A Pure Capital Market Complementarity between Immigrants and Natives

This work presents a model aiming to evaluate the impact of rural-urban migration on the aggregate stock of loanable funds and investment by the urban population. Much higher investment costs for immigrants in cities prevent their acquisition of either human or physical capital. That is the reason why immigrants self-select as net lenders and affect urban labor earnings by means of the availability of new loanable funds for investment. This reduces the local interest rates and facilitates urban aggregate investment, especially by the new generations of natives. As a result of that, the aggregate labor income of natives increases unambiguously with the size of new immigration waves.