People are the fundamental driver of every country’s economy, and where they live and move in the world has significant and varied implications for growth, inflation and public policy—particularly in countries where aging trends are shrinking the working-age population.
Not surprisingly, people typically move from poorer countries to wealthier ones, and for more than five decades, immigration has added about three-tenths of a percent per year to the economic growth of high-income economies. Immigration boosts the economy on both the supply side (more workers generate more productivity and more incentive for capital investment) and demand side (because new arrivals spend money on food, clothing, housing, transportation, childcare and more). Meanwhile, in developing countries, remittances from immigrants can be a significant contributor to gross domestic product. Morgan Stanley estimates that in 2020, migration amounted to a net positive of $4.35 trillion in global GDP.
Consequently, more restrictive immigration policy in the U.S. is expected to dim economic growth worldwide over the next few years.
“In the near term, we expect tighter policy to reduce immigration globally, dragging on growth,” says Morgan Stanley Chief Global Economist Seth Carpenter. “In the long term, however, developing economies will have to consider how to manage immigration to maintain productivity and growth as they face demographic challenges, from longevity and other factors.”
U.S. and Europe in Focus
In 2024, elevated levels of immigration in the U.S. made faster employment growth possible without excessive inflationary pressure by allowing for lower labor costs. But more stringent immigration policy is expected to have the opposite effect, and as highlighted in 2025 Global Economic Outlook, Morgan Stanley Economists expect the U.S. economy to grow 1.9% in 2025 and 1.3% in 2026 on a fourth-quarter over fourth-quarter basis.
In Europe, a 6.4% decline in the working-age population by 2040 could bring down euro area GDP by 4% over that time. The UK may avoid an outright decline in its working-age population, but the pace of labor force growth will slow and productivity decline will remain a challenge.
“Like elsewhere in the developed world, demographic dynamics will be an increasing concern for policy makers in the UK and euro area,” says Jens Eisenschmidt, Morgan Stanley’s Chief Europe Economist. “Migration is viewed as among the fastest and most effective answers to aging populations and should be among the top considerations for combatting obstacles to growth.”
Additionally, economists say raising the effective retirement age by one year and closing the male-female labor force participation gap by 5% annually could add between 1.3% and 2.5% to baseline GDP for the euro area by 2040.
Gauging the Impact
Migration has been an important economic driver for advanced economies by helping offset demographic challenges, including declines in domestic working-age populations and the ratio of workers to dependents.
For example, Morgan Stanley estimates that immigration programs like those in high-immigration Australia, Canada and New Zealand would offset the entire projected decline in high-income economies’ working-age population.
In addition, immigration can boost capital expenditures over time, because a growing population needs more housing, roads, automobiles and more. That infrastructure development can lag behind population growth, so even as migration slows due to tightening immigration policy, economies can enjoy a “capital expenditure catch-up.”
The impact of migration on inflation depends on the composition of the new arrivals: In the U.S., for example, the influx of working-age migrants boosts potential economic growth, while their generally lower wages keep inflation in check.
But higher demand without the increased labor supply, for example from student immigration, can add to inflationary pressure. In Australia and Canada for example, which have more temporary and student immigration, demand has outstripped supply, particularly in the housing market, boosting inflation.
Here to There
Since 2021, the populations in many wealthy countries would have shrunk without immigrants, underscoring the critical role of immigration in sustaining economic growth and managing debt with aging populations.
India and China are the largest contributors of net emigration, while the U.S. and the EU show the largest net inflows. In terms of contributions to population growth, Australia, Canada, New Zealand and Sweden were the largest, while the largest net migration outflows as a proportion of population were in the Philippines, Mexico and Poland.
In East Asia and Europe, low birth rates will likely cause working-age populations to shrink by an average of 11% over the next 20 years. Migration of younger workers is an important offset to these trends and likely to see high-income economies continue to pursue favorable immigration policies going forward.
In 2019, Japan—the world’s oldest country with a median age of 48.4—relaxed some visa restrictions for the first time to attract more foreign workers and relieve labor shortages. South Korea has also announced plans to offer longer stays and better incentives to high-skilled migrants, in part to help address the country’s rapidly aging population.
Overall, the combination of aging populations and shrinking workforces in many economies worldwide is likely to spur demand for more foreign workers, prompting action from policymakers.
“A key risk would be an abrupt tightening in policy that causes a quick falloff, or even end to, the flow of workers, which could be detrimental to developed economies already facing longevity issues,” says Eisenschmidt.
