The relationship between immigration and the level of prices in Canada

There has been a decline in fertility rates in Canada over the past few years. This has brought about a decrease in the supply of labour in the country. To deal with the shortfall in labour, the Canadian government has put in place policies aimed at encouraging immigration into the country. This study seeks to investigate the impact of the increased immigration on the level of prices of goods and services within the Canadian economy, which may take place through an increase in aggregate demand. To do this, the study aims at determining if there exists a relationship between immigration and prices in Canada. A VAR model is used, to examine the dynamic relationship between the two variables over the period of 1961 to 20 I 4. The main variables under study are the price levels measured by the GOP deflator and economic immigrants. An analysis of the data reveals that a sudden increase 111 immigration has a 9% positive impact on prices; likewise 19% of shocks 111 immigration can be explained by shocks to prices. This result is in contrast with other empirical studies possibly due to the fact that it concentrates on high- skilled economic immigrants as opposed to low- skilled immigrants. In conclusion it is found that increased immigration has a small but positive impact on prices. However, further research that incorporates social immigrants needs to be conducted in order to get a conclusive outlook of the relationship between immigration and prices