Augmented mankiw-romer-weil model for the impact of foreign labour on an economic growth

Abstract

Economic growth is an increase in the level of national output. The economic factors that cause economic growth are an increase in capital stock consisting of physical capital and human capital. When one of the economic factors increases while the other decrease, the level of national output is a net decrease. Nowadays, the influx of foreign labour is becoming a serious issue around the world. This research is to see the impact of foreign labour on economic growth by augmenting the Mankiw-Romer- Weil model. A new variable of foreign labour is added as an input in human capital. Mankiw, Romer and Weil extended the Solow-Swan model to explain the role of human capital and physical capital in economic growth. Since 1992, the economists have found human capital as an important role that causes economic growth. Human capital is a stock of knowledge and skill that produces effective labour. Foreign labour only brings human capital and they are generally unskilled labour. A new model is developed by separating the human capital into two characteristics; unskilled labour from foreign labour and skilled labour from domestic labour. It is found that the foreign labour are helping in generating human capital, but their excessive presence will cause more negative effects on the production of human capital and physical capital. This means that the increase in employment of foreign labour can decrease the level of national output. Data from Malaysia is simulated in an existing model (Mankiw-Romer-Weil model) and the new model (Augmented Mankiw-Romer-Weil model) to make comparison. The result from this research clearly shows that foreign labour can affect national output and neglecting the role of foreign labour can affect the level of national economic growth.