16 constant<sup>21</sup> and that investment reacts fairly quickly<sup>22</sup> – that prompts a proportional 1% addition to the capital stock over, say, 5 years. By the end of the 5 years, the national output is 1% higher, implying an acceleration of the average annual growth rate of 0.2% a year until the adjustment is completed. Assuming an incremental capital output ratio of 4 – near the average for advanced countries<sup>23</sup> – the arrival of refugees would imply increased net domestic investment equal to 0.8% a year for 5 years until the adjustment is completed.

Of course, if the flow of refugees is sustained at 1% a year of the labor force over a period of years, then further output growth is possible and new additions to the capital stock are required each year. For example, a 1% a year increase in the labor force each year over 3 years, requires increased net investment amounting to 2.4% of the initial level by the end of year 3 and implies that, by then, the growth rate of output is higher by 0.6% a year, and so on. The message is that the cumulative effect of refugee arrival on economic growth is potentially significant, especially in slow‐growing mature economies.

The arrival and on‐streaming of large numbers of inexpensive laborers is politically controversial, but its potential positive effect on long‐term economic growth is well established in development thinking. The insight that the inflow of abundant labor can raise the rate of return to capital and ‐ under certain conditions ‐ generate a virtuous circle of growth is most closely associated with the Nobel Prize‐winner W. Arthur Lewis. Although the Lewis model is usually thought to apply to the movement of workers from the countryside to the cities and factories in poor countries, its relevance is more general. According to the Harvard economic historian Charles Kindleberger, the Lewis model helps explain much of Europe’s post‐war economic miracle in the 1950’s and early 1960’s and, also (as he accurately predicted) the subsequent slowdown. He wrote: “...the most important factor shaping the remarkable economic growth since 1950 has been the availability of a large supply of labor. The labor has come from a high rate of natural increase (the Netherlands), from transfers from agriculture to services and industry (Germany, France, Italy), from the immigration of refugees (Germany), and from the immigration of unemployed or underemployed workers from the Mediterranean countries (France, Germany and Switzerland)”. (Kindleberger 1967) Kindleberger underlines the fact that while the increased supply of labor can help foster economic growth, it is not per se sufficient. In post‐war Europe, the needs of reconstruction and pent‐up consumer demand during the war years provided the sufficient conditions.

21 The assumptions that the capital‐output ratio is fairly constant, and that the capital stock and the labor‐force to grow tend to grow at similar rates over very long periods are long‐ established empirical regularities (Harrod 1939).

> 22 Recent research in advanced countries suggests that domestic investment is quite quickly stimulated by a migration surge, so that within a few years the capital‐labor ratio tends to return to its prior level in the face of a labor market shock. This conclusion is supported by studies such as Ottaviano and Peri (2008) for the US, Brücker and Jahn (2011) for Germany, Cohen and Hsieh (2000), and Ortega and Peri (2009) in a study of 14 OECD countries. 23 UK Office of National Statistics 2013