Skill-based immigration and economic growth: a long-term analysis for Canada

Abstract

There has been an increasing acknowledgement of the importance of immigration, both in the scholarly discourse on economics and in the priorities of policymakers. In this regard, the immigrant inflows to maximize potential economic benefits is a highly debated topic in both the academic literature and the policy agendas. Nevertheless, the impact of the varied educational backgrounds and skill sets of immigrants on economic growth is still largely unexamined. Within this particular framework, this study investigates the impact of immigration based on skill level on the economic growth of Canada during the timeframe of 2006-2022. In the model examined, employment is categorized as native-born Canadian, low-skilled, semi-skilled, and high-skilled immigrants. In order to estimate the long-term parameters, the Vector Error Correction (VECM) is employed, and the results are confirmed by the Dynamic Ordinary Least Squares Estimator (DOLS). The estimates revealed that a 1% increase in native Canadian employment raises real output by 0.69%; a 1% increase in low-skilled immigrant employment decreases real output by 0.10%; a 1% increase in the semi skilled immigrant employment raises real output by 0.15%; a 1% increase in high-skilled immigrant employment raises real output by 0.26%. The results demonstrate that the impact of immigration on economic growth varies depending on the skill level. Low-skilled immigration has a negative effect on economic growth, while semi-skilled and high-skilled immigration have a positive effect. In addition, the impact of high-skilled immigration on economic growth is greater than that of semi-skilled immigration. Immigration can only stimulate long-term real output if the inflow consists of qualified immigrant workers.