Immigration in Emerging Countries: A Macroeconomic Perspective

Accepted by The Scandinavian Journal of Economics

Central Bank of Chile Working Paper 857 (updated July 2026).

Abstract: Developing countries host nearly one-third of the world’s migrant population, yet macroeconomic analyses of immigration have largely focused on advanced economies. We study the macroeconomic effects of immigration in emerging countries, where labor informality plays a central role. We develop an overlapping-generations model with an informal sector and high- and low-skilled workers, in which immigrants and natives of the same skill level are imperfect substitutes. Labor reallocation between the formal and informal sectors is governed by relative returns—workers compare the net formal wage with the marginal return to informal work. An immigration shock depresses formal wages for immigrants, prompting a reallocation of their labor effort toward the informal sector. Because the informal sector exhibits congestion (decreasing returns with sector size), this shift reduces informal earnings for all workers, incentivizing native workers to reallocate toward the formal sector. While formal wages for natives also decline—primarily due to increased labor supply—the reduction is smaller than the drop in informal earnings. The model incorporates transitory downgrading, allowing immigrants to accept jobs below their skill level, which amplifies the distributional consequences of immigration by increasing the relative supply of low-skilled labor. The model is calibrated to Chile, an emerging economy that has recently experienced a significant immigration wave, to quantify these dynamics.

Keywords: Immigration; Emerging economies; Labor informality; OLG models.

JEL classification codes: E24; E26; F22; J61.