Download instructions for this hands-on experiment here:  Immigration and Structural Change (484.2 KB)

Summary:

Immigration has multi-dimensional effects, with social, cultural, political, and economic ramifications for the destination country. In this exercise, you will examine one aspect of the economic effects of immigration – structural change – using the Rybczynski theorem to organize your analysis and explain your results. 

The theorem, named after the economist Tadeusz Rybczynski, posits that if prices are constant, an increase in the supply of one factor will lead to an expansion of output in the production activity that is most intensive in the use of that factor and a decline in output of activities intensive in the use of other factors (Table 1). This occurs because the increased factor supply and the resulting fall in the factor price is most cost-saving for the sector intensive in that factor. The expansion of that industry pulls in productive resources from other sectors, causing them to contract.   

Furthermore, an increase in the supply of a factor is likely to affect the composition of trade. If the factor used intensively in the production of exportable commodities increases, so will production and the export supply of that good. The increased production of exports will cause production of the importable good to fall, increasing the demand for imports of that good.  Hence, both exports and imports will increase. The opposite occurs if the factor used intensively in the production of importable commodities increases.  

In this case study, you will examine the results of an experiment in which immigration increases the supply of labor. You will see whether the resulting structural changes in production and trade in your model can be explained in terms of the Rybczynski theorem.