Spillovers from Migration and China's Transition

IMF News, September 27, 2016

Source details

Publication date: September 27, 2016
Key finding: "1 percent increase in migrant share in adult population results in 2 percent higher GDP in the long run."

Channels of international influence:
- Trade: countries exporting machinery and raw materials to China face reduced appetite for their products and commodities; Asian suppliers are particularly affected.
- Commodity prices: lower Chinese demand can reduce prices due to China’s large share of global consumption of metals and oil.
- Financial channels: reactions of asset prices in other countries to events in China can amplify spillovers.
Implications:
- A well-managed transition to lower but more sustainable growth would reduce risks of a more disruptive adjustment later.
- A bumpy or incomplete transition could exacerbate negative ripple effects.

For China:
- Accept the slowdown and communicate policy intentions clearly.
For China’s trade partners:
- Adjust to a permanently lower Chinese demand.
- Use available resources to tweak growth models.
- Encourage trade through new global and regional agreements.
For commodity exporters:
- Use buffers where available.
- Rearrange economic plans toward new revenue sources.
For low-wage, labor-rich countries:
- Potentially benefit from China moving up the production value chain by taking up higher-value manufacturing and production.
Global recommendation:
- Avoid protectionism, which would be detrimental to trade over the long term.

Long-run effect on host-country GDP per capita:
- A one percentage point increase in the share of migrants in the adult population could increase GDP per capita in host countries by about 2 percent in the long run.
Skill composition effects:
- High-skilled migrants contribute positively to host economies.
- Lower-skilled migrant workers can raise productivity growth indirectly (for example, enabling high-skilled local women to return to or spend more time at work).
- In the long run, host economies can benefit from migration of both high- and low-skilled workers.
Demographic benefits:
- Migrants, predominantly of working age, can offer some relief for an aging population.

Consequences of emigration:
- Departure of the young and the educated can take a toll on long-term growth.
- Loss of human capital translates into lower productivity, worsening of skill composition, and dampened tax revenue.
Mitigation:
- Some losses can be mitigated through remittances and diaspora networks.
- Ultimately, origin countries should tackle the triggers that drive outmigration.

Social and political challenges:
- Arrivals can provoke social tensions, security concerns, and political backlash.
Short-run fiscal implications:
- Policies to facilitate integration are costly in the short run and can add fiscal pressure.
Integration policies and benefits:
- Swift labor market integration is key: improved labor market policies, access to education, and support to migrant enterprises help migrants obtain and keep jobs and increasingly contribute to fiscal accounts.
- Better social integration can reduce tensions with mainstream society.
Labor market effects:
- Labor market integration is complex due to language barriers and lack of recognition of work experience and skills.
- The study finds migrants do not affect labor conditions of native workers significantly.
- In the long term, migrants increase labor productivity, which raises income levels for all.

IMF News — Spillovers from Migration and China's Transition (September 27, 2016).