Does immigration contribute to economic growth? Without doubt

The returm of migration to SpainThe shift in the migration flows of foreigners seems to be related to Spain's economic outlook improvement

The main measure used to measure the economic growth of a country is GDP. The simplest approximation is the following: if GDP is growing more in one country than another, then that country is doing better than the other.
A slightly more detailed analysis might qualify, or even change more radically, the quicker conclusions, those obtained by measuring growth in different countries in dollars, yen or euros. We are going a bit deeper in the comparative analysis of the principal developed economies: the US, Japan and those of the four main economies in the Eurozone (Germany, France, Italy and Spain).

Measured in its own currency, and in nominal terms, it seems clear that the US (closely followed by Spain) is the economy which has performed best in the last 20 years. Its GDP has grown 124%, compared to increases between 54% and 74% for Germany, France or Italy, and practically zero in Japan.

The differences in accumulated inflation over 20 years in the different countries, however, are significant. In 2018 you needed 154 dollars in the US to but what would have cost 100 dollars 20 years earlier. However, in Japan 100 yen in 2018 buys the same as 100 yen in 1998. In the Eurozone, the accumulated inflation over the last 20 years is close to, but not as high as, that in the US (41% compared to 54%).

Adjusting the GDP data for inflation, passing from nominal to real GDP, we see that the differences in growth between the different economies narrow. In fact, in real terms, Spain is the first economy, exceeding the US, of the six economies studied with greater growth, and the significant difference in nominal terms between one of the Eurozone economies (Italy) and Japan is significantly reduced. Thus the 54% growth in Italian GDP compared to 6% in Italy in nominal terms is reduced to a very similar 9% and 5% respectively, if we measure it in real terms.

Real GDP data provide us with a better image of the evolution of an economy than the nominal data. But does a greater increase in real GDP really mean an economic advance seen by the population of the countries?
The economic progress perceived by the population of a determined country should take into account the evolution of its population. In developed economies, over the last 20 years, populations have scarcely grown. Population increase basically comes from migratory flows. And here we see very different patterns of growth. From the strict population stagnation in Japan and Germany (net migration close to zero), to significant increases in France (over 10%) and major increases, close to 20%, in the US and Spain.

Adjusting real GDP data to the different evolution of population, we obtain a measure of economic progress per inhabitant, real GDP per capita. And with this measure, the ranking of who has progressed more or less also experiences significant changes. Spain consolidates its differential over the other countries, its leadership (+29%) and Germany is practically the same as the US (both around 20%). Italy and Japan remain at the bottom, with practically identical real GDP per capita growth, close to 5% over the last 20 years.

Thus we see how moving from the analysis of nominal GDP to real GDP per capita radically changes the conclusions. The growth in the American economy over the last 20 years in current dollar is practically double that of Germany in current euros (124% compared to 69%). But in constant dollars and euros, per inhabitant, they have made practically the same progress (+21% compared to +19%). And the apparent great difference between Japan (+6% in current yen) and Italy (+54% in current yen) is completely eliminated , measured in real terms per capita (+4% compared to +6%).

Can we confirm, through this data, that immigration contributes to economic growth? Without doubt, absolutely, yes. The three countries with greatest GDP growth, both in current and constant terms (the US, Spain and France), have been those that have experienced a greater increase in population, coming from first- or second-generation immigrants.

But, if instead of measuring economic progress at the aggregate level of a country, we lower our measure to per inhabitant, the conclusions are not so clear. Germany, with practically no increase in population, has enjoyed an economic growth per person clearly superior to France, and very close to the US, with a significant increase in population (due to immigration). However, other countries with practically zero increase in populations (Japan and, to a lesser extent, Italy) have not seem significant improvements in real GDP per capita).

About the Author

Ofelia Marín Lozano
Ofelia Marín-Lozano is as financial analyst and CEO at 1962 Capital SICAV. She holds a Ph.D. in Economics and is Professor of Global Business Environment and Financial Analysis in Madrid's Icade Business School.