DO MIGRANTS WORSEN THE CURRENT ACCOUNT

There is some concern in Australia that immigration contributes to a w idening of its current account deficit. Several cross-section studies have found that migrant households have a lower saving rate than the l ocal born households. In conjunction with a well-known national income identity that the current account deficit is equal to the excess of i nvestment over saving, such findings have been interpreted by many to mean that the migrants contribute to increasing the level of foreign l iabilities at a rate greater than that by the local-born. However, it should he realized that immigration impacts on the economy in a comple x way through various demand and supply side channels. Its direct and chain effects on such variables as the current account are spread over both the short and the long term. These effects are neither unidirect ional nor always easy to isolate. The final outcome, which is the sum total of all the effects, is uncertain, and cannot be fully understood from a knowledge of cross-sectional saving performance alone. This ar ticle utilizes aggregate time series data to investigate the relations hip between the current account and immigration. It finds that althoug h an increase in net migration tends to raise the current account defi cit, the longer term effect of immigration on the current account is n egligible.