International Migration: The Relationship with Economic and Policy Factors in the Home and Destination Country

Abstract

Unfavourable demographic trends in many OECD countries threaten the sustainability of potential labour resources, GDP growth and fiscal positions. One factor that is expected to mitigate these trends is continued inflows of migrant workers from low income economies. However, a rapid catch-up in productivity and wages in these traditional source countries vis-a-vis the OECD may weaken economic incentives for migration and imply a transition away from current migration patterns. This paper uses data of the high-skilled and low-skilled migrant stock between 92 origin and 44 destination countries to highlight the relationship between economic factors and migration. The paper also attempts to uncover links with policy and demographic factors prevailing in the origin and destination countries. The analysis suggests that higher skill-specific wages in the destination country are associated with more migration. This relationship appears to be particularly strong for migrants from middle-income countries, supporting theories of an inverted-U relationship between origin country economic development and the propensity to migrate. Policy differences between the destination and origin also appear important, for example in terms of regulations on businesses and labour markets, along with the relative quality of institutions. In some instances, the effects on high-skilled and low-skilled migrants differ markedly. Combining the estimated coefficients from the model with the skill-specific wage profile from the OECD long-term growth projections highlights the potential for weaker future migrant flows to OECD countries than implied by past trends and embedded in official projections.