Macroeconomic Impacts of Immigration in Malaysia: Trade, Remittances and Unemployment

Abstract

The macroeconomic consequence of immigration is a disputable area among many interested parties as evidenced by the empirical studies. Most studies, however, employ Anglo-Saxon countries as their subjects, while there is an increasing demand for studies on the economic consequences of immigration in developing countries. As a developing country, Malaysia has attracted immigration over the years, and the population of migrant labour in Malaysia has reached more than two million in 2008, which makes up 7% of the total population and 20% of total labour force. Thus, such large presence has provided a rationale for an economic analysis on the impact of immigrations on the Malaysian economy.

This research, hence, aims to analyze the economic impact of immigration in Malaysia in the context of trade, remittance and unemployment in an interrelated manner. These topics are examined in detail in three separate empirical essays. Specifically, the first essay examines the link between bilateral trade and immigration, while the second essay explores the relationship between remittances of the Indonesian workers in Malaysia and the macroeconomic variables both in Malaysia and Indonesia. The last empirical essay analyses the relationship between unemployment and immigration in Malaysia. These empirical essays use quantitative research methodology in the form of panel and time series data analysis. However, each essay is based on a different theoretical framework, econometric methods, timelines and samples due to availability data and the nature of the study.

The findings of the first essay indicates that immigration increases both exports and imports through both preference and immigration-link mechanisms, implying that immigrants play a vital role in fostering trade between Malaysia and countries of origin. In the second essay, it is found that Indonesian labour in Malaysia take macroeconomic conditions in both countries into account in their remittance decisions and the findings demonstrate that the main motives to remit is altruism and portfolio investment, indicating the importance of the level of economic activities in both countries. The third essay reveals that there is a lack of evidence supporting the hypothesis of adverse employment effect of immigration in Malaysia, implying that the job-creation effect of immigration has taken place, which has resulted in further economic and employment growth in both public and private sectors.

In conclusion, immigration is vital for both host and home countries’ economic developments as the findings of this research have demonstrated, thus refuting the claims that their presence brings more harms than benefits.