A permanent effect of temporary immigration on economic growth

Immigration can help to lessen the burden of ageing for the welfare states of most Western economies. To show this, we develop a decomposition framework for Gross Domestic Product (GDP) per capita which deals with the impact of both ageing and immigration on economic growth. Using a Vector Error Correction Model (VECM) for the Netherlands during 1973 to 2009, we demonstrate the empirical relevance of some crucial interactions between elements of that decomposition. The conclusion is that even temporary immigration may help to alleviate the ageing problem through a positive long-term contribution to employment, wages and GDP per capita, as long as the immigrants are able to participate in the labour force in tandem with the native population. Unfavourable short-term effects should be avoided through a gradual phasing in of immigration policies.