The Balassa-Samuelson Hypothesis and Elderly Migration

Abstract

We present a model with two Overlapping Generations (young and old) and two final goods: a) a tradable good that is produced using capital and labor, and b) a non-tradable good that is produced using labor as unique input. We maintain the fundamental assumption of perfect factor mobility between sectors so the model is consistent with the Balassa-Samuelson hypothesis. On top of this, we allow for one of the two generations (the elderly) to migrate between economies. Given the general equilibrium structure of our model, we can examine the effect of the propensity to save on migration and the relative price of the non-tradable good. In this setting, we find that the elderly have incentives to migrate from economies where productivity is high to economies with low productivity because of the lower cost of living (in more general terms, the elderly migrate from wealthy countries to countries with lower incomes). We also find that, for countries with lower incomes, elderly migration has a positive effect on wages and capital accumulation.

Government initiatives to attract retired migrants: An analysis of Malaysia's My Second Home (MM2H) programme

“…For close to three decades, the Malaysian policy-makers have kept its foreign retirement residential programme going, which plainly shows that they are firmly wedded to the notion that foreign later-life migration positively benefits the national economy (Fagan, 1988;Gardner, 1988;King et al, 1998;Montealegre et al, 2014). This observation is supported by Ono (2008).…”

“…Though less than one quarter of 1% of retirees is estimated to spend their retirement days overseas (Banks, 2004), this trend is expected to strengthen (Haseen and Punpuing, 2010) with increasing elderly population (United Nations, 2002). Despite the relatively small number, income transfers, capital accumulation, job creation and boost to local economies are the appeal to policy-makers (King et al, 1998;Montealegre et al, 2014).…”

“…Generally foreign retirees gravitate from wealthy countries to lower income nations to improve their quality of life for a fraction of the cost (Benson and O-Reilly, 2009;McWatters, 2009;Montealegre et al, 2014). Mobility of northern and central European retirees to the Mediterranean basin burgeoned during the 1980s (King et al, 1998;Casado-Díaz, 2012), retirement migration out of Japan was stimulated by the government-launched 'Silver Columbia Plan' in 1986 (Miyazaki, 2008) whilst American retiree population grew substantially in both Mexico and Panama from 1990 onwards (Migration Policy Institute, 2006).…”