On the welfare implications of temporary and permanent immigration

This paper uses a two-sector model of a fully-employed open economy, producing traded and nontraded goods, to examine how temporary and permanent immigration affect the host country. The focus is on the implications for welfare, factor rewards, and relative prices of traded goods in terms of non-traded goods. What distinguishes temporary from permanent migrants in the present setting is their pattern of consumption, the bundle of productive factors they bring to the host country, and the magnitude of remittances they send back to the source country. Due to these differences, admitting a temporary rather than a permanent migrant is shown to reduce the scarcity of labour relative to capital, raise the relative price of traded goods in terms of non-traded goods, and improve the level of welfare of the native population in the host country.