Immigration Analysis in Three Countries Model

This paper analyzes the effects of immigration on host countries' labor markets and capital accumulation using a dynamic general equilibrium model with two host countries and one sending country. Higher productivity or greater capital accumulation in a country raises wages and attracts more immigrants, whereas an increase in the labor force lowers wages and suppresses inflows. These results have been demonstrated in the existing literature. When we consider capital mobility between two countries that both accept immigrants, how is the number of immigrants admitted by each country determined? If we consider not only labor mobility but also capital mobility, the inflow of immigrants raises the marginal product of capital, thereby promoting capital inflows. In turn, capital inflows increase the marginal product of labor, which further encourages additional immigration. The findings provide useful policy implications for OECD countries facing declining fertility, population aging, and concerns over future labor shortages.