Dutch Disease and The Mitigation Effect of Migration: Evidence from Canadian Provinces

This paper evaluates whether immigration can mitigate the Dutch disease effects
associated with booms in natural resource sectors. We derive predicted changes in
the size of the non-tradable sector from a small general-equilibrium model `a la
Obstfeld-Rogoff. Using data for Canadian provinces, we find evidence that aggregate
immigration mitigates the increase in the size of the non-tradable sector in
booming regions. The mitigation effect is due mostly to interprovincial migration
and temporary foreign workers. There is no evidence of such an effect for permanent
international immigration. Interprovincial migration also results in a spreading
effect of Dutch disease from booming to non-booming provinces.
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