The two sides of migration in Central America: aggregate and distributional impacts in Guatemala

• This study examines contemporary migration dynamics in Central America. • Model scenarios mirror recent shifts in emigration and return flows affecting Guatemala. • Employs an economy-wide framework to quantify migration’s dual macroeconomic and welfare effects. • Return migration entails important trade-offs, raising GDP but potentially reducing household consumption, especially among remittance-dependent households. • Facilitating reintegration and implementing targeted policies can yield win–win outcomes. International migration affects labor supply, production patterns, and external income flows in origin countries, yet our understanding of its economy-wide and distributional consequences remains limited, particularly with regard to the role of return migration. This study integrates detailed microdata on migrant profiles into a general equilibrium model applied to Guatemala to examine how emigration and return migration affect macroeconomic performance, sectoral dynamics, and household welfare. We simulate three scenarios: a reference scenario reflecting recent-historical emigration patterns (MIG-0), a reduced-emigration scenario (MIG-1), and a net-return migration scenario (MIG-2), capturing recent shifts in emigration and return flows by skill level. Results reveal trade-offs between aggregate economic performance and distributional impacts across households. Compared to a baseline economy with no mobility, Gross Domestic Product (GDP) rises modestly under the reference scenario (+0.2 percent) and by additional 0.3–0.5 percentage points under the reduced-emigration and net-return scenarios, driven by expanded labor supply from returnees and currency depreciation. Non-agro-processing manufacturing shows the largest expansion (up to 1.8 percent), reflecting its strong labor-absorption potential. Household welfare, especially among remittance-dependent households, is highly sensitive to these flows, with income and consumption declining under the two counterfactual migration scenarios. These findings underscore the need for policies that facilitate returnee reintegration and strengthen social protection for remittance-dependent households, ensuring that the macroeconomic gains from migration adjustments translate into equitable welfare improvements.