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Abstract This paper evaluates the potential impact of education levels of immigrants and Canadian-born on economic growth in Canada and its smaller provinces by using data for the period 2006–2013. We specify a production function in which levels of educational attainments of immigrants and Canadian-born workers are entered separately. Feasible generalized least square (FGLS) method is applied to estimate the production function separately for all immigrants, and also for established immigrants (those who have been in Canada for 10 years or longer). The results show that all educational levels of immigrants have positive and statistically significant effects on economic growth. A similar conclusion applies to Canadian-born workers, although the impacts of their university degree holders is lower than that of immigrant university degree holders. Both immigrant and Canadian-born workers have smaller effects on economic growth in smaller provinces, which have attracted larger numbers of immigrants in recent years. The results also show that the economic growth effects are similar for all and established immigrants. Although these results are consistent with previous findings on discounting of immigrants’ educational credentials, more data are needed to strengthen their validity. We also suggest that the higher economic growth impact of immigrant university degree holders than that of Canadian-born is indicative of greater social returns to higher education resulting from increased diversity of population which in turn, as some previous studies suggest, can result in increased technological innovation, new ideas, and production of a wide variety of goods and services. Keywords Immigration . Economic growth . Population diversity. Private and social returns to human capital
Impact of Immigration on Economic Growth
in Canada and in its Smaller Provinces
Ather H. Akbari
1
&Azad Haider
1,2
#Springer Science+Business Media B.V. 2017
Abstract This paper evaluates the potential impact of education levels of immigrants and
Canadian-born on economic growth in Canada and its smaller provinces by using data for
the period 20062013. We specify a production function in which levels of educational
attainments of immigrants and Canadian-born workers are entered separately. Feasible
generalized least square (FGLS) method is applied to estimate the production function
separately for all immigrants, and also for established immigrants (those who have been in
Canada for 10 years or longer). The results show that all educational levels of immigrants
have positive and statistically significant effects on economic growth. A similar conclusion
applies to Canadian-born workers, although the impacts of their university degree holders is
lower than that of immigrant university degree holders. Both immigrant and Canadian-born
workers have smaller effects on economic growth in smaller provinces, which have attracted
larger numbers of immigrants in recent years. The results also show that the economic
growth effects are similar for all and established immigrants. Although these results are
consistent with previous findings on discounting of immigrantseducational credentials,
more data are needed to strengthen their validity. We also suggest that the higher economic
growth impact of immigrant university degree holders than that of Canadian-born is
indicative of greater social returns to higher education resulting from increased diversity
of population which in turn, as some previous studies suggest, can result in increased
technological innovation, new ideas, and production of a wide variety of goods and services.
Keywords Immigration .Economic growth .Population diversity.Private and social
returns to human capital
Int. Migration & Integration
DOI 10.1007/s12134-017-0530-4
*Ather H. Akbari
Ather.Akbari@smu.ca
Azad Haider
Azad.Haider@smu.ca
1
Saint Marys University, Halifax, Canada
2
Comsats Institute of Information Technology, Islamabad, Pakistan
Introduction
While literature on economic effects of immigration has investigated immigrants
impact on their host nationspublic spending, and on employment and wages of
native-born, there is a dearth of empirical studies in Canada that analyze the impact
of immigrants on economic growth using an economic framework. The present study
uses current data for Canada and its smaller provinces, which have emerged as new
destinations of immigrants, to analyze the impact of immigrant labor on economic
growth.
The study is important because declining trends in population growth rates and
aging of population in western countries, which are having their effects on availability
of labor force, are identified in economic literature as having potential for negative
effects on economic growth. Immigration is viewed as an important tool to reverse
these trends and has now become an important component of regional economic
growth strategy in many countries. Empirical studies on economic growth effect of
immigration can provide important input to policy makers to implement evidence-
based actions. In Canada, the recently launched Atlantic Growth Strategy (AGS) is
aimed at driving long-term economic growth in Atlantic Canada.
1
Making Atlantic
Canada a destination of choice for immigrants is one of the five pillars of this strategy.
Hence, by providing estimates for smaller provinces, the present study will provide
useful input to AGS.
Second section discusses recent trends in immigrant arrivals in Canada and its
provinces. Third section provides a short review of theoretical and empirical literature
on economic growth effect of immigration. Fourth section presents the specification of
a production function that is estimated in the study and also discusses the data used for
estimation. Econometric results are presented in fifth section while sixth section
provides detailed interpretation of those results and also concludes the study.
Some Facts and Figures About Immigrant Arrival Rates in Canada and its
Provinces
Akbari and MacDonald (2014) note that one of the recent changes in developed
countries is regionalization of immigration policy. Fertility decline in each country
has resulted in aging population that in turn, is causing a decline in the labor force. The
impact is greater, however, on less densely populated and/or less prosperous regions in
each country, including rural areas, because of the added phenomenon of outmigration
of youth. Regional imbalances of economic development and population growth have
emerged, leading to difficulties in attracting business investment because of real or
perceived labor shortages and shrinking markets. Maintaining public services such as
health care and education, as well as private services such as banking, is also a
challenge for regional policy.
These effects of population changes have caught the attention of regional policy
makers and community organizations. As a result, initiatives are being undertaken to
reverse regional population declines and develop regional labor forces. One such
1
Details regarding the strategy can be found at:http://www.acoa-apeca.gc.ca/ags-sca/Eng/atlantic-growth.html
Akbari A.H., Haider A.
initiative has been to let regions and communities play larger roles in national immi-
gration programs as immigrants currently tend to gravitate towards larger regions and
urban areas. While immigration policy remains under national jurisdiction in each
country, greater inputs are now solicited at the regional and even local or municipal
levels. Through national-regional collaborations, special programs have been intro-
duced in most immigrant-receiving countries to attract immigrants to, and retain them
in, less populated areas, focused mainly on skilled immigrants.
In Canada, more than 80% of incoming immigrants have tended to gravitate towards
Alberta, British Columbia, Ontario, and Quebec. These provinces are also home to
about 80% of Canadians. However, as Chart 1shows, a wider provincial distribution of
immigrant inflows in Canada has occurred between 2000 and 2016. Thus, while the
province of Ontario, which attracts most immigrants each year, received 13 immigrants
per thousand residents in 2000, only eight immigrants per thousand residents arrived
there in 2016. Smaller provinces such as Manitoba, Saskatchewan, and the four
Atlantic Provinces attracted more immigrants on per capita basis in 2016 than in
2000. This changing provincial distribution of immigrant inflows is attributed to the
deliberate attempts by smaller provinces to attract and retain immigrants. The main goal
of immigrant attraction and retention programs in smaller provinces is to reverse any
negative economic growth effects of the current decline in regional population growth.
Hence, the present paper will also present some evidence on economic growth effect of
immigrants in smaller provinces.
A Short Review of Previous Studies
Immigration has direct and indirect effects on the economic growth of a host country.
One direct effect is through an increase in labor force which helps enhance economic
024681012141618
Brish Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scoa
Prince Edward Island
Newfoundland & Labrador
Canada
Per thousand residents
Province
Immigrant Arrival Rates, Canada and Provinces
2016
2000
Chart 1 Immigrant arrival rates, Canadaand Provinces. Source: Citizenship and Immigration Canada (2014),
Statistics Canada (CANSIM table 051-0005) and Immigration, Refugee and Citizenship Canada (IRCC),
April 30-2017 Data (Citizenship and Immigration Canada (CIC) is now called Immigration, Refugee and
Citizenship Canada (IRCC))
Impact of Immigration on Economic Growth in Canada: Some National...
output. Another direct effect results from reduction in dependency ratios in population
thereby creating a potential for positive impact on aggregate savings, which finally
could result in higher total factor productivity (TFP) growth. On the other hand, an
indirect effect of immigration is through the skills and abilities the newcomers possess,
which supplement the stock of human capital in the host country. Yet another indirect
effect takes place through the impact on cultural diversity of the host nations
population.
Three major theories explain the relationship between education and economic growth,
which in turn helps understand the impact of immigration on economic growth through
accumulation of human capital. Firstly, according to human capital theory, education
enhances productivity of the labor force. An expansion of education in society also creates
certain positive externalities. A rise in labor force productivity and the positive social
externalities in turn accelerate economic growth. Human capital theory was dominant up
to the 1970s but it then came under a heavy attack from many economists and sociolo-
gists, and status competition and class reproduction theories emerged.
The status competition theory holds that education does not necessarily promote
economic growth rather it only redistributes fixed economic output towards those who
acquire higher education (Thurow 1974). The desire for higher status is the motivation
to compete for better jobs in the society for which people invest in higher education.
Finally, class reproduction theory also holds that there is no impact of education on
economic output. Education is viewed a tool to strengthen the class structure as the
educated elites who are also education providers tend to emphasize teaching in
disciplines that serve their own interest and have no relevance to economic needs of
society (Bowles and Gintis 1976).
Studies analyzing the long-term economic growth impact of immigration have
mostly relied on human capital theory. Most studies are theoretical but there is also
some empirical work conducted by economists. Most authors have included migration
in endogenous economic growth models and considered the role of immigrants in
technological progress and their contribution to innovation and TFP. To cite some
studies from theoretical literature, Walz (1995) introduces migration in a two-country
endogenous growth model based on Lucas (1988). He finds that the sign of the growth
rate effect depends on the initial specialization of the host and sending countries and
whether migration policy favors highly skilled workers in its selection. Using the
Uzawa-Lucas model, Robertsons(2002) analysis implies that an unanticipated demo-
graphic shock caused by unskilled immigrants can result in transitional growth in the
economy as it returns towards its long-run steady path. Lundborg and Segerstrom
(2000,2002) include migration in a quality ladders growth model, attributable to
Grossman and Helpman (1991), in which repeated product improvements through a
continuum of sectors enhance economic growth. They find that free migration would
stimulate growth if it responds to differences in labor force endowments. Similarly, in
an expansion-in-variety framework, Bretschger (2001) shows that skilled migration can
promote growth by decreasing costs of research and development but also by raising
market share in certain types of goods.
Empirical studies that assess the impact of immigration on economic growth also
consider the human capital brought in by migrants. Dolado et al. (1994) introduced the
human capital brought in by migrants into the famous Solow (1956) growth model. They
estimate the model for 23 OECD countries between 1960 and 1985. While these authors
Akbari A.H., Haider A.
do not consider migrantsaverage educational attainments, their econometric estimations
allow them to infer the impact of the human capital brought by migrants. They conclude
that the overall educational attainment of migrants is about 80% of the resident popula-
tion. As a result, immigration has created a negative effect on output growth per worker in
OECD by lowering the average level of human capital embodied in workers.
2
Boubtane and Dumont (2013) assessed the contribution of native-born and foreign-
born labor by their skill levels for 22 countries during the period 19862006. They
found a positive and sizeable impact on productivity growth in countries where the
share of tertiary educated immigrants was large relative to native-born population, such
as Ireland, Luxemburg, and Switzerland. In all other countries, the impact on produc-
tivity was small. An increase of 50% in net migration of the foreign-born generated less
than one tenth of a percentage-point variation in productivity growth.
Hunt and Gauthier-Loiselle (2008) analyze the impact of highly skilled migration on
innovation in the USA. They find that a 1% age point rise in the share of immigrant college
graduates in the US population increases number of patents allotted per capita by 6%.
A comprehensive study related to economic growth effect of immigration is by
Ortega and Peri (2009). They analyze the effects of immigration flows on total employ-
ment, total hours worked, physical capital accumulation, and TFP in 14 OECD
countries, between 1980 and 2005. The authors find that migration increases
employment and capital stocks, but does not have a significant effect on TFP. Since
immigration shocks lead to an increase in total employment and a proportional response
of the production, output per capita is not affected by the immigration inflows. One of
the limitations of the Ortega and Peri (2009) paper lies in the fact that it does not take into
account the human capital of migrants. In addition, these estimations are based on gross
migration flows and therefore do not control for return migration.
A new report from the National Academies of Sciences, Engineering, and Medicine
provides a comprehensive assessment of economic and demographic trends of US immi-
gration over the past 20 years, its impact on the labor market and wages of native-born
workers, fiscal impacts, and long-run economic growth impact (Blau and Mackie 2016.In
terms of economic growth impacts, the authors recognize, based on past research, immi-
grantscontribution in terms of increasing capacity for innovation, entrepreneurship, and
technological change. Their overall conclusion is that immigration has a positive effect on
long-term economic growth in the USA. They estimate the impact of immigrant workers
(authorized and unauthorized) on GDP to be about $2 trillion in 2016.
Immigration affects economic growth in the destination country not only by adding
to its labor force and by supplementing its stock of human capital but also by adding to
demographic and cultural diversity. This is especially important in the environment of
increased north-south migration since 1945. Bove and Elia (2016)notethatcultural
diversity of population due to immigration has both costs and benefits that could affect
economic growth. Costs arise because language and cultural barriers in the workplace
result in increased transaction costs which lower productivity. Benefits arise from
technological innovation, new ideas, and production of a wide range of goods and
services. To address the question how diversity created by mass immigration affects
2
Boubtane and Dumont (2013) provide a review of theoretical and empirical literature on the impact of
immigration on economic growth. OECD (2014) provides a more detailed review of empirical evidence on
labor market, public finance and economic growth effects of immigration on host nations.
Impact of Immigration on Economic Growth in Canada: Some National...
economic growth, these authors analyze a large-scale dataset on international migration
from 1960 to 2010, using information on the nationality of the immigrants to construct
indexes of birthplace diversity in 230 destination countries and territories. They then
study the impact of this index on economic growth in an econometric model. Their
results indicate that cultural diversity brought about by increased immigration has a
positive impact on economic growth. An increase of 10% in the diversity index
constructed by these authors causes the growth rate of per capita GDP to increase by
2.1 percentage points on average across all countries in the world. These authors also
provide an extensive survey of past empirical and theoretical studies on this topic.
An important issue in econometric studies on economic growth impact of immigra-
tion is direction of causality. Morley (2006) analyses the causality between migration
and economic growth by autoregressive distributed lag approach on data for Australia,
Canada, and the USA between 1930 and 2002. He finds evidence of a long-run
causality running from per capita GDP to immigration but not the reverse.
Our literature review found only one recent academic study that presented some
evidence on the impact of immigration on Canadian economic growth. Dungan et al.
(2013) perform simulations based on the FOCUS model of Canadian economy, devel-
oped by the Policy and Economic Analysis Program at the University of Toronto.
3
They
use the model to simulate the effects of immigration on labor markets, public treasury, and
economic growth. With respect to economic growth, their simulations indicate a 2.3% rise
in GDP by the end of the 10-year simulation period in 2021.
Method of Analysis and Data
The present empirical study relies on the general relationship of economic growth with
education, as established in economic literature, to assess the economic growth effect of
immigration in a production function framework. We obtain robust econometric esti-
mates of the impact of the education levels of immigrants and native-born on economic
growth in Canada.
Immigrants affect economic growth by increasing labor supply of the skills they
possess. These skills may complement, or substitute for, native-born labor. If they are
complements, they increase the productivity of native-born labor which in turn en-
hances aggregate output. If they are substitutes to native-born labor, they cause wages
of native-born labor to fall. The resulting scale effect of wage decline expands
economic production, thereby enhancing economic growth. Previous research has
suggested that although educational credentials of immigrants and native-born have
high degree of substitutability in Canadian labor markets, yet they are not perfect
substitutes (Akbari and Aydede 2013).
To study the economic growth effect of immigrants, we specify a production
function in which levels of educational attainments of immigrants and native-born
are treated separately:
Q¼fK;L;ENJ;EIJ
ðÞ
3
FOCUS stands for Forecasting and User Simulation.
Akbari A.H., Haider A.
Where
Q Gross Domestic Product (GDP)
L Net employed labor force
K Capital stock
E
NJ
Number of employed native-born laborers with Jth level of education.
E
IJ
Number of employed immigrant laborers with Jth level of education.
J One of the following highest levels of education: secondary school education,
post-secondary non-university education, or a university degree.
The model is estimated separately for each of the J levels of education described
above. The variable BL^is calculated net of E
NJ
and E
IJ
to avoid singularity of
coefficient matrix in econometric estimation.
The above function is estimated in Cobb-Douglas form which, in its log-linear form,
is written as under:
LnQ ¼0þ1LnK þ2LnL þ3LnENJ þ4LnEIJ
By including capital stock explicitly in the production function, we are
assessing the impact of immigrant and Canadian-born workershuman capital
in isolation from capital stock. In his theoretical paper, Borjas (1999)hasshown
that immigration affects economic output in the host country if capital stock is
held constant. If capital stock is allowed to vary, so that the initial capital to
labor ratio is restored after immigration, there will be no long-run impact on
economic output. We do not have data on how immigration has affected capital
stockinCanada.
One econometric issue with the estimation of above equation is causality of
relationship between immigrant human capital (E
IJ
) and Gross Domestic Product
(Q). We believe this is not an important issue in Canada since immigration
policy is highly selective in accepting immigrants. The selection favors labor
market requirements and potential contribution to Canadian economy. Hence,
immigration can be considered largely exogenous in the model.
To estimate the above equation, time series data for the period 20062013 are
pooled across ten Canadian provinces. Data on GDP and capital stock in each
province are obtained through published Statistics Canada sources.
4
All labor
force data are based on customized tabulations obtained from the annualized
Labor Force Surveys (LFS) from Statistics Canada. LFS began asking a question
about birthplace of respondents from 2006. To analyze the effect of immigration
on economic growth in smaller provinces which are non-traditional recipients of
immigrants, we introduce a dummy variable, D, which takes on a value of one
for provinces of Newfoundland and Labrador, Nova Scotia, New Brunswick,
Prince Edward Island, Manitoba, and Saskatchewan and a value of zero other-
wise. This dummy variable is interacted with E
NJ
and E
IJ
to assess the impact of
educational skills of immigrants and non-immigrants on economic output in
smaller provinces.
4
Statistics Canada, CANSIM Tables 3840038 and 0310007.
Impact of Immigration on Economic Growth in Canada: Some National...
Econometric Results
Our data for estimating the production function were organized in a panel form by
pooling annual data across ten provinces for the period 20062013. Table 1presents
descriptive statistics for the variables used in the estimation.
Table 1results show significant variability in the data which can be attributed to
prevalence of large variations in the size of provincial economies and their labor
markets. Provincial effects of economic cycles that emerge over time are also known
to be different across provinces. Hence, the production function was estimated using
feasible generalized least square (FGLS) specification. FGLS corrects for both cross-
section heteroscedasticity and any contemporaneous correlation that may arise in panel
data. For robust variance, the methodology of Beck and Katz (1995), which is also
called a panel corrected standard error, is used.
5
We first report, in Table 2, the econometric estimates of an aggregate production
function based on the entire dataset, regardless of immigration status of labor, to assess the
overall impact of education on economic growth in Canada and in its smaller provinces
relative to larger provinces. The estimates are provided separately for three educational
level attainments. The impact of each variable in the equation is interpreted by keeping the
value of other variables constant. As noted in a previous section, the four Atlantic
Provinces, Manitoba and Saskatchewan have emerged as smaller destinations of immi-
grants in the current century. The coefficient of D variable interacted with education levels
indicates the impact of corresponding educational level attainment on economic growth in
the six smaller provinces compared to the four larger provinces of Canada (Alberta,
British Columbia, Ontario, and Quebec). The residual labor (L) variable includes
employed labor net of the labor holding corresponding level of education.
Table 2results show that all variables are statistically significant regardless of the
three levels of significance chosen for significance test. Our variable of interest is the
education level whose coefficient indicates a high education elasticity of GDP and is
close to the labor elasticity of GDP for non-university degree holders. The impact of
university degree holders on economic output is only 60% of the impact of those with
lower education. The impacts of university degree holders are also found to be lower
for smaller provinces, as indicated by the negative signs of the dummy interaction
variable in all equations.
Table 3provides production function estimates by splitting the educational level
attainment variable into one for Canadian-born and one for immigrants, and estimating
the production function separately for each level of educational attainment. Our first
set of results is based on education levels entered for Canadian-born and all immi-
grants, while the second set is for Canadian-born and established immigrants who
have been in the country for 10 years or longer. In other words, the first set gives the
impact of capital stock and all immigrant labor force variables while keeping constant
the supply of Canadian-born labor with the same education level as immigrants. The
second set gives the impacts of capital stock and established immigrants for a constant
5
We also recognize that since we are using time series data, the independent variables in the Cobb-Douglas
production function are correlated. However, our estimation results, reported in Tables 2and 3, suggest that
standard error of each coefficient is not highly exaggerated relative to the coefficient and hence, in most cases,
we get significant tvalues at all significance levels.
Akbari A.H., Haider A.
Tab l e 1 Descriptive statistics of inputs and output of the production function
Variables Mean Median Maximum Minimum Std. dev No. of
observations.
GDP 159,155 53,012 627,119 4527 182,882 80
Capital 350,096 131,652 1,084,009 9016 365,784 80
Total employment 1708.8 571.9 6879.4 68.2 2026.8 80
High school educated Canadian-born 273.8 122.7 1016.3 12.8 292.0 80
High school educated all immigrants 68.2 15.1 404.3 0.2 112.8 80
High school educated established immigrants 80.3 13.5 485.1 0.4 136.1 80
Post-secondary educated Canadian-born 491.1 160.7 1668.3 23.3 557.1 80
Post-secondary educated all immigrants 112.6 20.9 624.1 0.8 176.5 80
Post-secondary educated established immigrants 102.1 15.6 597 0.01 170.4 80
University degree holders Canadian-born 286.8 97.4 1271.5 10.7 350.6 80
University degree holders all immigrants 142.9 26.4 870 1 223.5 80
University degree holders established immigrants 84.1 10.9 592.3 0.5 141.8 80
Impact of Immigration on Economic Growth in Canada: Some National...
supply of Canadian-born workers who have attained the same level of education as
immigrants. We expect these two impacts to be different because Ball immigrants^
include recent immigrants whose characteristics are different from the recent immi-
grants. We are unable to study recent immigrants separately due to lack of LFS data
for smaller provinces.
All education levels of immigrants have positive and statistically significant effects
on economic growth. Statistically significant and positive effects on economic growth
are also found in case of Canadian-born workers with the exception of those who hold
university degrees whose effect is statistically insignificant when all immigrant univer-
sity degree holders are considered in the equation.
The impact of university degree holders among established immigrants exceeds that of
Canadian-born. The coefficients of interaction dummies show that in case of Canadian-
born, only the impact of post-secondary non-university education has statistically signif-
icant and positive effect on output. This means a higher impact in smaller provinces than
in larger provinces. Those with high school education have lower impacts in smaller
provinces. In the case of immigrants, all as well as established, the effect of education on
economic growth is statistically significant and lower in smaller provinces in all cases.
Overall, the estimation results are similar across all and established immigrants.
We now use our econometric results to calculate the marginal impacts of each
demographic groups education level on economic growth, nationally and for smaller
provinces. In this context, the impact of each labour group on annual economic growth
is the annual percentage growth in GDP caused by 1% growth in its own population.
The results are presented in Table 4.
All calculations indicate that the impact of education on economic growth is lower in
smaller provinces than nationally. When the impact of education is disaggregated for
Canadian-born and immigrant workers, it is found that in cases of Canadian-born who
hold a university degree, the impact is statistically insignificant both nationally and in
smaller provinces, when we keep the supply of all immigrants and capital stock constant.
However, Canadian-born with post-secondary non-university education has a higher
impact in smaller provinces. The impact of below-university degree education acquired
Tab l e 2 Econometric results of production function
Variable High school Post-secondary,
non-university
University degree
Constant 0.9218* 1.0580* 0.7354*
Dummy (D) 0.9494* 0.8232* 0.8920*
Capital (K) 0.5246* 0.5253* 0.5494*
Net employment (L) 0.3294* 0.3094* 0.4077*
Labor with education level J 0.3072* 0.3042* 0.1998*
D*Labor with education level J 0.1435* 0.1212* 0.1423*
R
2
0.9997 0.9997 0.9988
No of observations 80 80 80
Va ri a b l e BD^is the dummy variablefor smaller provinces including all Atlantic and Prairie provinces. Excluded
provinces include Alberta, British Columbia, Ontario and Quebec. J = level of educational attainment as
presented in the Table.*, **, and *** indicate significance at 1, 5, and 10% level of significance, respectively
Akbari A.H., Haider A.
Tab l e 3 Econometric estimates of production function, Canadian-born and immigrants
Estimated for Canadian-born and all immigrants Estimated for Canadian-born and established immigrants
Variable High school or less Post-secondary
non-university
University degree High school or less Post-secondary
non-university
University degree
Constant 1.574* 1.603* 0.847** 1.563* 1.648* 0.877*
Dummy (D) 0.398* 0.319* 0.215*** 0.373* 0.239** 0.663*
Capital (K) 0.502* 0.523* 0.617* 0.508* 0.513* 0.575*
Residual labor (L) 0.386* 0.207** 0.423* 0.385* 0.257* 0.437*
Education level of Canadian-born) 0.141* 0.246* 0.049 0.136* 0.228* 0.048**
Education level of immigrants 0.076* 0.138* 0.103* 0.074* 0.108* 0.065*
D*Education level of Canadian-born) 0.013 0.048** 0.063 0.010 0.043** 0.087*
D*Education level of Immigrants 0.071* 0.138* 0.145* 0.072* 0.123* 0.039*
R-square 0.9997 0.9998 0.9997 0.9997 0.9998 0.9997
No of observations 80 80 80 80 80 80
Established immigrants are those who have been in Canada for a period of 10 years or longer. Variable BD^is the dummy variable for smaller provinces including all Atlantic and
Prairie provinces. Excluded provinces include Alberta, British Columbia, Ontario, and Quebec. *, **, and *** indicate at 1, 5, and 10% level of significance, respectively, while bold
letters show statistical insignificance
Impact of Immigration on Economic Growth in Canada: Some National...
by the overall immigrant population, as well as by established immigrants, is lower than
that of Canadian-born. On the other hand, in case of university degree holders, this effect
is higher for all immigrants and recent immigrants than for Canadian-born, and lower in
smaller provinces than nationally. Some results of our calculations at post-secondary
levels, including university degree, are negative in smaller provinces which we find
difficult to justify, but those numbers are small.
Interpretation of Results and Conclusions
Canada receives about 250,000 immigrants each year whose overall educational level
attainment has increased over the years. However, previous studies have shown a lack of
immigrantseducational credential recognition in Canadian labor markets (Adams 2007;
Bauder and Girard 2007). Hence, one would expect a positive economic growth effect of
immigration, but below that of Canadian-born, which the present study has confirmed. In
smaller provinces, this effect is lower for both immigrants and Canadian-born workers.
Immigration in these provinces has increased over our period of study, but remains low,
especially in the Atlantic Provinces. Their impact on economic growth will likely increase
as their numbers in labor force rise and a wider distribution of employment across
occupations and industries results.
Due to lack of data, we were unable to assess the impact of recent immigrants on
economic growth, but when we considered only the established immigrants, we found
similar patterns.
Tab l e 4 Marginal impacts of education levels on economic growth, overall, Canadian-born and immigrants (%)
Impact based on High school Post-secondary
non-university
University degree
Overall regression
National 0.31 0.30 0.20
Smaller provinces 0.16 0.18 0.06
Canadian-born and all immigrants regression
Canadian-born:
National 0.14 0.246 Impact insignificant
Smaller provinces 0.14 0.294 Impact insignificant
Immigrants:
National 0.076 0.138 0.10
Smaller provinces 0.005 0.00 0.04
Canadian-born and established immigrants regression
Canadian-born:
National 0.136 0.228 0.048
Smaller provinces 0.136 0.271 0.039
Immigrants:
National 0.074 0.108 0.065
Smaller provinces 0.002 0.015 0.026
Akbari A.H., Haider A.
In general, the effect of university degree holders is lower than that of those who
attained below-university educational level. This is true across all three demographic
groups considered in our study. This result can be attributed to diminishing social
returns to higher education. It could also reflect greater shortages of workers emerging
at lower skill levels than at higher ones. Employment and Social Development Canada
(ESDC) predicts that without immigration, jobs requiring below-university degree
education (at skill levels C and D) will have greater shortages of workers than those
requiring university degrees (at skill levels O, A, and B) over the period 20152024.
6
The shortages will appear largely due to deaths and retirements.
Another reason for lower impact of university degree education could be that
the impact of each level of education was assessed by treating capital stock as
constant. Capital-skill complementary hypothesis, first suggested by Hicks
(1946) would imply greater impact of university degree holders when considered
along with the capital stock. This implication can be tested in a future study.
In case of immigrants, lower returns to university degree, compared to less educated
immigrants, could also be an accreditation problem, and employer reluctance to hire
those with qualifications from less-known institutions at higher skill levels. Akbari and
Aydede (2013) have shown that immigrant workers are less substitutable to Canadian
born at university degree level.
The positive and higher effects of immigrant university degree holders than the
Canadian-born university degree holders are indicative of greater social returns to
higher education resulting from increased diversity of population which, as was noted
by Bove and Elia (2016), can result in increased technological innovation, new ideas
and production of a wide variety of goods and services. This result seems to contradict
the well-established evidence in literature showing private returns to recent immigrants
education being lower than that of the Canadian-born workers.
The findings of the present study on positive economic growth contribution of
human capital brought in by immigrants, and findings of other studies suggesting
that immigrantspotential contribution to economic growth is not fully realized,
confirm the importance of public policy intervention to increase the economic
contribution of immigrants in Canada. These policies should focus at removing
labor market integration barriers such as credential recognition and discrimina-
tion, and facilitate provision of labor market information to newcomers. The
mostly smaller impact of both immigrant and Canadian-born workers on eco-
nomic growth in smaller provinces probably indicates a more general issue of
employersperception of the role of education in smaller regions that should also
be addressed by public policy.
Our analysis conducted in this paper is simple, but it forms a basis for future work in
this under-researched area in Canada. Although our findings are based on a sound
economic framework and econometric analysis, some of the results show negative
effects on economic output in smaller provinces which could be due to smaller numbers
in each educational group. But they also conform broadly to the findings from our
literature review, which show mixed results although the balance is mostly positive.
When more data are available, these results can be further investigated.
6
Based on Excel sheets generated by ESDC that are available on Government Open Data Portal providing
forecasts of job openings and job seekers based on their COPS model
Impact of Immigration on Economic Growth in Canada: Some National...
Acknowledgements This study benefited from the comments received from the participants of a session of
Canadian Economics Association meeting held in Toronto in 2015. We also acknowledge the comments of
anonymous reviewers of this paper and of Maurice Mandale, a former Senior Policy Analyst at Atlantic
Canada Opportunities Agency. Responsibility for all remaining errors stays with us.
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Akbari A.H., Haider A.
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