Impact of international labor migration on regional economic growth in the united states from 2005 to 2020

ABSTRACT This study examines the impact of international labor migration on regional economic growth in the United States from 2005 to 2020, employing a panel data approach with a produc

REGIONAL ECONOMIC GROWTH IN THE UNITED STATES

FROM 2005 TO 2020 Group 6

INDIVIDUAL ASSESSMENT

1 Nguyễn Van Minh Son 2212450707

13 Nguyễn Hải Anh 2213450009

ABSTRACT This study examines the impact of international labor migration on regional economic growth in the United States from 2005 to 2020, employing a panel data approach with a production function framework Using data on physical capital, native workers, migrant workers, and CO2 emissions, the research applies econometric techniques and selects the Fixed Effects model for robust analysis The findings highlight that migrant labor has a significantly positive and statistically robust effect on economic growth, particularly in productivity-intensive industries Native workers also contribute positively, though their impact is less pronounced compared to migrants Physical capital investments show a weak positive correlation with growth, suggesting that their effectiveness depends on factors like workforce quality and resource allocation In contrast, CO2 emissions exhibit a negative impact on growth, underscoring the economic costs of environmental degradation and the importance of sustainable development The study emphasizes that both native and migrant labor are crucial for enhancing economic resilience and sustaining regional development It also highlights the need for policies that balance economic growth with environmental sustainability, including investments in clean energy and infrastructure These findings provide valuable insights for policymakers to optimize labor and capital integration while addressing environmental challenges to ensure long-term

economic vitality

Keywords: International Labor Migration, Regional Economic Growth, Production Function

Framework, Migrant Labor, Native Workers

TABLE OF CONTENT

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INTRODUCTION

In the U.S., the impact of growing international migrants (immigrants) on the natives’ or immigrants’ own opportunities and constraints in employment and its consequences is undoubtedly of great importance in the fields of labor economics, industrial sociology and social

stratification Equally, urban community research has shown that new immigrants can have an

effect on the economic status of both natives and prior immigrants in the economy (James et al 1998; Sassen 1986; Waldinger 1989) The inflow of immigrant local areas can change employment patterns in local industries (Jasso and Rosenzwe Wright and Ellis 2000), or new immigrants can affect their own ethnic economic sector (Logan et al 2002; Wilson 2003; Zhou 2004)

With immigrant populations growing very rapidly in suburban America, a dispersion toward new or even relatively small- or medium-sized metropolitan area from their traditionally settled larger metropolitan areas is another typical characteristic of their recent mobility patterns, particularly among those emigrating from Asia and Central and South America (Frey 2003, 2006; Logan et al 2002; Suro and Singer 2002) For instance, international migrants, also known

as foreign-born populations, have a remarkable rise in the current net migration rate for the U.S

in 2024 which is 2.768 per 1000 population, a 0.73% increase from 2023

Any direct attempt to identify whether the size and composition of immigrant populations affect region-level economy has been relatively of little interest in the previous literature Immigrant labor has long played a crucial role in the economic development of the United States, shaping various sectors and contributing to regional economic dynamics As the U.S grapples with sustaining long-term economic growth amidst a shrinking native workforce, the integration of immigrant labor has become increasingly pivotal Recent policy shifts highlight the need to harness the potential of immigrant workers to drive innovation and enhance productivity across different regions

The significance of this study lies in its comprehensive examination of the impact of international labor migration on regional economic growth within the U.S By employing an econometric analysis of production functions and focusing on the period from 2005 to 2020, this research aims to elucidate the differential economic outcomes influenced by immigrant and

native workers The study's findings reveal a positive and statistically significant correlation between immigrant labor and regional economic growth, especially in industries that are heavily

driven by productivity

Understanding the nuanced contributions of immigrant labor is essential for formulating effective region-specific development policies The capacity of the U.S economy to integrate immigrant workers not only bolsters regional economic resilience but also ensures sustained national growth This research underscores the necessity of tailored approaches to leverage the unique strengths of immigrant labor, thereby fostering a more robust and adaptable economic landscape

CHAPTER I LITERATURE REVIEW

Glaeser et al (1995) establish a significant relationship between educational attainment and regional economic growth, demonstrating that cities with a higher proportion of educated native-born workers exhibit accelerated economic expansion compared to their less-educated counterparts Their findings underscore the role of education as a critical driver of productivity, innovation, and technological advancement—factors that are fundamental to long-term economic development Specifically, Glaeser et al emphasize that the clustering of highly educated individuals within urban centers fosters knowledge spillovers and agglomeration effects, whereas the presence of skilled labor stimulates the productivity of surrounding industries and attracts

additional investment This dynamic, in turn, strengthens the resilience of these regions in the

face of economic fluctuations, cementing the foundational role of human capital in shaping sustainable growth trajectories

Complementing this perspective, Moretti (2012) examines the emergence and evolution

of knowledge-based clusters, emphasizing their role as engines of regional economic dynamism His analysis reveals that regions with a highly educated workforce not only attract substantial private and public investment but also create fertile environments for innovation and entrepreneurship These regions benefit from localized synergies—such as the interaction

between skilled labor, research institutions, and businesses—which amplify their capacity for

generating high-paying jobs, advanemg technological frontiers, and achieving sustained economic growth Moretti underscores that the success of such clusters is often predicated on the availability of native workers with specialized skills, whose intellectual and creative

contributions fuel the innovation ecosystem The case of Silicon Valley, among others,

exemplifies how these dynamics converge to create globally competitive, innovation-driven

economies

Kerr and Lincoln (2010) further extend this discourse by investigating the role of high- skill native workers in fostering the development and success of innovation clusters Their research identifies native workers, particularly those in technical, managerial, and leadership roles, as pivotal agents in the establishment and growth of innovation hubs These individuals play an integral role in advancing technological innovation, developing novel business models,

and driving the commercialization of cutting-edge products The concentration of high-skill native workers is closely associated with heightened levels of patent activity, a proxy for innovation intensity, and the proliferation of entrepreneurial ventures, both of which contribute to regional economic dynamism Kerr and Lincoln argue that the presence of such workers is not merely beneficial but often a prerequisite for the successful emergence of innovation clusters They contend that the intellectual capital provided by high-skill native workers forms the cornerstone of research and development (R&D) efforts, thereby enabling these clusters to

achieve sustained success

Expanding to demographic considerations, Auerbach et al (2017) examine the economic implications of demographic shifts, particularly the challenges posed by an aging native workforce Their study highlights the pressing need for policies aimed at mitigating the potential economic slowdown associated with these shifts Such policies include enhancing workforce participation among older workers and implementing strategies to attract younger, highly skilled individuals to regions experiencing demographic pressures Without these measures, regions risk

a decline in their economic vitality due to reduced labor force participation and insufficient human capital to sustain innovation and productivity Auerbach et al further emphasize the importance of creating supportive environments for older workers, such as retraining programs and flexible work arrangements, alongside investments in education and infrastructure to attract and retain young professionals These measures collectively help to address the dual challenges

of demographic aging and the increasing demand for skilled labor in imnovation-driven economies

H,: Native workers has a positive impact on regional economic growth

2 Impact Of Migrants Labor On Regional Economic Growth

The article from the Penn Wharton Budget Model (2016) examines the multifaceted impacts of immigration on the U.S economy It finds that immigration fosters innovation, creates a better-educated workforce, enhances occupational specialization, and improves overall economic productivity Immigrants often complement native-born workers, leading to minimal downward pressure on wages and even raising average wages over time Additionally, immigrants contribute significantly to federal, state, and local budgets, despite some localized fiscal challenges The article highlights that immigrants’ spending stimulates economic demand,

creating jobs and fostering economic growth While there may be short-term dislocations in labor markets, the long-term benefits of immigration include higher productivity and innovation, as well as a younger workforce that helps mitigate the fiscal burden of an aging population Overall, immigration helps keep the U.S economy dynamic and competitive, despite some localized fiscal challenges

The report by Sherman et al (2019) from the Center on Budget and Policy Priorities examines the economic contributions of immigrants in the U.S It argues that the Department of Homeland Security's "public charge" rule, which restricts immigration based on the likelihood of individuals needing public benefits, is based on flawed assumptions Immigrants, particularly those without a college degree, play crucial roles in various industries, such as agriculture, construction, and healthcare They help fill labor shortages, support the aging population, and contribute to the Social Security and Medicare trust funds The report highlights that immigrants have high employment rates and their children show significant upward mobility, often achieving higher education and better economic outcomes than their parents The rule could deter immigrant families from accessing essential services, leading to long-term negative consequences for both immigrants and the broader U.S economy

Holzer (2020) examines the future impact of immigration on the U.S labor market It highlights that immigration will play a crucial role in addressing labor shortages, particularly in high-demand sectors like healthcare and elder care Immigrants are expected to help mitigate the effects of an aging workforce and contribute to economic growth by filling essential roles that native-born workers may not be able to meet The report also discusses the potential for rising inequality and the need for policies that support both immigrants and native-born workers It emphasizes the importance of immigration in maintaining a dynamic and competitive labor market, while also addressing the fiscal and social challenges that may arise Overall, the report underscores the significant contributions of immigrants to the U.S economy and the need for thoughtful immigration policies to maximize these benefits

The three papers collectively highlight the significant positive impacts of immigration on

the U.S economy Immigration fosters innovation, enhances workforce education, and improves

economic productivity, often complementing native-born workers and raising average wages

over time Immigrants contribute significantly to federal, state, and local budgets, despite some

localized fiscal challenges They play crucial roles in addressing labor shortages, particularly in high-demand sectors like healthcare and elder care, and help mitigate the effects of an aging workforce The second generation of immigrants are strong fiscal contributors, paying more in taxes than their parents or the native-born population Overall, immigration is essential for maintaining a dynamic and competitive labor market, supporting economic growth, and addressing demographic challenges in the United States Thoughtful immigration policies are

necessary to maximize these benefits and ensure the continued vitality of the U.S economy

H.,: Migrant labor has a positive impact on regional economic growth

The article "Impact of International Labor Migration on Regional Economic Growth in Thailand" by Tipayalai, K (2020) examines the effects of labor migration on regional economic growth in Thailand from 2003 to 2015 The findings indicate that physical capital, measured in terms of fixed assets, plays a crucial role in driving regional economic growth The study highlights that regions with higher levels of physical capital, such as the Eastern, Western, and Central regions, experience significant economic benefits The econometric analysis shows that a 10% increase in physical capital leads to a substantial increase in regional economic output This underscores the importance of investing in infrastructure and fixed assets to enhance productivity and support long-term economic development Overall, the study emphasizes the need for targeted regional development policies that focus on increasing physical capital to foster economic growth in Thailand

The study by Clark, G L., & Gertler, M (1983) reveals that capital growth often leads to in-migration in fast-growing states, indicating that investment in physical capital attracts labor to these regions In slow-growth states, the relationship between capital growth and migration is more complex and interwoven, suggesting that other factors may also play significant roles The analysis shows significant lead-lag relationships between capital growth and migration, with capital growth generally preceding migration This supports the hypothesis that capital investment drives labor migration The findings underscore the critical role of physical capital growth in attracting labor and stimulating economic development Understanding these relationships can help inform regional economic policies and strategies for sustainable growth

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4 Impact Of CO2 Emission On Regional Economic Growth

Mardani et al (2019), in their extensive systematic review, reviewed 175 studies between

1995 and 2017 to understand the non-linear relationship that exists between CO2 emission and economic growth Using the PRISMA methodology of systematic review and meta-analysis, they analyzed different articles on various grounds, including the scope of the study, methodology,

data type, and outcomes Reviewing the literature shows that, indeed, there is a bidirectional

causality between economic growth and emissions of CO2, where economic growth increases

with increased emissions and, indeed, emission reduction impacts economic growth The review

outlined some ways in which CO2 emission impacts economic processes The increase in emissions exacerbates climate change, leading to the disruption in agricultural productivity through the rise in sea levels and increasing severity of extreme weather conditions, causing

losses to the economy in vulnerable sectors such as agriculture, fisheries, and tourism For

instance, studies conducted in developing countries have shown that increasing CO2 emissions negatively impact agricultural output sensitive to favorable climatic conditions This threatens

food security and rural economies directly, especially where food production is done on a subsistence basis

The research highlights the challenges of de-linking economic growth from environmental degradation and emphasizes the need for sustainable energy policies, which essentially call for a reduction in energy intensity, increased energy efficiency, and a shift towards cleaner energy sources for viable economic development This review, therefore, provides a useful framework within which policymakers can devise interventions that match economic development with environmental conservation

H4: CO2 emission has a positive impact on regional economic growth

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CHAPTERII THEORETICAL FRAMEWORK

A neoclassical view of economic growth emphasizes that a country’s population changes and technological progress are keys to its long-run economic growth, and ultimately to its convergence of growth (Solow 1956) That is, considering the economic growth exogenous, the growth rate of a region declines as the region becomes more and more developed Hence, more developed regions and less developed regions will eventually have similar growth rates However, some scholars have argued that there is a largely unexplained factor in the Solow

growth theory, and they state that the skills, knowledge, and abilities of labors are the actual engines of economic growth (Lucas 1988; Dolado et al 1994; Romer 1994; Hunt 2011; Peri

2012) An increase in the population not only increases the supply of labor and consumers, but also increases diversity of a population, which can result in increased innovation and technological advancement According to Kremer (1993), a large population spurs innovation and technology by sharing knowledge and new ideas, and thus leads to economic growth The study examines the empirical relationship between economic output and the skill levels of migrant workers, assessing their impact on regional economic growth in the USA using

a standard production function framework The production function, expressed in a log-linear

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« C represents CO2 emissions (measured in million metric tons)

« The coefficients 8,, ổ;, 83, and 8, represent the output change rate due to physical

capital, native workers, high-skilled, and low-skilled migrant workers, respectively

We include physical capital (K), which enhances labor productivity and drives economic growth We anticipate a positive coefficient B1, indicating that increased physical capital leads to higher output, with B1 representing the output elasticity concerning K

Additionally, the model differentiates between native (N) and migrant workers (M), recognizing that high-skilled migrants can introduce new ideas and foster innovation (Peri, 2012) We expect positive coefficients 2 and 3 for both worker types, reflecting their beneficial impact on economic activity, though their magnitudes may vary based on productivity

differences

The model also incorporates CO2 emissions (C), reflecting the environmental Kuznets curve hypothesis (Grossman & Krueger, 1995), which suggests an initial rise in pollution with economic growth followed by a decline as societies demand cleaner environments The coefficient B4 will clarify this relationship, where a positive B4 indicates growth is associated with increased emissions, and a negative B4 suggests improved environmental quality Using a log-linear form allows us to interpret coefficients as elasticities, provides a clearer measure of the responsiveness of output to input changes, and helps mitigate

heteroscedasticity issues This framework effectively analyzes the impact of international labor

migration on regional economic growth in the U.S

The analysis applies pooled OLS regression, random effects (RE), and fixed effects (FE) models to estimate impacts The OLS model may face issues like temporal autoregression and multicollinearity The RE model accounts for unobserved heterogeneity, with the choice between OLS and RE determined by the Breusch-Pagan Lagrange Multiplier (LM) test If the null hypothesis (no RE is needed) is rejected, the RE model is appropriate

3.1 Pooled OLS Model:

Y,=Pu,+,In K,+;In N.,+B;ÌnM,+B,C,+e,

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