International migration and national development
Monday, 8 October 2007
Hasan Mahmud
BANGLADESH has started attracting the attention of both the international media and academic community concerned with development now-a-days, particularly for a steadily increasing flow of remittances. In the previous economic year, Bangladesh has earned approximately $6.0 billion of remittances from the expatriate communities of workers. The sheer amount of this flow outpaces all other flows of finance including official development assistance (ODA) and foreign direct investment (FDI). In 2005, the total amount of FDI was $776 million whereas remittances accrued to well over $5.0 billions according to a Bangladesh Bank estimate. This is a huge income for Bangladesh indeed.
Therefore, everybody working for development has become sanguine about the development potentials of international labour migration for Bangladesh where remittances are expected to play the vital role. However, there is a dearth of research and analysis on the relationship between international migrations, remittances and development in Bangladesh. As a result, much of what has been talked about remittances and its role in national development are generated from mere commonsense ideas, and hence, lack adequate strength for guiding policy formulation.
The relationship between international migration and development has been a debated issue in the discourse of development for several decades. The mainstream neo-liberal economics considers migration as a net loss of human capital in the sending regions as the educated and skilled persons are most likely to migrate. As such, international migration essentially reduces the developing capacity in the sending countries, and hence, a continual international migration exacerbates the situation. This is what is known as 'Brain Drain'.
However, a new theoretical perspective called New Economics of Labour Migration (NELM) has been critical to this pessimistic view and observed profound developmental impact of migration. It argues that the earnings sent home by the workers from abroad are likely to exceed the income migrants would have generated if they had stayed home. Researchers have found that migration remittances contribute to the migrants sending economies in two ways: they increase national income directly, and they increase national income indirectly by providing foreign exchange and savings. Thus, remittances perform the same functions as ODA and FDI: providing scarce foreign exchange as well as additional savings for national development.
Many studies have confirmed the decisive role of remittances in providing foreign exchanges, especially for the developing countries. There are several developing countries for which remittances constitute more than 10 per cent of their annual gross domestic product (GDP), for example, Mexico, Philippines, El-Salvador, Guatemala, Dominican Republic, Turkey, Jordan, Syria, Egypt, Morocco, Tunisia, Yemen, etc. Bangladesh has also started approaching this group during the last decade. For these countries, export of labour must be regarded as a vital segment of national economy, and therefore, migradollars constitute a large and potential source of fund for development. For these countries, remittances play the most important role in financing the import and offsetting the negative terms of trade.
The fundamental point in any analysis of the developmental potential of remittances concerns the selectivity of emigration. Invariably, it has been observed from research in several nations that international migrants tend to be selected from the middle to upper-middle social classes, at least initially. All the expatriate communities from the developing countries have significantly higher education, occupational status, skills, and risk-taking propensity and creativity than their counterpart in home countries. The selective emigration policies of the developed countries vividly confirm this fact. This is likely to retard the development of the sending countries.
The end result of this selectivity is 'brain drain' -- the exploitation of the scarce human capital from the developing countries by the developed world. And it is also emphasised that the remittances are mostly spent on the consumer goods and other immediate family expenditures rather than investing in income generating activities. This, further, results in inflation and income inequality in local communities. Since the remittances constitute the basic earning source for the migrants' families, they gradually become dependent on migration remittances which encourage further migration of other members of the family. Hence a vicious cycle of migration emerges where individuals have no choice but to migrate, perpetuating underdevelopment of the region.
Such a perspective of international migration engenders two essential misleading policy stances: in one hand, it assumes international migration as detrimental to national development and consequently, proposes discouraging policy formulations so that individuals with human capital do not migrate. This would reduce the aggregate of remittances which in turn constrain national development due to the shortage of required fund that remittances supply. On the other hand, this encourages the labelling of the migrants as either patriots or traitors and thus creates considerable stress on the expatriates. When an individual with marketable human capital moves out and settles in a foreign land and sends money back home, s/he is applauded as patriot serving to the national development. But if s/he does not remit money or reduces the amount, immediately s/he is stigmatised as traitor, who acquired human capital at home with government subsidised public services (education and health, for example) and does not pay back to the country. This has been the dominant tendency in the national media in Bangladesh for years.
However, the overtly pessimistic view of migration and development is unwarranted by empirical studies, particularly in Asia. The NELM researchers have observed significant developmental impacts of remittances in the sending countries by a more nuanced focus on both the direct and indirect influences of remittances on national economy. A study of six Asian countries concludes that the remittances are not only dissipated on consumer demands, but also invested in productive and income-generating activities. These studies have observed positive direct influence of remittances on foreign exchanges and family standard of living. These have also documented indirect influences in GDP, production, employment and investment.
There are also researchers who have identified the income multiplier effects of remittances in the sending countries. They observe that if the remittances are spent on buying goods and services produced within the national economy, then remittances generate positive, second-round effects on production that generate more income opportunities for the non-migrant families. They also invest directly in income-generating activities given necessary opportunities. For example, migrants' families in a rural Mexican community have been found to invest in cattle-raising by the non-migrant families that generate income both for the migrant and non-migrant families. Also there are examples in Bangladesh that migrants invest in productive activities and businesses, for example, Nandan Park is a business venture by a group of NRBs.
Therefore, it is on the whole erroneous to consider international labour migration as a developmental trap for the sending countries. There are substantial developmental potential in labour migration which can be realised by investing part of the remittances in productive enterprises. As such, some researchers argue that the crux of the problem in policy making is that conditions promoting emigration (for example, low income and low productivity) generally discourage investment, while the macroeconomic policies of the sending developing countries yield high rates of inflation and economic uncertainty that encourages investment in real property (for example, purchasing land and house) rather than productive activities.
Several governments in the developing countries like Mexico and Turkey have espoused national developmental policy to encourage international migration and ensuing remittances. Yet they are struggling with underdevelopment for erroneous development policy which generates scepticism among the policy-makers regarding the efficiency of migration as a developmental tool. This failure is by and large attributed to the migrants as they are likely to spend their remittances on immediate day-to-day needs and conspicuous consumption. However, a prudent analysis shows that the migrants do have a propensity to invest in productive activities, and they have been successful where they find necessary preconditions for investment.
Then where is the missing link? It is precisely in the government policy. The government must provide the remittance-earners with the favourable conditions for investment. This requires friendly industrial policy, developed infrastructures, financial incentives for investment, legal protection, market security, etc. All these facilities are only obtainable by the government's initiatives. It is completely naïve to think that the individual migrant families would be able to change the generally unfavourable market situations for investment.
Once the investment-friendly economic conditions are fashioned by the government, it is more likely that a significant share of remittances would go to investment in productive activities, bolstering domestic economy and generating the income multiplier effects. Hence, the government must achieve full realisation of the development potentials of remittances.
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan and may be reached at '[email protected]'. To be continued
BANGLADESH has started attracting the attention of both the international media and academic community concerned with development now-a-days, particularly for a steadily increasing flow of remittances. In the previous economic year, Bangladesh has earned approximately $6.0 billion of remittances from the expatriate communities of workers. The sheer amount of this flow outpaces all other flows of finance including official development assistance (ODA) and foreign direct investment (FDI). In 2005, the total amount of FDI was $776 million whereas remittances accrued to well over $5.0 billions according to a Bangladesh Bank estimate. This is a huge income for Bangladesh indeed.
Therefore, everybody working for development has become sanguine about the development potentials of international labour migration for Bangladesh where remittances are expected to play the vital role. However, there is a dearth of research and analysis on the relationship between international migrations, remittances and development in Bangladesh. As a result, much of what has been talked about remittances and its role in national development are generated from mere commonsense ideas, and hence, lack adequate strength for guiding policy formulation.
The relationship between international migration and development has been a debated issue in the discourse of development for several decades. The mainstream neo-liberal economics considers migration as a net loss of human capital in the sending regions as the educated and skilled persons are most likely to migrate. As such, international migration essentially reduces the developing capacity in the sending countries, and hence, a continual international migration exacerbates the situation. This is what is known as 'Brain Drain'.
However, a new theoretical perspective called New Economics of Labour Migration (NELM) has been critical to this pessimistic view and observed profound developmental impact of migration. It argues that the earnings sent home by the workers from abroad are likely to exceed the income migrants would have generated if they had stayed home. Researchers have found that migration remittances contribute to the migrants sending economies in two ways: they increase national income directly, and they increase national income indirectly by providing foreign exchange and savings. Thus, remittances perform the same functions as ODA and FDI: providing scarce foreign exchange as well as additional savings for national development.
Many studies have confirmed the decisive role of remittances in providing foreign exchanges, especially for the developing countries. There are several developing countries for which remittances constitute more than 10 per cent of their annual gross domestic product (GDP), for example, Mexico, Philippines, El-Salvador, Guatemala, Dominican Republic, Turkey, Jordan, Syria, Egypt, Morocco, Tunisia, Yemen, etc. Bangladesh has also started approaching this group during the last decade. For these countries, export of labour must be regarded as a vital segment of national economy, and therefore, migradollars constitute a large and potential source of fund for development. For these countries, remittances play the most important role in financing the import and offsetting the negative terms of trade.
The fundamental point in any analysis of the developmental potential of remittances concerns the selectivity of emigration. Invariably, it has been observed from research in several nations that international migrants tend to be selected from the middle to upper-middle social classes, at least initially. All the expatriate communities from the developing countries have significantly higher education, occupational status, skills, and risk-taking propensity and creativity than their counterpart in home countries. The selective emigration policies of the developed countries vividly confirm this fact. This is likely to retard the development of the sending countries.
The end result of this selectivity is 'brain drain' -- the exploitation of the scarce human capital from the developing countries by the developed world. And it is also emphasised that the remittances are mostly spent on the consumer goods and other immediate family expenditures rather than investing in income generating activities. This, further, results in inflation and income inequality in local communities. Since the remittances constitute the basic earning source for the migrants' families, they gradually become dependent on migration remittances which encourage further migration of other members of the family. Hence a vicious cycle of migration emerges where individuals have no choice but to migrate, perpetuating underdevelopment of the region.
Such a perspective of international migration engenders two essential misleading policy stances: in one hand, it assumes international migration as detrimental to national development and consequently, proposes discouraging policy formulations so that individuals with human capital do not migrate. This would reduce the aggregate of remittances which in turn constrain national development due to the shortage of required fund that remittances supply. On the other hand, this encourages the labelling of the migrants as either patriots or traitors and thus creates considerable stress on the expatriates. When an individual with marketable human capital moves out and settles in a foreign land and sends money back home, s/he is applauded as patriot serving to the national development. But if s/he does not remit money or reduces the amount, immediately s/he is stigmatised as traitor, who acquired human capital at home with government subsidised public services (education and health, for example) and does not pay back to the country. This has been the dominant tendency in the national media in Bangladesh for years.
However, the overtly pessimistic view of migration and development is unwarranted by empirical studies, particularly in Asia. The NELM researchers have observed significant developmental impacts of remittances in the sending countries by a more nuanced focus on both the direct and indirect influences of remittances on national economy. A study of six Asian countries concludes that the remittances are not only dissipated on consumer demands, but also invested in productive and income-generating activities. These studies have observed positive direct influence of remittances on foreign exchanges and family standard of living. These have also documented indirect influences in GDP, production, employment and investment.
There are also researchers who have identified the income multiplier effects of remittances in the sending countries. They observe that if the remittances are spent on buying goods and services produced within the national economy, then remittances generate positive, second-round effects on production that generate more income opportunities for the non-migrant families. They also invest directly in income-generating activities given necessary opportunities. For example, migrants' families in a rural Mexican community have been found to invest in cattle-raising by the non-migrant families that generate income both for the migrant and non-migrant families. Also there are examples in Bangladesh that migrants invest in productive activities and businesses, for example, Nandan Park is a business venture by a group of NRBs.
Therefore, it is on the whole erroneous to consider international labour migration as a developmental trap for the sending countries. There are substantial developmental potential in labour migration which can be realised by investing part of the remittances in productive enterprises. As such, some researchers argue that the crux of the problem in policy making is that conditions promoting emigration (for example, low income and low productivity) generally discourage investment, while the macroeconomic policies of the sending developing countries yield high rates of inflation and economic uncertainty that encourages investment in real property (for example, purchasing land and house) rather than productive activities.
Several governments in the developing countries like Mexico and Turkey have espoused national developmental policy to encourage international migration and ensuing remittances. Yet they are struggling with underdevelopment for erroneous development policy which generates scepticism among the policy-makers regarding the efficiency of migration as a developmental tool. This failure is by and large attributed to the migrants as they are likely to spend their remittances on immediate day-to-day needs and conspicuous consumption. However, a prudent analysis shows that the migrants do have a propensity to invest in productive activities, and they have been successful where they find necessary preconditions for investment.
Then where is the missing link? It is precisely in the government policy. The government must provide the remittance-earners with the favourable conditions for investment. This requires friendly industrial policy, developed infrastructures, financial incentives for investment, legal protection, market security, etc. All these facilities are only obtainable by the government's initiatives. It is completely naïve to think that the individual migrant families would be able to change the generally unfavourable market situations for investment.
Once the investment-friendly economic conditions are fashioned by the government, it is more likely that a significant share of remittances would go to investment in productive activities, bolstering domestic economy and generating the income multiplier effects. Hence, the government must achieve full realisation of the development potentials of remittances.
The writer is a Monbusho Scholar in the Global Studies Programme, Sophia University, Japan and may be reached at '[email protected]'. To be continued