance of migrants and refugees has been deteriorating in several major destination economies (see Migrant Acceptance Index changes, 2016–23).
  - Media coverage of migration and refugees has increased and driven policy discourse (mentions series across nine languages).
  - Survey evidence: Intention to migrate remains robust despite constraints on reaching preferred destinations; many migrants intend to move to advanced economies but often end up in nearby economies within the same income group.

### Channels of spillovers from policy changes
- Four main channels through which migration and refugee policy changes alter flows:
  - Categorical substitution: Stricter policies alter the composition of flows (shifts between migrants and refugees).
  - Destination substitution/deflection: Restrictions divert migrants and refugees to other destinations or leave them stranded in transit economies.
  - Origin substitution: Migrants and refugees from other origin economies fill gaps left by restrictions on targeted origins.
  - Origin suppression/deterrence: Stricter policies dissuade migrants from traveling altogether.

### Empirical findings on spillovers and economic effects
- General results:
  - Spillovers can be significant for flows of people, but relatively modest for output for the average economy.
- Magnitudes from empirical analysis:
  - Policy tightening that deters inflows by 20 percent in one set of economies can result in a significant deflection of people—increasing inflows to other economies by 10 percent cumulatively over five years.
  - Policy changes can alter composition: Tighter policies that reduce migrant inflows by 20 percent over five years can be partly offset by a 30 percent increase in the typically smaller inflows of refugees over the same period.
  - Deflected flows to the final destination—equivalent to an average increase in the immigrant share of its population of about 0.2 percentage points—are associated with a 0.2 percent increase in output after five years.
  - If other countries tighten only their refugee policies, the resulting diversion of refugees does not generate meaningful output gains in the final destination.
  - Stronger refugee integration policies can deliver better outcomes, notably among emerging market and developing economies.

### Model-based simulations and labor-market implications
- Broad simulation conclusions:
  - Policies that deflect legal flows of migrants and refugees or induce pursuit of alternative legal pathways have economic implications across destinations depending on labor market integration and skills matches.
  - A reduction in legal migration inflows from policies targeting selected origin economies is partly offset by an increase in refugees from those economies—particularly low-skilled refugees—and migrants are deflected toward bordering economies.
  - The cumulative economic impact in the short to medium term is a modest lowering of GDP in origin destination economies that tighten policies, with a small boost to output elsewhere due to increased labor supply.
- Distributional effects within destination economies:
  - In economies receiving deflected migrants or refugees, increased competition may reduce wages for some workers—particularly in the short term.
  - Incomes of natives engaged in activities complementary to the skills of incoming migrants and refugees increase.
- Policy levers that improve outcomes:
  - Better behind-the-border migration and refugee policies on integration.
  - Infrastructure investment and active labor market policies to ease short-term congestion costs.
  - International cooperation to redistribute costs and improve outcomes compared with unilateral measures in response to forced-displacement shocks.

### Policy relevance and final framing
- Shifts in migration and refugee policies in destination economies can result in global spillovers by altering legal flows.
- These policy changes cannot substitute for addressing underlying push and pull factors, particularly forced displacement drivers, but they can help manage flows to the benefit of destination economies.
- International cooperation and improved integration policies are emphasized as means to mitigate short-term frictions and distribute burdens more evenly.

*Source: https://www.imf.org/-/media/files/publications/weo/2025/april/english/ch3.pdf*

### 1. External Regulations

### ch3 - 1. External Regulations

### Gravity-model evidence on policy spillovers
- The gravity framework (194 economies, 1995–2020) shows destination substitution: tighter policies that deter 20 percent of migrant and refugee inflows in one set of destination economies lead to an increase of almost 10 percent in others over five years.
- Effects are:
  - Slightly more pronounced for advanced economies than for emerging market and developing economies (EMDEs).
  - Largest when internal regulations are tightened and relatively modest when enforcement of controls is stricter.
- A 2 percentage point rise in the share of deflected migrant and refugee inflows in the destination economy’s population is associated with an increase in output in that economy of about 2 percent over a five-year period.
- For the average destination economy—where inflows are close to 2 percent of the population—a 10 percent increase in inflows equates to an increase in output of about 0.2 percent.
- Output effects hold regardless of which type of regulation tightens (external, internal, controls).
- Tightening refugee policies in a set of destinations designed to reduce refugee inflows by 60 percent over one year is associated with an increase in refugee inflows into other economies of close to 8 percent within one year.
- Deflected refugee inflows (destination substitution) do not generate meaningful output gains on average because of absorption challenges; however, stronger integration policies (naturalization, ease of movement) raise output effects, especially for EMDEs.

### Categorical substitution, labor-market integration, and heterogeneity
- Tightening of migration policies leads to categorical substitution toward refugees:
  - A tightening designed to reduce average annual migration flows by about 4 percent into a destination economy over one year can be partly offset with an increase of more than 25 percent in the typically smaller refugee inflows to that economy.
  - These additional refugee inflows lead to modest short-term output effects because refugees face greater integration challenges and skill mismatches relative to migrants who can be quickly matched to labor market needs.
- Short- to medium-term output responses vary by destination group and migrant category:
  - Additional flows are associated with output increases in advanced economies.
  - Output impact in EMDEs is muted when integration is not accounted for, reflecting weaker absorption capacity and relatively larger refugee inflows in EMDEs.
- Empirical literature finds positive impacts of immigration on productivity via complementarities between native and immigrant workers; high-skilled immigration is associated with better economic outcomes, including higher wages for natives and enhanced firm performance.

### Modeling spillovers: spatial dynamic general equilibrium exercises
- Model features:
  - Distinguishes legal pathways (migrant and refugee) and varying degrees of labor market integration to capture categorical substitution.
  - Individuals choose whether and where to migrate and which pathway to use based on policy and nonpolicy costs and real wages; outcomes driven by agglomeration (productivity gains) versus congestion (strain on services and capital per worker).
- Exercise 1 (targeted migration-policy tightening):
  - Assumption: tighter policies in a destination reduce the stock of migrants from targeted origin economies by 20 percent over the short to medium term relative to the baseline.
  - Consequences:
    - Origin suppression: 0.25 percent more of the native population remains in origin economies.
    - Categorical substitution into refugees: low-skilled refugee flows increase by 4 percent; high-skilled refugee flows increase by 0.5 percent.
    - Migrants account for 0.3 percent of the population from the origin countries and roughly half of that amount when measured in percent of the population in the destination economy.
    - Destination substitution: increase in flows to alternative bordering destinations is broad-based; low-skilled refugees to alternative destinations increase by 2 percent.
  - Aggregate effects:
    - Implementing jurisdiction: short- to medium-term output declines modestly by close to 7 basis points (0.07 percentage points) relative to baseline, partly because refugees who substitute have greater integration challenges and skill mismatch.
    - Origin and bordering economies: small increases in output in the short to medium term; lower output per worker in origin and bordering economies results from greater congestion, while lower inflows alleviate congestion in the implementing jurisdiction.
    - Long term: output in the implementing jurisdiction remains lower relative to baseline as capital accumulation slows and output per worker declines; targeted origin economies also incur long-term costs from lower output per worker.
    - Bordering economies can replenish capital over the long term and realize higher output per worker relative to baseline due to stronger agglomeration and investment opportunities.
    - Global output: declines by about 2 basis points in the short to medium term and by about 7 basis points over the long term relative to the baseline.

### Distributional and welfare implications
- Short- to medium-term and long-term effects vary across groups:
  - Output per worker: a 2 percentage point rise in the share of deflected inflows is also associated with a decline in output per worker of just under 0.2 percent over five years (imprecisely estimated).
  - Within advanced economies and EMDEs, impacts on GDP per worker are small and negative but imprecisely estimated.
- Overall welfare trade-offs:
  - Targeted tighter migration policies reallocate labor away from countries where workers would be more productively used, slightly lowering global output.
  - The balance between agglomeration gains and congestion costs, plus capital adjustment frictions (deviations from free capital mobility), shapes long-term outcomes and contributes to conservative estimates of output effects.
- Interpretation caveats:
  - Migration and refugee flows may influence policies (reverse causality), and measurement error can arise from lack of comprehensive data on bilateral migration policies.
  - Multiple spillover channels, alternative legal pathways, and integration frictions complicate welfare implications and policy evaluation.

*Source: CHAPTER 3 — JOURNEYS AND JUNCTIONS: SPILLOVERS FROM MIGRATION AND REFUGEE POLICIES (IMF, April 2025).*

### 3. Real Income Effects for Natives

### 3. Real Income Effects for Natives

### Distributional effects of tighter migration policies
- Real incomes of native capital owners in the implementing jurisdiction will be lower than the baseline because of the decline in the labor supply and associated productivity losses.
- Capital owners in origin and bordering economies will benefit.
- Native low-skilled workers in the implementing destination economy will benefit from protection afforded by tighter migration controls.
- An increase in low-skilled labor in origin and bordering economies depresses real incomes in those locations.
- High-skilled workers in origin economies are adversely affected because of congestion when there are fewer opportunities to migrate.
- High-skilled workers are worse off in destination economies relative to the baseline because the inflow of complementary low-skilled workers has decreased.
- The negative welfare impact on natives in origin economies reflects fewer opportunities to relocate to higher-productivity destinations.
- Migrants and refugees stand to lose in all locations from restricted mobility.

### Cooperation vs unilateral tightening: scenarios and trade-offs
- Baseline calibration: a large historical episode of forced displacement in which additional inflows impose short- to medium-term congestion costs that may be more than implementing jurisdictions would accept.
- Scenario 1: Bordering emerging market and developing destination economies temporarily increase policy barriers to reduce short- to medium-term net inflows by 25 percent relative to the baseline.
- Scenario 2: A large nonbordering (advanced) destination economy temporarily increases policy barriers to reduce short- to medium-term net inflows by 25 percent relative to the baseline.
- Scenario 3 (cooperation): Both destination sets agree to take more inflows; each jurisdiction temporarily tightens policies to reduce short- to medium-term net inflows by 12.5 percent relative to the baseline.
- Short- to medium-term outcomes (Scenarios 1 and 2):
  - Tighter policies reduce congestion in the implementing jurisdiction, boosting per capita consumption relative to the baseline (short term).
  - Aggregate consumption impact is negative in the short to medium term, as the labor force shrinks relative to the baseline.
  - Smaller labor force leads to lower investment, amplifying the initial decline in aggregate consumption.
  - Long-term cost: once the capital stock adjusts, smaller agglomeration effects lower total factor productivity.
- Outcomes under cooperation (Scenario 3):
  - Both destinations experience more congestion in the short to medium term and stronger agglomeration effects in the long term.
  - Because the labor force does not shrink as much as in the first two scenarios, aggregate consumption decreases by less over time.
  - Coordinated policies can produce stronger long-term benefits for destination economies.

### Empirical and modeled timing references
- “Short to medium term” refers to results for 2025.
- “Long term” refers to results in 2075.

### Key quantitative and contextual findings
- Migration and refugee flows constitute a small share of the population of advanced destination economies—averaging about 2 percent over five years.
- In mid-2024, the stock of forcibly displaced persons reached a record high of 123 million globally, with the number of those internally displaced—at just over half that total—marking its 12th consecutive year of increase.
- Nearly two-thirds of refugees under the United Nations High Commissioner for Refugees’ mandate and other people in need of international protection come from just four countries (Afghanistan, Syria, Ukraine, and Venezuela).
- Nearly 73 percent of refugees are hosted in emerging market and developing economies, with half the global total in just 10 such economies.
- Among the nearly 27 million internally displaced persons each year over the past 20 years, about two-thirds of these displacements were triggered by natural disasters.
- Natural disaster shocks studied include droughts and tropical cyclones and are modeled as increases to the 75th percentile of the sample distribution in the exercise referenced.

### Policy implications and recommended actions
- Improve integration of migrants and refugees to maximize gains for destination economies:
  - Address integration challenges that are more severe for refugees than for migrants due to unexpected nature and scale of inflows, delays in granting refugee status, and limited access to local labor markets.
  - Strengthen incentives to take up formal work—through well-designed tax and transfer systems and improved access to public health and education services—especially in emerging market and developing destination economies that receive a disproportionate share of refugees.
  - Minimize domestic barriers to occupational mobility and reduce administrative delays that cause harmful gaps in employment history.
  - Provide language training and improve recognition and transferability of qualifications.
  - Provide access to job search services and invest in education to allow for upskilling and (re)training of new entrants.
- Prioritize productive public spending and structural reforms to alleviate congestion:
  - Prioritize public investment in infrastructure and health and education services to minimize strain from large inflows.
  - In the wake of unexpected inflows, work with international partners to provide humanitarian support and capacity development.
  - Complement humanitarian and public spending with domestic reforms to increase private sector development to better absorb inflows, notably where fiscal space is limited.
- Consider international cooperation to distribute short-term hosting costs more evenly across countries and alleviate burdens on individual economies; such cooperation stands to benefit emerging market and developing economies that tend to lack fiscal space and absorptive capacity.
- Recognize limits of migration and refugee policies:
  - Restrictive policies can cut off opportunities to boost productivity and potential output while shifting congestion elsewhere.
  - Migration and refugee policies cannot fully address pressures from forced displacement or structural bottlenecks, including labor market imbalances associated with sectoral and demographic shifts.

*Source: IMF, World Economic Outlook: Chapter 3 — Real Income Effects for Natives (April 2025).*

### Box 3.1 (continued)

### Box 3.1 (continued)

### Demographic trends and labor-supply imbalances
- Advanced economies are projected to see old-age dependency rise from 20 older people for every 100 working-age individuals at the turn of the century to 50 by the end of 2050, an increase that effectively leaves one person over the age of 65 in the care of two working-age adults.
- Shrinking labor forces are holding back potential growth and increasing fiscal strains from higher health-spending needs alongside fewer workers to pay into pension systems.
- Many low-income developing countries remain in early stages of demographic transition with a youth bulge, but high informality, lack of jobs, and limited social protection prevent full absorption of young people into workforces.
- The imbalance between youth-poor and youth-rich countries can be partly alleviated by flows of younger migrants and refugees into aging countries, conditional on a market-based match between migrants’ skills and destination economies’ youth-intensive comparative advantages.

### Migration and the demographic match
- Globally, 78 percent of migrants and refugees are of working age, compared with only 63 percent of native populations.
- Fertility rates of migrants are higher than those of natives, providing a longer-term boost to the working-age population.
- Immigrants can have a positive net fiscal contribution over the medium term when adequate integration measures are in place.
- A double dividend—gains to both destination and origin economies—requires productive absorption of migrants’ excess labor plus diaspora spillovers in knowledge transfers and human and physical capital investments linked to remittances.

### Alignment of migration flows with comparative advantage and demographic needs
- Countries vary in the youth intensity of their economic activity; sectors such as mining and construction favor younger workers with peak physical skills.
- Local projections using indices of economies’ revealed comparative advantages in youth-dependent industries show migration patterns broadly match destination countries’ comparative advantages: a one-standard-deviation increase in a country’s comparative advantage with respect to youth-intensive trade is associated with higher net migration inflows.
- The response of migration and refugee inflows to an increase in the youth intensity of trade is greatest for aging countries (low, medium, high age dependency defined as 1st–25th percentiles, median, and 75th–99th percentiles).
- More restrictive migration policies lower the elasticity of migration flows to the youth intensity of trade, potentially hindering efficient global allocation of labor and constraining alleviation of youth-related skills shortages in aging economies.

### Fiscal impacts of immigration
- The fiscal impact of immigration depends on: destination economy characteristics, migration pathway, migrants’ age profile, degree of skill complementarity with natives, and investment needs to ease public service congestion.
- Evidence in advanced economies indicates migrants and refugees on average have a more favorable net fiscal impact than natives, linked to working-age profiles and higher labor-market participation.
- Highly educated (or higher-paid) and relatively young migrants can place substantial downward pressure on budget deficits over their lifetimes; migrants with fewer qualifications (or lower pay) and older may induce net fiscal costs.
- Accounting for capital taxes paid by employers of immigrant labor can make the benefits of working-age immigrants positive even for immigrants without a high school education.
- If migrants do not make claims on government expenditure in old age, net lifetime benefits to destination economies may be enhanced.
- Emerging market and developing economies may face greater integration and institutional-capacity constraints; these economies are often large recipients of refugee flows, which—if large and unexpected—can result in acute integration challenges and skills mismatches.
- Refugees tend to have lower labor force participation rates than migrants; cultural, legal, and structural barriers can push refugees into informal employment with lower fiscal benefits.
- Overcoming constraints on refugees’ economic participation could lower costs of assistance in low- and middle-income countries by about 75 percent.
- Across generations, immigration can yield more pronounced fiscal benefits as first-generation immigrants better integrate, capital adjusts, and subsequent generations contribute to growth, productivity, and higher tax revenues.
- Illustrative projections cited in the box:
  - A multiyear wave of 6 million immigrants would reduce the US federal deficit by $0.9 trillion by 2034 (US CBO 2024).
  - An increase in annual net migration from 129,000 to 245,000 arrivals would reduce public debt as a share of GDP by 30 percentage points (UK OBR 2023).

### Migration, inflation, and wage dynamics
- Migration can exert both disinflationary and inflationary forces:
  - Increase labor supply, placing downward pressure on wages and inflation (effect varies with integration speed and labor market conditions).
  - Increase demand for goods and services through higher local consumption, potentially exerting upward pressure on inflation in the short term if supply is inelastic.
  - Complementarity between capital and labor matters: stronger complementarity can raise capital returns and investment, and if capital adjusts slowly this can generate an inflationary response.
- Model simulations:
  - A surge in high-skilled migration of about 0.7 percent of the population triggers a boost in investment, with demand effects dominating and inflation increasing up to 0.25 percentage point within three years of the shock.
  - A similar surge in low-skilled migration has very little impact on inflation, as disinflationary labor-supply effects offset demand effects and investment is muted by limited capital–labor complementarity.
- Wage effects from migration surges (model simulations):
  - A surge in low-skilled immigration tends to marginally increase wages of high-skilled native workers (their marginal product rises) and decrease wages for low-skilled native workers by less than 1 percentage point over the long term.
  - A surge in high-skilled migration tends to marginally decrease wages of high-skilled native workers by up to 1.5 percentage points and slightly increase wages of low-skilled native workers over the long term.
- Downward pressures on wages for natives with skills matching migrants are modest in simulations and may be further attenuated by labor market frictions, nominal wage rigidities, imperfect substitutability between migrants and natives, and integration challenges.
- At the subcomponent level, migration can lower local goods inflation but increase local housing and utilities inflation (United States example).

*Source: Box 3.1 (continued), CHAPTER 3 JOURNEYS AND JUNCTIONS: SPILLOVERS FROM MIGRATION AND REFUGEE POLICIES, World Economic Outlook, April 2025.*

### 1. Low-Skilled Immigration

### 1. Low-Skilled Immigration

### Impulse-response depiction and key measurement notes
- Horizontal axis shows quarters.
- Responses are in percentage deviations from the detrended steady state.
- The solid line is the median and the shaded area the interquartile range.
- Figure panels compare:
  - Low-Skilled Immigration (panel label shown)
  - High-Skilled Immigration (panel label shown)
- Axis tick labels depicted: 0, 5, 10, 15, 20, 25, 30, 35, 40 (horizontal axis quarter markers).
- Vertical axis tick labels depicted: −2.0, −1.5, −1.0, −0.5, 0, 0.5 (percentage deviation scale).

### Data sources for the impulse responses
- Luxembourg Income Study Database
- National authorities
- Organisation for Economic Co-operation and Development
- United Nations Department of Economic and Social Affairs
- IMF staff calculations

*Source: ch3 - 1. Low-Skilled Immigration (PDF chapter).*

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_Source: https://www.imf.org/-/media/files/publications/weo/2025/april/english/ch3.pdf_