International Migration, Remittances and Brain Drain: Impacts on Development (Demographic Transformation and Socio-Economic Development, 13) 3030755126, 9783030755126

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Demographic Transformation and Socio-Economic Development 13

Serge Feld

International Migration, Remittances and Brain Drain Impacts on Development

Demographic Transformation and Socio-­Economic Development Volume 13

Editors-in-chief: Yves Charbit and Dharmalingam Arunachalam

This dynamic series builds on the population and development paradigms of recent decades and provides an authoritative platform for the analysis of empirical results that map new territory in this highly active field. Its constituent volumes are set in the context of unprecedented demographic changes in both the developed—and developing—world, changes that include startling urbanization and rapidly aging populations. Offering unprecedented detail on leading-edge methodologies, as well as the theory underpinning them, the collection will benefit the wider scholarly community with a full reckoning of emerging topics and the creative interplay between them. The series focuses on key contemporary issues that evince a sea-­change in the nexus of demographics and economics, eschewing standard ‘populationist’ theories centered on numerical growth in favor of more complex assessments that factor in additional data, for example on epidemiology or the shifting nature of the labor force. It aims to explore the obstacles to economic development that originate in high-growth populations and the disjunction of population change and food security. Where other studies have defined the ‘economy’ more narrowly, this series recognizes the potency of social and cultural influences in shaping development and acknowledges demographic change as a cause, as well as an effect, of broader shifts in society. It is also intended as a forum for methodological and conceptual innovation in analyzing the links between population and development, from finely tuned anthropological studies to global, systemic phenomena such as the ‘demographic dividend’. Reflecting the boundary-­blurring rapidity of developing nations’ socio-economic rise, the editors are actively seeking studies relating to this sector, and also to Russia and the former Soviet states. At the same time as addressing their underrepresentation in the literature, the series also recognizes the critical significance of globalization, and will feature material on the developed world and on global migration. It provides everyone from geographers to economists and policy makers with a state-of-the-art appraisal of our understanding of demographics and development. More information about this series at http://www.springer.com/series/8813

Serge Feld

International Migration, Remittances and Brain Drain Impacts on Development

Serge Feld Professor Emeritus University of Liege Brussels, Belgium

ISSN 2543-0041     ISSN 2543-0068 (electronic) Demographic Transformation and Socio-Economic Development ISBN 978-3-030-75512-6    ISBN 978-3-030-75513-3 (eBook) https://doi.org/10.1007/978-3-030-75513-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword

Serge Feld was for many years an expert for the UN Commission on Population and Development. He also undertook many research missions with the Migration Studies Section headed by Joseph-Alfred Grinblat at the UN Population Division. He was Professor of Demography at the University of Liège (Belgium), specializing in migration. In this work he provides a thoroughgoing examination of the economic and social reality of countries of departure, and assesses the policies put forward to optimize the dynamic relationship between demography, international migration and development. This book brings together Serge Feld’s key research on the consequences of migratory movements for countries of departure. One of the main strengths of this study is its analysis of the most recent data available on the subject, and its comparative explanations of the principal theories concerning the relationship between immigration and development. It is based on a meticulous examination of the best sources, together with the most recent and relevant data, drawn mainly from the databases of the UN Population Division, the World Bank, the IMF, the OECD and the WHO.  The question of “International migration and development” turns around two interrelated themes. On the one hand, the emigration of qualified personnel, known as the “brain drain”, which is generally considered to constitute a hindrance to the development of many emigration countries. On the other hand, the transfer of migrants’ savings to their families can potentially provide resources that would benefit the entire population of the countries of departure. Part I of the book focuses on the causes and consequences of the migration of highly qualified personnel (HQ). Between 2000 and 2010, at the global level, the number of migrants with a tertiary education increased from 18.3 million to 32 million. The number of migrants from developing countries to OECD countries increased from 10.6 million to 19.7 million during the same decade. The assessment of the negative effects of this phenomenon focuses on losses in production and skilled labor, wasted public investment in higher education and declining tax revenues. On the positive side, Serge Feld highlights the transfer of technical and scientific knowledge to countries of origin, the increase in educational attainment, the impact v

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of international networks, the effects of “diasporas” and the benefits brought by returning migrants. He then presents a well-documented critical analysis of the “new economy of international migration”. Regarding the crucial issue of the Brain Drain, this work sheds light on the impact these movements have on the level of education and on public accounts. One chapter in particular deals in detail with the effects of the massive emigration of doctors and medical personnel from developing countries to developed countries. Analysis of the most recent data makes it possible to measure the impact of these departures on health standards in emigration countries, on the volume of medical manpower in developing countries, on the health of the population, on the cost of training doctors and also on the quality and efficiency of public health infrastructures. The author offers us a new approach to these issues, which have generated much controversy in recent years within international organizations specializing in the evaluation of international migration programs and policies. In the second part of the book the issue of remittances is examined in depth. This analysis proceeds from a central premise: since remittances contribute to economic development at two levels, macroeconomic and microeconomic, it is essential to distinguish and analyze each of these separately, even if a serious evaluation of the contribution of remittances to development requires that neither be neglected. At the macro-economic level, it is essential to note the importance of remittances provided by migrants working abroad, and also by diasporas, in relation to the volume of official development assistance and direct investment in private sector enterprises. In certain countries, the role of such remittances is decisive and two examples will suffice. In Egypt, in the 1990s, migrant remittances represented more in US$ than revenues generated by the Suez Canal in terms of tourism and oil industry traffic. In India, in the 1970s, migrant remittances were sufficient to cover the trade balance deficit and even increase foreign exchange reserves despite the rise in oil prices. Today, in small countries characterized by a lack of natural resources, low-­ productivity agriculture and a chronically under-developed industry incapable of absorbing the available labor force, migration is indeed one of the few possibilities for development. The weakness of this type of analysis, of course, is that development is defined exclusively in economic terms; while in reality the social dimension is equally important. Indeed, if emigrants send money back home, it is because the main purpose of migrating abroad in the first place was to escape poverty. Questions must therefore be asked about how families back home make use of this manna. From this perspective, spending on improvements in health, education and housing is much more in line with reality than the narrow analyses that tend to consider only investment in companies in the countries of origin as useful for development. So-called “sumptuary” expenditure undeniably carries a “demonstration effect” designed to flaunt the economic success of the family. But when the migrant transforms his or her home, this generates induced employment. And installing electricity and running water is not sumptuous. Other uses of remittances are undeniably a source of progress. In the short term, they ensure that basic needs are covered and, in particular, that food quality improves; while spending on health and education must be

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seen as medium and long-term investments that, for families, are at least as strategic as the creation of a business in the country of origin. In terms of social development, this analysis also advances our understanding of the dynamics of migration, pushing it beyond the model of the migrant as a purely individualistic homo economicus. An image which is far removed from reality; not least because each migrant is the bearer of a family’s aspirations. Remittances highlight both the moral and economic contract between the migrant and his family. And just as the family has helped the migrant to bring to fruition his migration project, so remittances are the reciprocation of this effort. These are some of the major points addressed in this elegant work of synopsis and analysis proposed by Serge Feld. Former Head of the Migration Studies Section, Population Division DESA, United Nations, New York, NY, USA Emeritus Professor of Demography Paris Descartes University Paris, France

Joseph Grinblat

Yves Charbit

Preface

The international mobility of individuals is a constant in the history of humanity. Migration has always shaped the society, the economy and the culture of regions and states. The pace, direction, scale and motivations behind such movements have changed profoundly in recent decades. Globalization has played a major role in fostering communication, lowering travel costs while spreading information about opportunities in the rest of the world. While increased trade in goods, services and capital have generally been welcomed, the same has not been true of the movement of labor. International migration is increasingly the subject of intense controversy within the domains of academic research and political policy. The polemics are fueled by contradictory theoretical approaches and divergent empirical analyses, which are generally limited to confirming ideological a priori. Often, the arguments put forward combine themes and objectives from the various social sciences. Thus, in a demographic approach, the main questions raised by migration concern the rate of growth and the ageing of populations; whereas from a sociological point of view, the focus is shifted to the integration of the immigrant population and the question of social cohesion. The economic analysis, for its part, essentially concerns the effects of the supply of foreign labor on income and production in the countries of departure and arrival; whereas the geopolitical approach attempts to reconcile the constraints of national sovereignty with the principles of humanitarian law. The positive or negative assessment of the effects of international migration depends, of course, on the perspectives employed. In order to provide a general overview of the migration phenomenon, its determinants and effects, it is important, first of all, to outline the dominant trends of the present time. Over the past 29 years, the number of international migrants worldwide has grown by 3.5% annually. This is double the rate of population growth. Two thirds of this increase has occurred in developed countries. Approximately 68% of migrants are settled in the countries of the “North” and 36% in the countries of the “South”. Since 1990, the total number of migrants has increased by more than 120 million, or nearly 79%, and is estimated at 272 million migrants according to the latest estimates. “South-North” and “South-South” flows are of roughly the ix

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same magnitude and each accounts for between 35% and 37% of total migration movements. Contrary to popular belief, and despite the magnitude of these flows, the total number of migrants represents only 3.5% of the world’s population. This proportion has increased by only 15% over the past 25 years. Migrants account for only 1.7% of the population of developing countries. For developed countries, the proportion of migrants among the total population has increased from 7.2% to 11.02% over the same period. Of course, these global figures mask very large regional disparities. More than two thirds of international migrants currently live in only 20 countries. Globally, the number of countries of departure, transit and arrival has increased considerably. The modalities and nature of migration have greatly diversified, and now include temporary, permanent, circular, unskilled and highly skilled migration, as well as the category of illegal migrants and refugees. This greater diversity of international population movements does not, however, annul the historical burdens and economic and political determinants that perpetuate and reinforce bilateral “corridors” between countries of departure and arrival. These major trends are presented in the introductory chapter. This book offers an analysis of the main economic consequences of international migration for countries of departure. First of all, though, it is important to distinguish between two types of migration: that which takes place between countries which have roughly the same average income level; and that which takes place between industrialized and developing countries. For the former, the assessment of gains and losses is determined by the mechanisms of free trade, which guarantee greater specialization together with economies of scale and competition. The level of global “welfare” is increasing, and the benefits accruing from the liberalization of international labor supply are distributed, in varying proportions, among all actors: the countries of departure, the migrants themselves and the country of destination. These conclusions are based on the very restrictive assumptions that define the framework of the classical Heckscher-Ohlin international trade model. Most theoretical and empirical work in international economics is devoted to assessing the consequences of the absence of one or more of these assumptions in concrete situations characterized by imperfect competition. The priority, therefore, is to identify winners and losers and to assess the distribution of advantages and disadvantages amongst them. However, the issue of the relationship between immigration and economic development also involves other parameters. Is immigration from developing countries one of the main causes of underdevelopment? Or, on the contrary, is it only one of its many consequences? Is migration only favorable to developed countries insofar as it meets their demand for labor on the international market? Or, does it also guarantee favorable effects on the well-being of the populations of the countries of departure in all circumstances, as much of the academic literature on the subject and many international organizations have argued? If this is the favored hypothesis, should we therefore be content to manage migratory flows under better conditions or should we adopt more proactive policies in order to encourage emigration from developing countries? This approach has long prevailed within those international

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organizations which consider migration as an efficient means of improving the situation of countries of origin. The issue of “international migration and development” can be divided into two main trends which, according to most actors in the field, lead to opposite effects. On the one hand, the emigration of qualified personnel, also known as the “brain drain”, is generally considered to hinder the development of many emigration countries. On the other hand, remittances from migrants to their families provide considerable resources that can benefit the entire population of the sending countries. The purpose of this book is to present the most recent data available, to examine the arguments for and against the emigration of highly skilled personnel and remittances as set out in the main theories, to analyze the economic and social reality of many sending countries and to assess the various policies put forward with a view to optimizing the migration-development nexus. Part I concentrates on the migration of highly qualified personnel (HQ). Between 2000 and 2010, the number of migrants educated to tertiary level rose from 18.3 million to 32 million. The number of HQ migrants from developing countries residing in OECD countries almost doubled during this decade, rising from 10.6 million to 19.7  million. This reflects an increase in the selectivity of migration flows. Arguments against the “brain drain” include the loss of production and skilled labor that it entails, the public investment in higher education wasted on graduates who emigrate, and the reduction of tax revenues. Conversely, arguments in favor of HQ migration emphasize the transfer of technical and scientific knowledge, an increase in spending on education through an incentive effect, the advantages accruing from participation in international networks and the assets that returning migrants bring back with them. The central issue, however, concerns the emigration of medical personnel from developing countries to developed countries. To assess this situation, special attention is given to the three most significant types of indicators: the emigration rate of physicians, medical density, and shortages of health personnel. Analyses measuring the impact of these emigrations on the volume of medical manpower in developing countries, on the general health of the population, on the cost of training doctors, and on the quality and efficiency of public health infrastructures will then be presented. The issue of remittances is also crucial to the global approach which aims to integrate the causes and consequences of migratory movements into the array of development policies. The considerable growth of remittances and their impact on the well-being of people in sending countries is discussed in Part II. Between 1995 and 2019 remittances from migrants increased from $101 billion to $715 billion. For developing countries alone, the increase was 630% and amounted to $547 billion. This growth is 15 times higher than the increase in the number of migrants. This significant expansion over such a short period of time has naturally stimulated a whole range of initiatives aimed at increasing the mobilization and orientation of these international resources which are now higher than ODA (Official Development Assistance) and foreign direct investment. It is recognized that these transfers contribute to improving the standard of living of families by reducing poverty and inequalities, improving health conditions, raising education levels and also

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empowering women. Positive effects also include the stabilizing function of remittances and the improvement of external accounts. Other effects are subject to conflicting assessments. For example, the moral hazard of labor supply and the phenomenon of “Dutch disease” are frequently mentioned. This growth in external resources, which were once negligible, has fostered the emergence of a large number of agents and institutions whose mission is to integrate economic, social and political incentives in order to effectively establish remittances at the heart of development policies. This effort hinges on specific initiatives designed to direct these flows, reduce transfer costs, and mobilize the savings accumulated by “diasporas”. These highly diversified actions mobilize a broad community including governments, financial intermediaries, NGOs, bilateral and multilateral public development agencies (located for the most part within the UN institutional system), other regional and specific institutions, migrant associations, local authorities and movements with political, social and humanitarian aims. In recent years, answers to the question of whether migration was an important factor in economic development have become much more nuanced. There has been a significant shift in the thematic perspectives and the content of the analyses which seek to elucidate the economic effects of remittances and the emigration of highly qualified personnel. A more multidisciplinary approach to the issue is now being favored, alongside the economic analysis. Migration is increasingly being treated as an important (though not fundamental) instrument within the vast range of such instruments available to actors in the development field. Brussels, Belgium

Serge Feld

Contents

1 Major Trends in International Migration Over the Last 25 Years������������������������������������������������������������������������������������     1 Introduction: Migration Flows and Population Growth��������������������������     1 Origins and Destinations of Major Migratory Flows������������������������������     3 Migration Trends and the COVID-19 Virus��������������������������������������������     6 Major Migration Corridors����������������������������������������������������������������������     7 References������������������������������������������������������������������������������������������������     9 Part I Emigration of Highly Qualified Labor from Developing Countries 2 International Migration Trends of Highly Skilled Workers��������������    13 Introduction: The Generalization of Emigration of Highly Qualified Personnel ����������������������������������������������������������������    13 Recent Trends in HQ Emigration������������������������������������������������������������    14 Changing Trends in Recent Years������������������������������������������������������������    16 Main Countries of Origin������������������������������������������������������������������������    17 The “Emigration Rate” of HQ: A Relevant Indicator for Measuring the “Brain Drain” ������������������������������������������������������������    19 References������������������������������������������������������������������������������������������������    22 3 Emigration of Highly Qualified Personnel from the PVD, or the “Brain  Drain”. Good or Bad for Development?����������������������    23 Introduction. The Origins of a Long Controversy ����������������������������������    23 The Classic Argument������������������������������������������������������������������������������    24 Brain Drain, Brain Gain or Brain Waste. Impacts of HQ Emigration on Development ��������������������������������������������������������    25 “Brain Drain” and Development. Summary of Negative Arguments������������������������������������������������������������������������    26 “Brain Drain” and Development. Summary of the Positive Arguments��������������������������������������������������������������������    27 xiii

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Should Welfare Losses Be Compensated for by Taxation of HQ Migrants? ������������������������������������������������������������������������������������������������    27 Reimbursing Expenses������������������������������������������������������������������������    28 Internationalizing Taxation������������������������������������������������������������������    28 Equity Between HQ ����������������������������������������������������������������������������    29 Sharing the Benefits of Host Countries������������������������������������������������    29 The Classical Static Theory of the Effects of HQ Emigration����������������    30 Private and Social Returns and Emigration ����������������������������������������    30 The Income Differential and HQ Emigration��������������������������������������    33 The “New Economy” of Brain Drain������������������������������������������������������    33 HQ Emigration – The Engine of Human Capital Growth?����������������������    35 The Incentive Effect Argument������������������������������������������������������������    35 Selection Bias��������������������������������������������������������������������������������������    36 The Nature of Higher Education����������������������������������������������������������    37 The Underemployment of HQ ������������������������������������������������������������    38 The Contributions of the “Diaspora” and Networks��������������������������������    39 Networks of Researchers and Scientists����������������������������������������������    39 Returns ������������������������������������������������������������������������������������������������    41 Resource Mobilization ������������������������������������������������������������������������    42 HQ Emigration and Public Finances��������������������������������������������������������    43 The Effects of Higher Education Spending ����������������������������������������    43 The Value of HQ Migrants������������������������������������������������������������������    44 Loss of Tax Revenue����������������������������������������������������������������������������    45 Return on Remittances and the Brain Drain��������������������������������������������    46 References������������������������������������������������������������������������������������������������    47 4 Emigration of Health Personnel from Developing Countries������������    49 Introduction. Measurement and Characteristics. The Emigration of Physicians��������������������������������������������������������������������������������������������    49 Is the Medical Brain Drain Fundamentally Different from Other HQ Emigration Flows? ��������������������������������������������������������    50 The Changes Brought About by Globalization������������������������������������    50 Difficulties in Interpreting Variations in the Number of Immigrant Doctors������������������������������������������������������������������������������    52 The Scale of Physician Migration��������������������������������������������������������    52 The International HQ Market��������������������������������������������������������������    53 Major Trends in Physician Migration������������������������������������������������������    54 Foreign-Trained Doctors����������������������������������������������������������������������    54 The Preponderance of Foreign-Trained Doctors, in the United States and the United Kingdom ������������������������������������    56 The Impact of the Immigration of Medical Personnel on the Level of Health Services of the Developing Countries of Departure ��������������������������������������������������������������������������������������������    57 Physicians Expatriation Rates��������������������������������������������������������������    57 Medical Density and Emigration of Doctors ��������������������������������������    61 Critical Shortage of Health Workers����������������������������������������������������    66

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The Emigration of Doctors: A Loss or Profit Factor for the Economic Development of LDCs?����������������������������������������������    66 Losses Borne by Developing Countries����������������������������������������������    68 The Benefits. Does Emigration Increase the Number of Physicians in the Countries of Departure?��������������������������������������    70 Compensation for International Recruitment Practices ����������������������    73 References������������������������������������������������������������������������������������������������    75 Part II Remittances to Developing Countries 5 Volume of Remittance Flows and Prevailing Trends��������������������������    79 Long-Term Trends at the Global Level����������������������������������������������������    79 A Temporary Turnaround? The Impact of Covid-19 ������������������������������    84 Formal and Informal Transfers����������������������������������������������������������������    85 Regional Trends and the Main Countries Concerned������������������������������    86 Countries of Origin of Remittances ����������������������������������������������������    86 Regional Perspectives of Major Remittance-Receiving Countries������    89 References������������������������������������������������������������������������������������������������    94 6 The Decision to Remit: Determinants and Actors������������������������������    95 Microeconomic Determinants������������������������������������������������������������������    96 Solidarity and Self-Interest������������������������������������������������������������������    96 Risk Aversion ��������������������������������������������������������������������������������������    96 Migration as Investment��������������������������������������������������������������������������    97 Macroeconomic Determinants ����������������������������������������������������������������    98 Levels of Remittances��������������������������������������������������������������������������    98 Incentives in the Country of Origin ����������������������������������������������������   100 Who Sends a Portion of Their Savings?��������������������������������������������������   101 References������������������������������������������������������������������������������������������������   102 7 Remittances and Household Welfare ��������������������������������������������������   103 Poverty Reduction������������������������������������������������������������������������������������   104 Measuring Impact on Poverty Levels��������������������������������������������������   104 A Wide Range of Situations����������������������������������������������������������������   106 Reducing Inequality ��������������������������������������������������������������������������������   107 Inconclusive Results����������������������������������������������������������������������������   107 New Approaches to Measuring the Effects of Migration on Income Inequality ��������������������������������������������������������������������������   109 The Consequences of Remittances on the Situation of Women��������������   110 Non-migrant Women����������������������������������������������������������������������������   110 Migrant Women ����������������������������������������������������������������������������������   111 Consumption or Investment Expenditure: A False Dilemma������������������   112 The Effects of Remittances on Education and Health ����������������������������   116 Expenditure on Education��������������������������������������������������������������������   116 Health Care Expenditures��������������������������������������������������������������������   118 References������������������������������������������������������������������������������������������������   120

xvi

Contents

8 The Impact of Remittances on the Economy of the Countries of Emigration������������������������������������������������������������������������������������������   123 First Traditional Approach to the Impact of Immigration and Remittances on Countries of Origin��������������������������������������������������   123 The Simple Model��������������������������������������������������������������������������������   124 Migrants Send Part of Their Savings ��������������������������������������������������   126 The Effects of Emigration on Economic Growth������������������������������������   128 Can Remittances Generate Negative Economic Effects?��������������������   128 An Overestimation of the Role of Remittances ����������������������������������   128 Addressing Credit Market Imperfections��������������������������������������������   129 Impact of Employment, Consumption and Other Factors ������������������   130 Remittances, Exports and the External Balance��������������������������������������   131 Remittances and Exports����������������������������������������������������������������������   132 The impact of remittances on the least developed countries ��������������   134 Remittances as a Stabilizing Factor ��������������������������������������������������������   136 The Stabilizing Function of Remittances��������������������������������������������   136 Remittances in Response to a Crisis or Natural Disaster Situation����������������������������������������������������������������   138 The Covid-19 Pandemic and Remittances ������������������������������������������   139 Divergent Opinions – The Negative Consequences of Remittances��������   140 Moral Hazard and Labor Supply����������������������������������������������������������   140 The Risk of Inflation����������������������������������������������������������������������������   142 “Dutch Disease”, a Genuine Concern?������������������������������������������������   144 References������������������������������������������������������������������������������������������������   146 9 Remittances, an Instrument of Development Policy��������������������������   149 Reducing the Costs of Transferring Remittances������������������������������������   150 Minimizing Transaction Costs ������������������������������������������������������������   150 The General Trend Towards Lower Remittance Transfer Costs����������   151 Cost Minimization Programs ��������������������������������������������������������������   154 Remittances as a Factor of Development? ����������������������������������������������   155 Mobilizing Remittances for Development Projects – Securitization Programs������������������������������������������������������   156 Directing Flows Towards Productive Projects ������������������������������������   158 Remittances and Microcredit ��������������������������������������������������������������   159 The Contributions of Diasporas ����������������������������������������������������������   160 The Financial Potential of the Diaspora����������������������������������������������   161 References������������������������������������������������������������������������������������������������   163 10 Conclusion����������������������������������������������������������������������������������������������   165 References������������������������������������������������������������������������������������������������   168

List of Figures

Fig. 1.1 Distribution of migratory movements between “North” and “South” countries, in 2015 (in millions and percentages)......... 5 Fig. 1.2 The 5 most numerous migrant populations resulting from movements between two specific countries in 2000 and 2017 (in millions of migrants)................................................... 8 Fig. 3.1 Cost of education, HQ emigration and gains or losses for the country of departure............................................................. 31 Fig. 3.2 HQ emigration and income differential between sending and receiving countries.................................................................... 33 Fig. 5.1 Remittances and other external financial flows to developing countries 1990–2020........................................................................ 81 Fig. 5.2 Top 10 remittance-receiving countries, in absolute terms and as a percentage of GNP in 2019, by major regions.......................... 90 Fig. 8.1 Losses incurred by developing countries through the emigration of part of their labour force...................................... 124 Fig. 8.2 Emigrants send part of their savings to the country of origin 126 Fig. 9.1 Change in average cost of remittance services from g20 countries from 2009 to 2014. (Worldbank, 2014c).......................... 155

xvii

List of Tables

Table 1.1 Number of international migrants by continent of origin and destination in 2015...................................................................3 Table 1.2 Total number of migrants (in millions) – Growth rate of migrants between 1990–2010 – Percentage of migrants as a proportion of total population – Developed and developing countries - and by continent 2015.........................4 Table 2.1 Numbers of migrants worldwide and in developed countries 1990–2015 – numbers of migrants with higher education in the OECD 2000/2001–2010/2011..............................................15 Table 2.2 Top 30 countries of origin of highly skilled migrants to the OECD in 2010......................................................................18 Table 2.3 HQ immigration rates (2010/2011 and 2000/2001). Total number of HQ migrants in the OECD in 2010/2011............21 Table 3.1 Public expenditure per tertiary and primary school student as a percentage of GNP/capita (year 2013–2014) The 10 countries with the highest percentage................................44 Table 4.1 Percentages of Foreign-Trained Physicians in the Top 20 Countries of Physician Immigration in 2013.................................55 Table 4.2 Major training Countries of Physicians “trained abroad”, in United States and United Kingdom, 2013–2014........................56 Table 4.3 Expatriation rates and number of foreign-born doctors working in OECD countries – Top 10 countries in Africa, Latin and Central America and Asia in 2010–2011.......................58 Table 4.4 Density of physicians per 100,000 of population. Actual rates and assumed rates in a situation whereby all physicians working in oecd countries would not have emigrated the 15 countries with the lowest densities......................................63 Table 4.5 Estimated critical shortages of doctors, nurses and midwives by WHO region 2000–2001 and 2010–2011..........67 xix

xx

List of Tables

Table 5.1 Top 10 remittance-receiving countries by volume and percentage, and remittances as a proportion of exports...........83 Table 5.2 Top 12 countries of origin of remittances (in billions of US$) in 2018............................................................................................87 Table 7.1 Allocation of remittances-financed expenditure (percent of total remittances)........................................................................115 Table 8.1 Top 10 remittance-receiving countries - absolute figures - level of exports - remittances as a percentage of exports (us$ billion) – 2015–2016.............................................132 Table 8.2 Remittances as a percentage of gnp, top 10 countries – total remittances and exports – percentage of remittances compared to exports – 2016....................................133 Table 9.1 Average total costs of remittance services by major regions – for us$200 – 2008–2016.................................................152 Table 9.2 Average cost in us$ for remittances of us$ 200..............................153 Table 9.3 Estimated diaspora income and savings in developing regions – 2013................................................................................162

Chapter 1

Major Trends in International Migration Over the Last 25 Years

Introduction: Migration Flows and Population Growth First of all, the evolution of international migration flows must be seen in the light of world population growth. Over the last 30 years, the world population has grown from 5327 million people in 1990 to 7795 million in 2019, an increase of 2470 million and 46.3%, which is significantly lower than in previous periods. On the other hand, during the same period, the number of international migrants grew by an unprecedented 91.2 million, from 152.6 million in 1990 to an estimated 258 million, according to the latest estimates. This represents an increase of 70%. This increase in the total number of migrants, almost twice as high as the growth in world population, is the result of a very wide range of factors and situations, both at the level of the major regions and of individual countries. The nature and structure of international migration have shifted considerably in recent years in a number of different areas. One concrete example would be the proportion of permanent, temporary and circular migration, which have been substantially reconfigured. Another would be the significant changes which have occurred with regard to the respective influence of economic, political and environmental determinants which have resulted in an increase in the growth of the proportion of illegal migrants and refugees, but also an increase in the proportion of highly skilled migrants. This is also the result of the emergence of a large number of new countries of origin. Mapping out the prospects for major migration trends over the long term is essential for the development of demographic scenarios. At the same time, however, one should not lose sight of the changes which characterize population movements over the short term. Three types of data are used to provide a general overview of

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_1

1

2

1  Major Trends in International Migration Over the Last 25 Years

migration movements1: first, estimates of numbers of international migrants; second, the evolution of net migration flows and their distribution between regions of origin and destination; and third, the most recent changes that have marked the main migration flows in the past few years. In 2017, out of a total of 258 million international migrants, 165 million, or 64%, were living in developed countries; and 93 million, or 36%, in developing countries. This proportion has changed slightly since 2000, increasing by 6% in favor of developed countries. Within the group of migrants living in developed countries, 61% are from developing countries and 39% from developed countries. By contrast, in developing countries, 87% of migrants are from other countries in the same category, while only 13% have arrived from developed countries. Table 1.1 shows that over the last 25 years two regions, Asia and Europe, have received 2/3 of all migrants. The volume and movement are almost the same for these two regions, with more or less 48 million migrants in 1990, and 75 and 76 million migrants in 2015. These two regions registered an annual increase of 1.1 million migrants. They are followed in third place by North America with 54.5 million migrants. During the same period, the number of migrants in the world increased at an annual rate of 3.6%. Two-thirds of this growth occurred in developed countries and one-third in developing countries. Asia, North America and Europe registered the same growth rate of 1.1% per year. On the other hand, rates were almost zero for Africa, Oceania and Latin America. The decade 2000–2010 saw the highest growth in international migration, with a global rate of 4.9%. Europe experienced an annual peak of 1.8% during these years, double the previous period and the period after 2010. This considerable variation in the number of migrants was the result of several factors, mainly the fall of the Iron Curtain, which led to an increase in intra-continental immigration from the countries of Central and Eastern Europe. It can also be explained to a very large extent by a sort of “Methodological artifice” arising from the official definition of what constitutes a migrant. In this case this led to a certain bias in the assessment of migration movements since anyone who was born in a country other than the one in which they reside is classified as a migrant. However, with the dismantling of the former USSR and the former Yugoslavia, more than 27  million people suddenly found that they had been born in a foreign country even though they had not crossed any border.2 More than 2/3 of international migrants live in only 20 countries. With 50 million migrants, the United States is the largest receiving country. It is followed by Germany, Russia and Saudi Arabia with 12 million migrants each. The United Kingdom and the United Arab Emirates come next with 9 and 8 million migrants 1  Data used in this chapter are drawn principally from UN (2015), Department of Economic and Social Affairs, Population Division, Trends in International Migration Stocks. The 2015 Revision; UN, database POP/DB/MIG/Stock Rev.2015. The definition of groups of countries and regions follows that adopted by the United Nations. 2  Paradoxically, it can be argued that the more new countries there are (through separation or secession), the more foreigners there are who have in fact never immigrated in their lives.

Origins and Destinations of Major Migratory Flows

3

Table 1.1  Number of international migrants by continent of origin and destination in 2015* Destination Africa Asia Europe Latin and Central America North America Oceania

Origin Africa 16,4 4,1 9,2 0,1

Asia 1,2 59,4 20,2 0,3

Europe 1,0 6,9 39,9 1,3

Latin and Central America 0,0 0,4 4,6 5,9

North America 0,1 0,5 1,0 1,3

Oceania 0,0 0,1 0,4 0,0

2,3

15,5

7,5

24,6

1,2

0,3

0,5

3,0

3,0

0,2

0,2

1,1

(*): UN (2015b)

respectively, followed by the United Kingdom and the United Arab Emirates with 9 and 8 million migrants. France and Canada follow with 8 million migrants each. The origin and qualifications of these migrants are, of course, very different from one host country to another, as detailed below. The scale of these flows should not, however, mask the fact that, contrary to widespread opinion, migrants currently account for only 3.4% of the world’s population. This proportion has increased by only 15% over the last 25 years. These figures at the global level, of course, conceal many of the differences which are principally apparent at the level of the major regions that make up the developed countries and the developing countries. Table 1.2 shows that this proportion remained at the same level (1.7%) for all developing countries throughout the period, while for developed countries it increased from 7.2% to 11.2%. This increase in the number of migrants as a share of the total population is very significant in North America, where it stands at 15.2%, and in Europe, where 10.3% of the population is made up of immigrants. This rise in the proportion of migrants is the result of a combination of increased migration flows and the near-stagnation of the population in most of these countries. In contrast, the situation in Africa, Asia and Latin America is very different, with migrants accounting for only 1.5% of the total population. These data cover broad geographical aggregates and conceal considerable national differences, which are discussed below.

Origins and Destinations of Major Migratory Flows The distribution of migrants according to countries of origin reveals very diverse situations in the major immigration continents. For example, in Asia, 90% of the 27 million new migrants in the period 1990–2015 were born in an Asian country other than that of their country of residence. On the other hand, in Europe and North America, the situations are more contrasted. In Europe, 45% of migrants were born

4

1  Major Trends in International Migration Over the Last 25 Years

Table 1.2  Total number of migrants (in millions) – Growth rate of migrants between 1990–2010 – Percentage of migrants as a proportion of total population – Developed and developing countries and by continent 2015 Percentage migrants in relation to the total population

Total number of migrants (millions)

World Developed countries Developing countries Africa Asia Europe Latin and Central America North America Oceania

1990 152,6 82,4

Annual growth rates 1990– 2000– 2010– 2015 2000 2010 2015 243,7 2,0 4,9 4,4 140,5 2,1 2,9 1,6

1990– 2015 3,6 2,3

1990 2,9 7,2

2015 3,3 11,2

70,2

103,2 −0,1

2,0

2,8

1,3

1,7

1,7

15,7 48,1 49,2 7,2

20,6 75,1 76,1 9,2

−0,1 0,1 0,7 −0,1

0,2 1,7 1,6 0,2

0,8 1,8 0,8 0,2

0,2 1,1 1,1 0,1

2,5 1,5 6,8 1,6

1,7 1,7 10,3 1,5

27,6 4,7

54,5 8,1

1,3 0,1

1,1 0,2

0,7 0,2

1,1 0,1

9,8 17,5

15,2 20,6

(*) UN (2015b)

in another European country and 25% in Asia. In North America, 54% of migrants are from Latin America and 35% from Asia. There is a widely held view that international migration movements are mainly driven by flows from “South” to “North”. E is not a geographical definition but a classification according to world development indicators. The “North” is composed of high-income countries (GNP of more than 12,476 US$), the “South” by low-income countries (less than 1025 US$) and middle-income countries (lower bracket between 1025 and 4030 US$ and upper bracket between 4030 and 120,476 US$) (World Bank, 2017a, b) (Fig. 1.1). The reality is quite different. In 2015, for the 244 million migrants worldwide, i.e. people living outside their country of birth, South-North (35%) and South-South (37%) flows are practically of the same volume. They are followed by North-North flows (22.7%) and in a very small proportion by North-South flows (5.3%). Between 1990 and 2015, the “North” countries experienced the highest growth in the influx of international migrants from the South (76%), but since 2010, growth has clearly been very strong in the “South” group of countries. The increase in the number of migrants has averaged 2.9% per year, with more than 90% of the increase coming from the South. Recent trends obviously also reflect the considerable increase in the number of refugees, which has reached its highest level since the end of the Second World War.3 In 2015, the number of refugees reached more than 21 million people, or 8% 3  Refugees are included in the total number of migrants as calculated by the United Nations. The distinction between migrants and refugees, once perfectly clear, is now tending to blur. According

Origins and Destinations of Major Migratory Flows

5

Fig. 1.1  Distribution of migratory movements between “North” and “South” countries, in 2015 (in millions and percentages)* (*): UN (2015a)

of the total migrant population. Several countries in southern Europe and also Germany have been faced with massive refugee influxes in recent years, but it is the countries of the “South” that have taken in 86% of the world’s refugees. Of these, the group of least developed countries received 25% of the refugees. More than half of these come from three of the countries that have suffered the most violent armed conflicts: Syria with 3.9 million refugees, Afghanistan with 2.6 million and Somalia with 1.1 million. Table 1.2 presents, at the level of continents, the countries of origin and destination of international migrants over the same period 1990–2015. One initial observation should be made: with the exception of North America, where it accounts for only 27% of the total, intracontinental migration is by far the largest source of migration in all continents. The proportion is 52% for Africa, 60% for Asia, 66% for Europe, 71% for Latin America and 59% for Oceania. The continent of second choice for migrants from African countries was Europe (27%), while a very small proportion (7%) selected North America as their destination. The African continent remains very unattractive to migrants from other regions. In Asia, nearly 60 million people have migrated to another country from the same continent, principally from the Indian subcontinent to the Gulf countries and Saudi Arabia. A significant proportion of the migration flows is composed of refugees who settle in countries bordering areas of armed conflict. Other destinations are Europe (20.2 million) and North America (15.3 million). Migration flows from the rest of the world to Asia are very low. Over the same 25-year period, 1990–2015, the total number of migrants in Europe was roughly the same as in Asia; but Europe, as a percentage of its population, received the largest flows. Intra-European flows amounted to almost 40 million migrants. Most of these flows were the result of movements from Eastern and Central Europe to Western Europe following the fall of the Iron Curtain, the dislocation of several war-torn countries and the forced population movements they to the UNHCR (United Nations High Commissioner for Refugees), migrants choose to leave their country not because of a direct threat of persecution, but mainly to improve their lives by finding work, and for reasons of education or family reunification. Unlike refugees, who cannot return home safely, migrants do not face similar dangers if they choose to reintegrate their country of origin. Refugees are people fleeing armed conflict or persecution. Their status is defined by the 1951 Refugee Convention and its 1967 Protocol as well as other legal texts. A significant proportion of refugees are not registered in international flows because they are displaced within their own country

6

1  Major Trends in International Migration Over the Last 25 Years

triggered. The other two continents of origin are Asia, which accounted for 25% of migrants, and Africa with 18%. North America (United States and Canada) received mainly migrants from Latin and Central America (24.6 million) and Asia (15.5 million). For centuries, North America has been primarily a continent of immigration, with negligible outflows. In Latin and Central America, flows are essentially unidirectional. About 69% of migrants have gone to North America, while immigration from other continents is virtually non-existent. Looking at the next 5 years (2010–2015), more recent movements indicate substantial changes in the distribution of international migrants. Thus, one can observe both an increase in the “intra-Asian” flows, a significant decrease in the number of intra-European migrants (whose number returned in 2015 to the level of the 1990s), a sharp decrease in the number of migrants moving from Latin America to North America, and a very significant increase in the number of intra-African migrants (which was still negative in the years 1990–1995). Focusing on the years 2015 to 2019, the latest year for which data become available, there has been a slight shift in this trend. Indeed, the global annual growth rate of migrant numbers has declined from 2.8% from 2005–2010 to 2.2% in 2019 (UN, 2019), a trend that has been subject to exogenous shocks such as natural disasters and international epidemics.

Migration Trends and the COVID-19 Virus The Covid-19 virus, which has been spreading since the beginning of 2020, has had a profound impact on numbers and flows of international migrants. For the first time in decades, there has been a sharp reversal in the growth curve of international migration. In certain receiving countries where the number of international migrants is very high and where this is the result of established and well-integrated immigration, the variations are unlikely to be very high. By contrast, the countries of recent labor immigration are certain to experience substantial return movements. On the one hand, migrants are heavily present in the most vulnerable and underpaid sectors, which suffer most from production stoppages and the effects of containment. A large number of these migrants work on the black market or have very precarious contracts. There are thus significant return movements from Mexico to other Latin American countries, massive returns of East African migrants from the Gulf countries, and also return migration from Western to Eastern Europe. On the other hand, a large proportion of migrants work in critical sectors such as hospital care and domestic services, for which demand will remain high after the crisis period. While migrants represent, as reported, only 3.5% of the world’s population, at the end of April 2020 they accounted for more than 10% of the population in 10 of the 15 countries most heavily affected by Covid-19 (WHO, 2020).

Major Migration Corridors

7

According to data as of May 12th 2020, there were more than 60,700 global mobility restrictions in 207 countries and territories.4 In addition to these stringent strict restrictions on entry, there are quarantines, health confinements, suspension of humanitarian and asylum programs, suspension of international student exchange programs, etc.… It is not yet possible to formulate viable hypotheses regarding this sudden turnaround. Will the decline in international migration be temporary? Will there be a rapid rebound and a return to the upward trend of recent decades? Will the calls for a shift of economic strategy away from globalization also have a knock-on effect in the field of international labor mobility? Can variations in the volume and intensity of bilateral migration movements be reliably predicted? An important consequence of this decline in migration flows is a reduction in the value of remittances (see Chap. 5). While this is already making itself felt, the longer term effects on the economies of the countries of emigration have yet to be determined (see Chaps. 8 and 9); though consequences there will surely be.

Major Migration Corridors Although the migratory movements analyzed at the level of regions and continents provide some initial indications of the general direction, they also necessarily obscure the scale and evolution of the flows taking place between those countries which are most heavily implicated in the crisis. Similarly, the ranking of the countries that have received and sent the largest number of international migrants over the last 25  years, while providing invaluable indications of both their reception capacities and their propensity to generate emigration, does not, however, help us to identify the main bilateral axes involved. Indeed, the focus on large countries which have the most diasporas does not allow us to highlight bilateral movements as determined by the vicissitudes of the economic situation, by new geopolitical constraints and by the impact of unpredictable phenomena such as the Covid 19 pandemic. Figure 1.2 presents the 15 main migration corridors from sending to receiving countries in 2000 and 2017. Overall, the ranking of these corridors remains the same across the 17 years and, with a few exceptions, the trend is towards a significant increase in international migrants. An initial reading of the figures would suggest an almost exclusive link between a country of departure and a host country. This is the case of the Mexico-United States corridor, for example, where nearly the 13 million Mexican migrants account for 98% of total emigration from that country. The same trend prevails, though with much smaller numbers, for the Algeria-France, Burkina Faso-Côte d’Ivoire and Cuba-United States movements. A second pattern shows a greater diversification of flows from certain countries. For example, India has sent migrants mainly to the United Arab Emirates, Saudi Arabia and the United

 Daily statement: [email protected]

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1  Major Trends in International Migration Over the Last 25 Years

Fig. 1.2 The 5 most numerous migrant populations resulting from movements between two specific countries in 2000 and 2017 (in millions of migrants)* (*): UN (2017)

States. A third migration modality suggested by the figures would be that of bilateral population movements. This is the case of movements within the geographical grouping corresponding to the former USSR. Over the last 15 years or so, the number of “migrants” between Russia and Ukraine has numbered between 3 and 4 million people in both directions and for each of the two countries; and between Russia and Kazakhstan the figures are around 2.5 million people. It should be remembered that migrants are defined by the UN and other international organizations as persons who were born in a country other than that of their place of residence. The unusual situation pertaining between Russia, Ukraine and Kazakhstan is thus largely the result of the re-drawing of borders, which has generated a population of migrants who, paradoxically, have never physically moved from one territory to another. The only remarkable change concerns the movement from Syria to Turkey as a result of the war which has been ravaging the former country over recent years. Between 2000 and 2017, the number of Syrian migrants in Turkey increased from a few thousand to 3.3 million. The first European corridor concerns migration between Poland and Germany, which has doubled over the last 17 years (2 million in 2016).

References

9

References United Nations. (2015a). World population prospect. The 2015 revision (DESA, Population Division, POP/PD/WPP/Rev2015/POP/F-01). United Nations. (2015b). Trends in international migrant stock: The 2015 revision (Department of Economic and Social Affairs, Population Division, United Nations Database, POP/DB/MIG/ Stock/Rev.2015). United Nations. (2017). International migration report 2017 highlights ST/ESA/SER/A.404, 32p. United Nations. (2019). International migrants stocks Department Economic and social Affairs, Population Division 2019 POP/DB/MIG/Stock/REV.2019. World Bank. (2017a). Migration and remittances, Migration and Development Brief, n°27. World Bank. (2017b). Remittances data, Migration and annual remittances updated.

Part I

Emigration of Highly Qualified Labor from Developing Countries

If the King of France sent a hundred thousand subjects at his own expense to Holland to learn the navy, they would be useless on their return unless more ships were sent to sea than before. It is true that it would be of great advantage to a State to have its subjects learn to manufacture the products which it is customary to obtain from abroad, and all the other things one buys there; but here I consider a State only in relation to itself.  – Richard Cantillon, Essai sur la Nature du Commerce en General, Chapter XX, Part 1, 1755

Chapter 2

International Migration Trends of Highly Skilled Workers

I ntroduction: The Generalization of Emigration of Highly Qualified Personnel Concerns about the large-scale emigration of highly qualified personnel (HQ)1 from developing countries prompted development actors and researchers to start collecting precise and harmonized data for the greatest number of countries. All that was previously available in terms of documentation was a handful of ad hoc and fragmentary monographs. Several works, over the years, have published the most reliable data possible on HQ migration flows. These works have established themselves as reference points for almost all subsequent analyses. Carrington and Detragiache (1998) were the first to calculate emigration rates from 61 countries to the OECD area by identifying categories of migrants according to three levels of education. They used data from the 1990 United States census. Second, the work of Docquier and Marfouk (2006), based on more recent data, extended and consolidated the assessment of migrant stocks by country of origin and education level in 192 countries and territories over the period 1990–2000. The first large-scale standardized database was produced by the OECD and covered 227 countries of departure and 29 countries of arrival based on censuses undertaken during the 2000s (Dumont & Lemaitre, 2005). Beine et al. (2007) further developed this database by collecting information on the age of migrants on arrival in the host country in order to determine in which country they had obtained their tertiary education. Subsequently, the best critical synthesis of research conducted over the last 40 years was produced by Docquier and Rapoport 1  The definition of highly qualified personnel was derived first of all by taking into account very specific professions, such as doctors, engineers, teachers, etc. Very quickly, for reasons of data standardization, it was agreed that this category should include every individual who had obtained a higher level of education.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_2

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(2012), who assessed the economic consequences of HQ migration as a manifestation of the globalization process. They presented the data available in the early 2000s regarding the volume and intensity of flows and analyzed the main determinants and consequences of “Brain drain”. Of course, the most relevant approach to measure all aspects of this phenomenon would be to compare the annual flows of HQ emigration from each country with the number of tertiary graduates trained each year. If this data was available, it would permit the calculation of a “wastage rate” that emigration induces each year by extracting its share of migrants. It would then be possible to measure in national budgets the additional cost that would therefore have to be found to pay for the higher education of each new graduate remaining in the country. This chapter first presents the most recent trends in HQ migrant flows at the international level. It then presents the 30 countries with the highest levels of emigration of HQ to OECD countries. For a more precise assessment of the phenomenon, an “HQ emigration rate” is defined and employed.

Recent Trends in HQ Emigration In the absence of data showing year on year variations, the most recent and comprehensive source of information is the latest update of the “Database on International Migration DIOC OECD (2010/11)”. This is the primary source for data presented in this chapter. A few preliminary observations make it possible to properly assess the significance of this data for the evaluation of HQ immigration flows. Firstly, numbers of HQ migrants for the year 2010/11 are compared to those registered in the year 2000. This 10-year variation indicates general trends in migration flows, but obviously does not allow us to follow annual changes as closely as possible. Secondly, the data concerns only migration to OECD member countries and therefore does not take into account the immigration of HQs to other developed countries and to developing countries. Third, for many countries it is not possible to determine whether migrants obtained all their tertiary education in the sending country or whether they completed some of it in host or transit countries. A brief comparison between flows of migrants of all skill levels and HQ migrants to developed countries and the rest of the world reveals the following main trends. Over the 25-year period between 1990 and 2017, the total number of migrants in the world, as indicated above, increased by about 90  million to reach 258  million, a growth of about 69%, with, however, a slight decrease in this rate in recent years. Looking only at the period 2000/2010, the increase is 50 million migrants, a 29% growth in 10 years. Over the same period of 2000/2010, there were nearly 31.5 million migrants with tertiary education in all OECD countries, an increase of more than 70% in just 10 years; more than double the increase in the number of migrants of all categories. The total number of migrants of all categories emigrating to a developed country

15

Recent Trends in HQ Emigration

increased by 17.5% over the same period. HQ migrants accounted for more than 1/3 of migrants in 2010 in all OECD countries as well as in other developed countries. The number of HQ migrants increased very significantly during this period, continuing the trend of previous years. Table 2.1 brings together the main data on the origins of HQ migrants, listed as a group of countries or a continent. A first reading allows us to observe that the number of HQ migrants from OECD member countries increased by 50% during this decade. These internal migration movements within the OECD area cover a wide range of situations: first, the strong attraction of the United States and Canada to graduate students from developed countries in Europe and East Asia; second, the continuing emigration of highly skilled labor from the former Soviet bloc countries. Finally, the scale of these flows also reflects the intensification of labor market integration and the increase in the free movement of persons within the European Union. The second prominent trend which can be observed is the extent and dynamics of the phenomenon of “brain drain”. In the year 2010/11, there were almost 19.5 million migrants with tertiary education from developing countries (both middle- and low-income countries), representing 62% of the total number of HQ migrants in OECD member countries. This is an increase of more than 83% over a single decade. This initial data clearly shows that the selectivity of migration flows has accelerated during this decade, as the increase in HQ migration is greater than the increase in flows of migrants at all levels of education. Moreover, the share of developing countries among countries of origin is rising rapidly. These figures relate only to immigration to OECD member countries, and it is important to take into account other developed countries (especially the Arabian Gulf states) which also receive a Table 2.1  Numbers of migrants worldwide and in developed countries 1990–2015 – numbers of migrants with higher education in the OECD 2000/2001–2010/2011 All migrants (in millions) 1999 2000 All countries 154.2 172.2 To the OECD 82.3a 84.0 Non-OECD developed countries 31.2 Migrants (in millions) with tertiary education in the OECD NATIVE REGION Africa 1705.5 Asia 6110.0 Europe 6767.2 North America 841.6 Latin America 2680.3 Oceania 305.5 Group of countries OECD country 6491.5 Non-OECD developed countries 1276.6 Low/middle income countries 10,622.7 Total 18,390.0 UN (2015), OECD (2015a) and Arslan et al. (2015)

a

2010 221.7 135.6a

3060.6 10,914.9 10,887.4 1159.9 4929.3 465.3 9923.2 1992.5 19,472.0 31,387.7

2015 243.7 123.8 48.7

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2  International Migration Trends of Highly Skilled Workers

large share of the flows of HQ migrants from developing countries and for which the data is often incomplete. A classification by continent of origin reveals highly contrasted regional trends in the growth dynamics of the numbers of HQ migrants, as well as large differences in the ratio between the category of unskilled migrants and that of migrants with higher education.2 Asia, with nearly 11 million HQ migrants, represents the largest source. The increase in HQ immigration is more than 78% over 10  years and is mainly driven by three countries: India, China and the Philippines. Asia is characterized by a ratio indicating that the share of HQ migrants is more than double that of unskilled migrants (35% compared to 16%) in the number of migrants in the OECD. China clearly stands out as the country with the most pronounced asymmetry, with 47% of HQ migrants and only 15% of unskilled migrants. Latin America is the continent of origin of more than 4.9 million HQ migrants in the OECD3 The ratio of HQ migrants to unskilled migrants is the opposite of that of Asia, with a ratio of 16% compared to 34%. This result reflects the preponderance of unskilled labor emigration from Mexico and Central America to the United States. Only Argentina, and to a lesser extent Brazil, have a higher proportion of HQ migrants. The situation is very different for the much smaller number of HQ migrants from Africa. They account for a proportion almost equal to that of the unskilled migrants (10% and 12% respectively). The differences between countries are, however, considerable and reflect very clearly the differences in the levels of economic development and the infrastructure of the higher education system. For specific reasons, three countries – Nigeria, South Africa and Egypt – stand out from the other countries with a higher proportion of HQ migrants than unskilled migrants.

Changing Trends in Recent Years A closer look at the regional level, comparing the first 5 years (2000/2005) with the second five-year period (2005/2010), clearly shows a very marked alteration in HQ emigration flows.4 While, at the global level, over the entire period, the growth of HQ migration remains largely positive, it has also experienced a sharp slowdown. This is also the case for international migration as a whole. This slowdown was largely caused by the economic and financial crisis of 2007/2008, which, by negatively affecting the labor market in developed countries, reduced the rate at which new HQs were being hired, and accelerated the rate at which some of them returned home. This trend will probably be even more accentuated when all post-Covid-19 data are available.  This data is derived from OECD (2015a), Arslan et al. (2015), Table 8 and Appendices.  Since the focus is only on emigration from developing countries, detailed data for Europe and North America are not presented. 4  Recent migrants are defined as those who have been present in the country of destination for 5 years or less. 2 3

Main Countries of Origin

17

For example, Asia experienced a 54% growth in HQ migrants between 2000 and 2005 and only a 15% growth between 2005 and 2010. In Africa, the decline in growth is much greater, falling from 95% in the first period to 13% for the years 2005/2010. This reversal of the trend is likely to be heavily determined by economic cycles. This seems particularly evident in Latin and Central America, where the change is very rapid and profound, with growth of 74% between 2000 and 2005 followed by a decline of 18% between 2005 and 2010.5 A detailed presentation at the country level rather than by region or continent provides a better understanding of the preponderance of the main HQ emigration countries, and highlights the recent transformations in HQ flows.

Main Countries of Origin Table 2.2 presents the top 30 countries of origin of HQ migrants in 2000 and 2010 residing in an OECD country. These figures, it should be recalled, refer only to migrant numbers. It is only by comparing them with the figures for 2000 that the most recent developments can be assessed with sufficient precision. This table presents, in summary, a broad overview covering both emigration from developed countries and emigration from developing countries. It highlights the great diversification of emigration sources, but also the convergences between large groups of sending countries. The emigration of HQ from developing countries, which is currently the predominant trend in global migration movements, fits into the general context of globalization, which encompasses the movement of goods, capital and, to a lesser extent, labor. Nevertheless, the assessment of changes in the most recent flows may be obscured in this analysis by the weight of migrants who have been settled for a long time already in the host countries. This list of the 30 main countries of origin highlights the following five characteristics: 1. The list hardly varies between 2000 and 2010/11. Two countries, Egypt and Costa Rica, have disappeared from the list, while two new countries have appeared  – Hong Kong and Brazil. The ranking of countries according to the number of HQ migrants does not change significantly. This is largely due to a structural effect. Indeed, for many countries, emigration flows have been spread over a long period of time and have resulted in well-established communities with high numbers of migrants. Therefore, even the very large migration flows of recent years do not alter the overall numbers enough for the ranking of the countries of departure to change significantly. 2. The top three countries of origin are Asian developing countries. India, China and the Philippines account for more than 5.5 million HQ migrants residing in 5  Data are not available for years after 2011. It is therefore not possible to determine whether the changes in trend represent long-term developments or just cyclical fluctuations.

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Table 2.2  Top 30 countries of origin of highly skilled migrants to the OECD in 2010a Country India Philippines China United Kingdom Germany Poland Russia Mexico Korea Ukraine France United States Canada Romania Vietnam Iran Pakistan Italy Morocco Colombia Japan Cuba China – Taiwan Algeria South Africa Jamaica Hong Kong Brazil The Netherlands Ireland

HQ migrants 2010 2,239,605 1,545,206 1,529,414 1,473,738 1,224,326 1,007,573 898,519 885,232 811,062 654,491 619,110 598,186 561,574 555,259 539,908 471,401 451,777 432,850 425,917 375,053 364,093 341,999 336,400 324,523 297,200 292,963 291,592 291,510 282,124 273,810

HQ migrants 2000 1,002,334 889,072 822,793 1,082,320 865,422 467,242 624,830 474,970 517,087 372,688 377,431 418,219 423,033 268,212 348,141 289,735 202,688 273,480 233,734 173,710 277,150 222,430 263,209 217,553 162,288 190,722 147,120 144,119 187,381 176,984

Rate of growth 123.4 73.8 85.9 36.2 41.5 115.6 43.8 86.4 56.9 75.6 64.0 43.0 32.7 107.0 55.1 62.7 122.9 58.3 82.2 115.9 31.4 53.8 27.8 49.2 83.1 53.6 98.2 102.3 50.6 54,7

Arslan et al. (2015)

a

the OECD. Mexico, Vietnam, Iran and Colombia are the next four developing countries in the list. India is the country that has experienced the highest growth in the number of HQ migrants with a rise of more than 123% in 10 years. The other developing countries that experienced the highest increase of HQ migrants over this period are Pakistan with 123% and Colombia with 116%. 3. A second group, which accounts for the emigration of more than 3.3 million HQ migrants, contrasts very sharply with the group of developing countries. It includes the two largest countries of the European Union, Germany and France, plus the United Kingdom. These are countries in which higher education institutions as well as the Research and Development departments of large companies have long produced an abundance of scientific personnel with all the skills

The “Emigration Rate” of HQ: A Relevant Indicator for Measuring the “Brain Drain”

19

required to meet the demand on the international HQ labor market. With the exception of the United Kingdom, whose flows have, for economic and historical reasons, largely gone to the United States and Canada, this number of HQ migrants is the result of increased trade and the deepening of the internal market within the European Union. Supply selectivity does not only result from the characteristics of HQ.  The demand for highly qualified personnel itself also modulates flows via restrictive migration policies which operate according to points and quota systems. 4. A third group is made up of Eastern European countries. Until the fall of the Soviet Union the labor force in these countries had no access to the labor market of Western countries, living as they did behind the Iron Curtain. The poor economic situation of these countries during the transition to a market economy have combined with the social unrest and fears of political insecurity to boost outflows in recent years. The three main countries of departure are Poland, followed by Ukraine and Romania. Poland has more than 1.007  million HQ migrants. It experienced a very strong acceleration of emigration (115.6%) over the period 2000/2010. 5. In Latin and Central America, the 3 countries with the highest increase in the number of HQ migrants for the same period are Colombia (+115.9%), Brazil (+102.8%) and Mexico (+86.4%). It should be remembered that a significant proportion of HQ migrants have emigrated to other developing countries on the same continent, and that the figures quoted above are thus likely to underplay the true scale of emigration. The available data only cover HQ migrants settled in OECD countries. To the extent that migrants to other high GNP countries are not taken into account, this results in a second source of underestimation of HQ emigration from developing countries.

 he “Emigration Rate” of HQ: A Relevant Indicator T for Measuring the “Brain Drain” The emigration rate of HQ is defined as the total number of persons with tertiary education born in a country and living abroad (in an OECD country) divided by the total population with the same level of education still residing in the home country.6 These OECD data do not include migrants to other high-middle-income countries such as the countries of the Arabian Gulf or migrants to developing countries. The emigration rate of HQs is undoubtedly the most relevant indicator of the “brain drain”, much more so than the total number of HQs present in host countries or the

6  The calculations are based on data derived from OECD (2015b) and OECD, International Migration Data (2010–2014). In the latter document, BOX 3 presents the methodology adopted and the reasons for the choice of the database “Barro-Lee 2013” for the estimation of the higher education population of each country.

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change in the number of migrants over a short period of time, which are data that can only provide partial indications of the evolution of flows. Table 2.3 presents the top 10 countries in Africa, Latin and Central America and Asia according to the level of emigration rates of their HQs in 2010/11 and 2000. It also gives the total number of HQ migrants from these 30 countries in 2010/11. Only countries with more than 1  million inhabitants are included in this table.7 These countries, but also a whole group of countries with a small population, are characterized by a much higher rate of “brain drain” than other developing countries. This situation stems from their specific characteristics such as their insularity, their incapacity (due to development issues) to absorb each year’s stock of graduating students, the narrowness of the labor market for qualified personnel, and the low level of remuneration. As a result, in most of these countries about 50% of the HQ workforce ends up exercising their profession in an OECD country. They choose to emigrate from the country which has financed their training. Out of the 30 countries listed in Table  2.3, 10 have HQ emigration rates above 25%. Moreover, it is the developing countries with the lowest per capita incomes which exhibit the greatest discrepancy between the general emigration rate and the rate of HQ migrants. The countries which, on a global level, are the largest providers of HQ migrants do not appear in this ranking because they are classified according to the “emigration rate of HQ”. Furthermore, the impact of these flows needs to be assessed from the point of view of both receiving and sending countries. The majority of the total number of HQ migrants come from just a handful of sending countries (India: 2. 240 million, China: 1. 530  million, Mexico: 885,000), but for many receiving countries these migrants constitute a substantial contribution of highly qualified, scientifically trained manpower in various sectors of activity. Nevertheless, the size of these countries, the volume of their population and the capacity of their higher education systems to produce trained graduates annually mean that the impact of these departures on their academic and scientific manpower potential is greatly reduced. Emigration rates for HQ migrants are between 2 times and 15 times higher than emigration rates for all migrants of all categories. These differences increased significantly for almost all countries between 2000 and 2010/11. They reflect the very high selectivity of migration flows characterized by a constantly increasing proportion of HQ migrants. The variation in HQ emigration rates in most developing countries between 2000 and 2010/11 results from two movements working in opposite directions: on the one hand, the growth of flows of HQ migrants and, on the other, the increase in the number of HQ produced by the education system of these countries. As the OECD analysis points out, in a large number of developing countries, the increase in the level of higher education of the population in these countries has been able to attenuate or even cancel out the growth in emigration rates that would otherwise have occurred as a result of the increase in the number of HQ migrants. For example, in Africa, the total number of HQ migrants from developing countries

7  Among the countries with less than 1 million inhabitants are Guyana with an emigration rate of 93%, Barbados with 66%, Fiji with 34.5%, Belize with 33.5% and the Gambia with 28%.

The “Emigration Rate” of HQ: A Relevant Indicator for Measuring the “Brain Drain”

21

Table 2.3  HQ immigration rates (2010/2011 and 2000/2001). Total number of HQ migrants in the OECD in 2010/2011a Emigration rate 2010/2011 Africa Mauritius 43.8 Zimbabwe 43.6 Congo 37.4 Sierra Leone 32.7 Zambia 29.9 Malawi 21.9 Mozambique 17.0 Ghana 15.9 Senegal 14.8 Cameroon 14.4 Latin and Central America Haiti 75.1 Trinidad and 68.2 Tobago Jamaica 32.7 Honduras 32.2 Cuba 20.0 El Salvador 20.0 Guatemala 17.4 Uruguay 14.1 Dominican 11.8 Republic Colombia 10.8 Asia Papua New 20.6 Guinea Kuwait 17.8 Laos 14.9 Cambodia 14.8 Syria 17.5 Vietnam 10.6 Singapore 9.6 New Zealand 9.4 Nepal 8.9 Philippines 8.1 a

Emigration rate 2000/2001

Number of migrants 2010/2011 (in thousands)

53.1 30.1 34.8 36.3 16.3 19.9 39.5 11.6 16.8 16.0

47.4 88.8 38.9 25.7 30.3 9.8 29.5 116.0 51.0 64.3

47.1 72.4

167.4 115.5

47.1 13.7 27.8 14.2 18.9 8.3 10.1

293.0 59.6 342.6 128.6 80.1 41.7 167.5

6.0

375.1

16.4

12.6

10.0 25.3 / / 18.3 9.9 8.1 2.2 6.8

30.3 52.0 52.7 75.4 539.9 74.7 174.8 60.4 1545.2

OECD (2015a) and Arslan et al. (2015), Table 16 and Annex 6

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working in OECD countries has grown by more than 80%, but HQ emigration rates have been relatively stable because over the same period the population educated to tertiary level has more than doubled (OECD, 2015a). Overall, HQ emigration rates are higher in Africa (between 43% and 14.5%). This mainly concerns developing countries with the lowest total number of HQ migrants. The same is true for small Central American countries (Haiti: 75% and Trinidad and Tobago: 68%). In these developing countries, with some of the lowest GNPs on their respective continents, HQ emigration represents on average between 20% and 30% of the workforce with higher education. In Asia, with one exception, the rates for the top 10 countries are between 18% and 9% and are much lower than in Latin America. The Philippines, which has the highest total number of migrants and also the highest number of highly skilled workers (1.545 million), is nevertheless characterized by a relatively low rate of HQ emigration. In Asia, HQ emigration rates are likely to decline due to the very rapid growth of the highly skilled category within the total labor force. These general observations need to be complemented by more precise analyses at various levels. First and foremost, the migration of HQ outside OECD countries should be taken into account. Second, as discussed in Chap. 4, it is essential to examine in more detail data specific to certain occupations, particularly those in the medical and paramedical fields which are characterized by much higher emigration rates.

References Arslan, C., Dumont, J.-C., Kone, Z., Moullan, Y., Özden, C., Parsons, C., & Xenogiani, T. (2015). A new profile of migrants in the aftermath of the recent economic crisis. OECD Social, Employment and Migration Working Papers, 160. https://doi.org/10.1787/5jxt2t3nnjr5-­en Beine, M., Docquier, F., & Rapoport, H. (2007). Measuring international skilled migration: A new database controlling for age of entry. World Bank Economic Review, 21(2), 249–254. Carrington, W., et Detragiache, E. (1998). How big is the brain drain? (IMF Research Department Working Paper, WP/98/102). Docquier, F., et Marfouk, A. (2006). International migration by education attainment, 1990–2000. In C. Özden, et M.  Schiff (Eds.), International migration, remittances and the brain drain. Trade and development (pp. 151–200). World Bank and Palgrave Macmillan. Docquier, F., & Rapoport, H. (2012). Globalization, brain drain, and development. Journal of Economic Literature, 50(3), 681–730. Dumont, J., et Lemaitre, G. (2005). Country immigrants and expatriates in OECD countries: A new perspective (OECD Social, Employment and Migration Working Papers, n°25). Organisation for Economic Co-operation and Development. (2015a). Perspectives des migrations internationales 2015. Éditions OCDE. https://doi.org/10.1787/migr_outlook-­2015-­fr Organisation for Economic Co-operation and Development. (2015b). Health statistics 2015. United Nations. (2015). World population prospect. The 2015 revision (DESA, Population Division, POP/PD/WPP/Rev2015/POP/F-01).

Chapter 3

Emigration of Highly Qualified Personnel from the PVD, or the “Brain  Drain”. Good or Bad for Development?

Introduction. The Origins of a Long Controversy From time immemorial, itinerant savants have circulated from one country to another in search of scientific and artistic knowledge and more favorable conditions in which to live and work. It was only in the 1960s, however, that a debate about the economic consequences of the emigration of highly qualified members of the labor force (HQ) began to figure strongly in economic analyses and public opinion. Initially, the debate concentrated exclusively on Western countries, and it was only later, with the emergence of flows from developing countries, that the problematic was broadened re-addressed. The United Kingdom had long since experienced massive emigration of academics, engineers, teachers, and especially physicians, to the United States and Canada. This massive transatlantic migration to North America was more than offset by the recruitment of medical personnel from India, Pakistan and the Philippines. This movement of substitution between a section of the UK’s medical personnel and a workforce from the Asian subcontinent contributed to the survival, at low cost, of the National Health Service. This process was fueled by a desire amongst physicians and other academically-­ trained professionals to maximize their incomes; the logic was very simple: take advantage in the country of origin of a very low cost, publicly-financed university education, then emigrate and exercise one’s profession in the private sector in North America in order to benefit from the high remuneration offered to qualified personnel. This approach is based on what some researchers have called the “cross-returns rate of migration with education ”. Psacharopoulos (1971) was the first to calculate this rate, which compares, on the one hand, the level of remuneration in the country of origin of individuals with a secondary education with, on the other hand, the expected income abroad minus the cost of additional investment in a higher education. To this should also be added the cost of migration. In all the cases analyzed, the model shows that the incentive for HQs to emigrate was very high. © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_3

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3  Emigration of Highly Qualified Personnel from the PVD, or the “Brain  Drain”…

Initial awareness of the phenomenon during the 1960s centered on emigration from Western Europe. This was followed some 15 years later by concerns of a different nature raised by the strong growth in HQ emigration from the newly-­ independent developing countries to the countries of the North. The controversial question at that time was whether this emigration of HQ was one of the causes of underdevelopment or whether, conversely, it was one of its consequences, a symptom of the dysfunction of these countries. As part of the globalization process, these flows have accelerated sharply and have become much more diversified. As noted in the previous chapter, it is not only the volume of flows that needs to be taken into account, but also the proportion of HQ emigrants in relation to the annual capacity to produce a workforce educated to tertiary level. The positive or negative impact on emigration countries diverges greatly according to the size of the countries of departure, the size of their population and their level of economic development.

The Classic Argument The first large-scale HQ emigration flows were initially analyzed within the general framework of the classical theory of the movements of factors of production and, more specifically, the economic consequences of international migration. A summary of the macroeconomic effects is presented in Chap. 8. In the particular case of HQ, their departure raises the question of the consequences resulting from changes in the ratio of human capital/all emigrants and in the ratio of human and physical capital/the remaining population. Continuing their argument that the consequences of all migratory movements are always favorable, Grubel and Scott (1968) denied any possibility, even in the case of HQs, of a “loss” of consumer surplus. However, their reasoning was based on an unlikely assumption, namely that the value of human capital per migrant was equal to the value of human and physical capital in the remaining population. Continuing this line of thought, Berry and Soligo (1969) then demonstrated that only if the stocks of physical and human capital are withdrawn by migration in the same proportions as the initial factor endowment in the country of emigration would the average income of the source population remain unchanged. They underlined, however, that in all other cases, if the combination of labor/capital factors withdrawn is different from that in the country of emigration, the average income of the remaining population will be lower after HQ emigration. The issue of positive externalities of HQs was hardly considered in this context. During the 1980s, the emigration of HQ from developing countries raised concerns and criticism from many international organizations and development actors. The priority objective of cooperation policies with developing countries was to strengthen their scientific potential by increasing the number of physicians, engineers and teachers. At the same time, however, these countries were led to “export” to the developed countries a quantity of highly qualified manpower that was sometimes larger than that which they received in the framework of technical and scientific cooperation. Much work has been done to measure the “historical value” or

Brain Drain, Brain Gain or Brain Waste. Impacts of HQ Emigration on Development

25

replacement value of HQ migrants from developing countries, in order to assess the costs borne by the community in relation to their higher education and to factor in the skills lost as a result of their emigration. This work has given rise to very controversial positions on the consequences of HQ emigration. According to some studies, it would have had the effect, in reality, of provoking flows of “reverse aid”. According to other analyses, such emigration is said to lead to a net transfer of skills from developing to developed countries (UNCTAD, Commission on Transfer of Technology, 1978). According to the dependency theory in vogue at that time, this phenomenon was considered as one of the negative consequences of the international system of “unequal exchange”. (Massey et al., 1998).

 rain Drain, Brain Gain or Brain Waste. Impacts of HQ B Emigration on Development Differences in the terminology used to qualify HQ emigration reflect often conflicting theoretical views and empirical assessments. The choice of the term brain “drain” reflects the conviction that this type of emigration leads to a loss of scarce resources that are indispensable for the development of developing countries. These losses would materialize particularly in the areas of public finances, technological capacity and the reduction of human capital. The expression brain “gain”, on the other hand, implies an emphasis on the benefits that would result from greater international HQ mobility. Thanks to a better distribution of production factors across the world market, all actors would be winners. Scientific output would increase at the global level and its consequences would benefit all parties: firstly, developed countries would be spared the expense of financing the training of skilled labor, and secondly, of course, migrants would receive higher salaries. But they would also be beneficial to the countries of departure, which would benefit from the positive financial, but above all technological, spin-offs resulting from the greater scientific production of migrants, which would be made available to them through the many channels used for the transfer of knowledge. The brain “waste” can be interpreted from two points of view. On the one hand, in the countries of arrival, there is a high probability that some highly skilled migrants will not be able to access jobs corresponding to their level of education. Due to market rigidities in these countries, monopolistic practices, xenophobic reactions or protectionist barriers blocking access to certain professions, some of the HQ migrants would ultimately be unable to find jobs which match their level of qualification. This phenomenon is particularly pronounced in the U.S.  HQ labor market, particularly in relation to certain countries of origin (Özden & Schiff,

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2006).1 According to the OECD, this trend towards “over qualification”2 is estimated to have increased by 3% between 2000 and 2010, reaching 37% of total migrants to OECD countries (OCDE/Union européenne, 2015). The research also finds a strong negative correlation between the average income level of sending countries and the prevalence of over qualification among migrants from these countries: 27% for OECD migrants, but more than 40% for migrants from categories of countries which have low and very low average GNP.  The result is a waste of resources as migrants, their families and the governments that financed them all see no return on their investments. On the other hand, in many of the developing countries of origin the weakness of infrastructure, the lack of quality equipment and the inadequacy of complementary factors would mean that a significant proportion of university graduates (teachers, doctors or engineers) would be overqualified for the jobs they occupy. In these two brain waste situations, it is necessary to examine the role of HQ migration in the phenomenon of under-utilization of part of the human capital of developing countries in host countries and also the role it plays in the phenomenon of over-investment in specialized fields that do not correspond to the economic priorities of developing countries. The frame of reference of the analyses as well as the political statements concerning the effects of the “brain drain” have broadened during the course of the controversies and as migratory flows have been transformed. All the situations that characterize underdevelopment now seem to be taken into account. Briefly, here are the main negative and positive arguments relating to the brain drain. They will be analyzed in detail during the remainder of this chapter.

“ Brain Drain” and Development. Summary of Negative Arguments The first argument maintains that a decrease in the stock of human capital would reduce the level of national production together with all the factors influencing productivity. Consequently, the economic growth of the countries of origin would suffer. Secondly, the departure of a substantial proportion of the HQs would deprive developing countries of an already experienced labor force and also of young graduates who have integrated the latest technological advances during their studies.

1  Several factors have been adduced as partial explanations of this “brain waste”. Firstly, the value of university degrees can vary greatly between sending developing countries and developed countries of immigration, and this can skew the extent of under-qualification in migrant jobs. There are also situations in which HQs migrate with the intention of initially accepting jobs in positions that are under-qualified in relation to their training because the remuneration will be much higher than that which they could earn for similar jobs in their country of origin. 2  Overqualification is measured by the proportion of individuals with a university degree who are employed in a middle or low-level occupation as defined by the international classification (ISCO 4 to 9).

Should Welfare Losses Be Compensated for by Taxation of HQ Migrants?

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The departure of a high proportion of HQs would also lead to a waste of a significant part of the public investment that developing countries have devoted to raising the level of education and skills amongst the population. This is all the more damaging, since these countries tend to have very limited resources and restricted budgets. In addition, developing countries would lose significant tax revenues since they would no longer be able to tax HQs who have emigrated. These taxes that they are no longer able to collect would, on the other hand, benefit the host countries that have saved the costs of training migrants. Finally, the brain drain would cause a dramatic decrease in the quantity and quality of services needed to guarantee the population’s basic needs in the areas of health and education.

“ Brain Drain” and Development. Summary of the Positive Arguments First, the return of some of the migrants trained abroad would contribute to raising the level of skills and productivity of the labor force. In addition, remittances from HQs would be particularly high and would provide substantial resources to households as well as foreign exchange earnings for the government. In addition, HQ migrants would be important vectors for the transfer of scientific knowledge and technology to the countries of origin at very low cost. In addition, HQ migrants would stimulate international investment and more specifically investment in education and human capital in countries of origin and help facilitate their integration into the globalization process. Finally, countries of origin would benefit from the cooperation that their diasporas would bring in terms of political influence, economic and business connections and positive externalities. Initially, these negative and positive arguments carried a certain polemical force, and served to stimulate inquiry into the specific impact of migration on development, but their utility in this sense was restricted by a lack of coherent analysis and detailed, reliable documentation, as quickly became apparent. Before evaluating them in detail, a preliminary presentation of the controversies concerning the modalities of compensation for possible losses will highlight the main issues at stake in the debate.

 hould Welfare Losses Be Compensated for by Taxation S of HQ Migrants? Bhagwati initiated a proposal to recommend the establishment of an international mechanism for taxing HQ migrants aimed at compensating the “losses” suffered by countries of origin. However, there was no mention in his proposals of erecting

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barriers to the free international movement of persons (Bhagwati & Dellalfar, 1973).3 This tax, the principle and modalities of which aroused very strong opposition, was to be levied on migrants or their employers for a period of 10 years by the tax authorities of host countries under the auspices of the UN, and paid to the governments of the countries of origin of HQ migrants. Several arguments were put forward in support of these international transfers of tax revenues. Bhagwati identified three types of “compensation” each of a very different nature, and each of which justified the implementation of this international tax transfer mechanism.

Reimbursing Expenses Firstly, this taxation of HQ migrants would have made it possible to reimburse part of the training, education and maintenance expenses of HQ migrants financed largely by the public budgets of developing countries, but also to compensate for the loss of production generated by the emigration of part of the skilled labor force essential to the development process. HQs who emigrate at the beginning of their professional careers would be the main beneficiaries of the free international movement of scientists to the detriment of the remaining population. Insofar as it is not possible to accurately assess the magnitude of the losses, which vary greatly depending on whether the migrants come from a low-income African country or a middle-­ income country, an international lump-sum levy procedure seemed to be the most appropriate means of ensuring the best possible compensation (Bhagwati & Hamada, 1974).

Internationalizing Taxation According to a second argument, it would be justified to extend these taxation measures to HQ migrants who escape taxation in their country while retaining all their civil and political rights. As UNCTAD experts pointed out at the time, extending tax jurisdiction to nationals abroad was not really an innovation. The United States first and other developed countries later introduced a system of “general taxation” under which the income of nationals abroad is subject to taxation in their home country. On the other hand, developing countries, because of deficiencies in their tax administration, have been forced to forego these revenues from the income of nationals 3  There was no ambiguity over the fact that these proposals were not intended to restrict the free movement of individuals, as they were not intended to impose an “emigration duty” to reimburse the country of departure in advance for training costs. Instead they were to be applied, a posteriori, to the remuneration of HQs in host countries. The income differential between developing countries and host countries is so high that this levy would not have been likely to curb the immigration of HQs.

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abroad.4 According to its supporters, this tax was also based on moral criteria, beyond the economic dimension.5

Equity Between HQ A third argument proposed by these researchers was based on the principle of equity within the sending countries. Emigration offers the opportunity for HQs to benefit immediately from a substantial annuity compared to those who choose to work in their country of training. This argument implies that the income tax progressivity applied to HQs in the country of origin should also be extended to their nationals working, temporarily or even permanently, abroad (Bhagwati, 1978). Taxation levied at the national level cannot be an adequate instrument of income redistribution in a situation where the labor factor has been almost completely internationalized through mobility. In this perspective, UNCTAD had calculated the revenues to which developing countries would have been entitled if a 10% tax levied on the labor of migrants had been applied in the three main countries of HQ immigration, namely the United States, the United Kingdom and Canada. A completely different issue is the evaluation of the elasticity rate of emigration with respect to changes in the tax burden in countries of origin (Wilson, 2007).6

Sharing the Benefits of Host Countries An entirely different approach involved sharing the economic benefits enjoyed by receiving countries rather than setting up a system of compensation for losses incurred by sending countries. Several research studies have assessed the savings on training realized by receiving countries as a result of the arrival of a trained and skilled foreign workforce. These savings can be measured, particularly in the United States, by the large number of medical and engineering schools that these countries did not have to build, manage or finance thanks to the regular influx of cohorts of young medical professionals and other science graduates. The argument was that the gains from the substantial savings in the investment of dozens of university

4  To the argument that this measure would discriminate against HQ migrants in the labor market of host countries, it was replied that international tax deduction treaties between countries of origin and destination would have made it possible to avoid double taxation. 5  This argument loses much of its relevance when migrants decide to renounce their nationality or when their departure was also prompted largely by their opposition to the policies of the government in the country of origin. 6  However, it is questionable whether the additional tax burden on HQ migrants would negatively influence their propensity to send remittances to their countries of origin. This substitution effect would therefore reduce the net value of such tax revenues.

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faculties which the countries of immigration did not have to create should be equitably shared with the countries of origin which had borne the burden of training and educating these HQs. In this same perspective, other studies have further developed the argument of a “reverse transfer of technology”. Many estimates have shown that the economic value of HQ migrants to developed countries exceeded, in many cases, the total amount of technical and scientific assistance provided to the country of departure. A number of international organizations therefore continued to propose procedures to reverse the scale of scientific and academic skill flows in a direction more favorable to developing countries (UNCTAD, 1987; UN General Assembly, 1985). The issue of compensation for losses was finally abandoned both because of opposition from immigration countries and the difficulties of putting it into practice, but also because the reality of the losses was increasingly disputed. So, Bhagwati subsequently qualified his analysis by stating that there would be losses only if HQ migrants were able to fully exercise their skills in the countries of origin. If, on the other hand, there is high underemployment of HQ, migration would represent a “safety valve” (Bhagwati, 2009). This controversy has nevertheless proved beneficial for developing countries. It has helped to strengthen an initial phase of scientific cooperation between host and sending countries, it has encouraged academic partnerships between research institutions and, more generally, it has fostered the implementation of measures to enhance the impact of positive spin-offs for the population. It has also fostered awareness of the excesses of certain practices of doctor recruitment agencies in poor countries, which has had the effect of proposing the “global code of practice” presented in Chap. 9.

The Classical Static Theory of the Effects of HQ Emigration This theory sets out, firstly, the effects of education expenditure on the probabilities of potential losses for sending countries and on the incentive to emigrate, and secondly, the consequences of income differentials on HQ emigration.

Private and Social Returns and Emigration The increase in the general level of education and the externalities it generates have a positive impact on the economic development of developing countries. Classical theory distinguishes between two cases according to the proportion of new graduates who will emigrate. There is brain “drain” if a substantial section of the HQs trained in these countries emigrate when entering professional life. On the other hand, if only a small proportion of these newly trained HQs emigrate, brain “gain” possibilities come into play. If they are not subject to severe budgetary constraints,

The Classical Static Theory of the Effects of HQ Emigration

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individuals or their families have an interest in investing in education, especially since the differential between low private marginal cost and private marginal return is high and increases constantly with the level of qualifications. Private cost is low even for households that finance part of their children’s education themselves because, in these countries, the public sector generally pays a significant proportion of school fees at all levels. Differences in the level of remuneration by degree are particularly high in developing countries, especially the differential between university and secondary school graduates. Individuals therefore have an incentive to maximize this differential between private marginal cost and return and thus to increase their demand for education to be supplied by public authorities. In Fig. 3.1a, the total labor force, from the least skilled to the most skilled, is represented on the OA axis. The private cost of education (assumed constant) is OC,

a Private education

Private cost and return

W

J D

x C

h

g

R

f

E B 0

M1

M0

M2

A

Total labor force

b Private cost and return

Public education

W

J D

x C

h

g

R

f

E B 0

M1

M0

M2

A

Total labor force

Fig. 3.1  Cost of education, HQ emigration and gains or losses for the country of departure

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and the private return on education is BD. To the right of g, the private return exceeds the private cost, so there is a strong incentive for the demand for higher education to be at MoA. The gain to the country’s economy is represented by gfD.7 Higher education generates positive externalities, and therefore the social marginal return is higher than the private return. The social return is represented by the EJ line above BD. If individuals bear all the costs of education on their own the economy will be in a sub-optimal situation since the volume of highly skilled labor will be AM0 and not AM1. In order to maximize the gains in externalities for the community, it is necessary to increase the demand for education. It is by covering a substantial part of the total cost with public budgets that it will be possible to increase the amount of HQ. The revenues obtained by the taxation of HQ make it possible to correct the possible under-investment of private agents in higher education. Apart from public funding, another way of incentivizing individuals to increase their investment in education is to encourage the emigration of HQ. The possibility of benefiting from significantly higher incomes will encourage individuals to increase their investment in education with a view to seeking work abroad. In Fig. 3.1b, EX represents the marginal returns on the education of HQs who emigrated, and AM1 the total volume of HQs who, in this hypothesis, all emigrated. The gains from this investment fully benefit the migrants and the economies of the receiving countries. However, this is an exceptional situation as it is based on the assumption that all new graduates have emigrated. In reality, though, HQ emigration rates are very different across countries, as shown in Chap. 2. For small countries with a low level of development and a very narrow labor market for skilled personnel, emigration rates of HQs are very high. The worst-case scenario for low-income developing countries is that all HQs emigrate since the total cost of higher education is very largely covered by the public budget hM1jA, while the HQs who have emigrated have obtained hM1A1X. The situation is much more diversified for medium-developed countries with a larger population. However, for various reasons, not all HQs emigrate: the main obstacles are travel costs, visa restrictions, family attachment or barriers to settling in host countries. Assuming that only the Am2 quantity of HQ emigrates, the gains are distributed among HQ migrants who obtain WRfX thanks to higher wages abroad, while the HQ who stay increase the output of the country of origin by hM1M2W, a result of the proportion of HQ who do not emigrate and the level of positive externalities. Education expenditure amounts to hM1Af and the gain, in this case, for the country of departure is: hM1Wm2-hM1Af or hRW - Rm2Af. In cases where the gain HWR, i.e. the production of the remaining HQs, is greater than the loss RM2Af of production of the HQs that have emigrated, the country of origin benefits from the migration of part of the HQs.

 This presentation is partly based on Commander and Alii (2002).

7

The “New Economy” of Brain Drain

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Income

Z Y

L

W v

C E

h

g

R

x D

f

k

B 0

M1

M0

M2

A

Total labor force

Fig. 3.2  HQ emigration and income differential between sending and receiving countries

The Income Differential and HQ Emigration A more realistic presentation would have to take into account the very large income differential for HQs between developing countries and countries of immigration. This gap amounts, in the vast majority of situations, to several hundred percentage points. It therefore represents a major factor in the decision to invest in education with a view to emigration despite the high probability of a relatively long period of unemployment and occupational downgrading in the host country. This is illustrated in Fig. 3.2. Line LZ represents the income level of HQs in receiving countries. It is well above the EX line, which corresponds to the social returns on education in the home country. The income of migrant HQs will be RYZf. The output gain for the countries of origin is hWR compared to the cost of education lost through emigration of RM2Af. The result is a high probability that this income differential will lead to over-investment in education and underemployment of HQ in the countries of origin.

The “New Economy” of Brain Drain One of the main extensions of the “NELM”8 focuses on the economic consequences of HQ emigration for the developing countries of origin. This theory, initiated by Stark and his co-authors in the late 1980s, has renewed socio-economic thinking on  The New Economics of Labour Migration is presented in Chap. 8.

8

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the issue of internal and international migration, opening up a number of innovative perspectives. The original hypotheses of these authors have been the source of much empirical and theoretical research. But other works, following up on this approach, have proven to be rather uninspired, simply transposing the basic concepts of economic analysis to international migration. The thesis defended in almost all of these works leads to the conclusion that HQ emigration has globally beneficial effects on the economies of developing countries. The negative aspects are largely minimized or ignored. The main gains for the sending countries, according to this theory, are of four types. First, the possibility of emigration for HQs, by increasing their expected income, would have a very strong incentive effect to increase the demand for higher education in developing countries. Over the long term and for many countries, far from resulting in a decrease, this would often result in a substantial increase in the stock of human capital, much higher than if there had been no international migration. Second, the return of a proportion of these HQs would make available to their countries of origin, at very low or no cost, the scientific knowledge and technological expertise acquired in developed countries. HQ migrants would, in fact, represent one of the best vehicles for technology transfer. In addition, the level of remittances from HQ migrants would be much higher than that of other categories of migrants, and would provide an additional source of income. Finally, well-established diasporas of HQ emigrants would play a fundamental role in attracting international investment to their countries, and they would be instrumental in establishing effective networks of scientific and political support. On the other hand, negative aspects, such as the loss of fiscal resources or the risk of not being able to keep a minimal scientific “critical mass” in the country, are generally underestimated or neglected. Nevertheless, many researchers consider that one should avoid any hasty and overly general conclusions that would result from an approach based solely on conjunctural factors. Generalizing conclusions on the beneficial effects of HQ emigration to all developing countries could lead to a disregard of the great diversity of countries classified in the categories “moderately developed” and “less developed”, which are very disparate. It is also necessary to include in the analysis the levels of development of these countries, the size of their labor markets, the wage differentials with host countries, the proportion of HQ migrants in relation to total migration flows, and the volume of their higher-level labor force in order to make a relevant assessment of the effects of “brain drain” in each specific context. Thus, introducing the time dimension was one of the fundamental contributions of Stark and Fan’s analysis. They underlined the need to make a clear distinction in this long and complex migratory process between the short-term consequences that are likely to be negative and the long-term effects that would, in their view, necessarily be positive. With regard to the short term, they recognize the potential for temporary declines in human capital stock, as well as the risk of underemployment of HQs and the likelihood of overinvestment in higher education in sending countries (Stark & Fan, 2007). In the long term, however, these disadvantages would, surprisingly, become

HQ Emigration – The Engine of Human Capital Growth?

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a “blessing in disguise” according to Stark and Fan, and this for three reasons that are also subject to much criticism” Firstly, the level of over-education of the parents would be a positive factor in the intellectual and academic performance of children from HQ who have not chosen to emigrate. Secondly, the underemployment of HQ children leads them to prolong their job search on the labor market in order to find the post that best corresponds to their qualifications. They are therefore more determined to maximize their productivity and, in this way, they improve the efficiency of the labor market. Finally, emigration opportunities encourage HQs to invest in training and skills acquisition that best meet the technological requirements of the labor market in developed countries. In this way, they subsequently contribute to the accumulation and diffusion of technological knowledge in developing countries. The two most often cited countries that symbolize this positive link between HQ emigration and growth are India and Ireland. However, it is very difficult to draw general conclusions from these two examples: is emigration really the engine of their economic growth? Or, on the other hand, perhaps the current high rates of HQ migration from these two countries simply reflect diversified and internationally open economies that it would be abusive to generalize to the majority of developing countries?

HQ Emigration – The Engine of Human Capital Growth? The Incentive Effect Argument There is unanimity among researchers and actors in development economics that guaranteeing more education and health are essential conditions for growth in developing countries. Consequently, the thesis that HQ emigration does not reduce the stock of human capital in the countries of departure (mainly the number of engineers and doctors), but functions instead as one of the main drivers of their increase, has represented an important turning point in the literature. Notwithstanding its paradoxical aspect, this argument has generated a great deal of theoretical and empirical research aimed at verifying its claims. It has also drawn a lot of criticism. The main argument, already alluded to above, is based on the incentive effect. Individuals compare the differential between the income they can expect in their countries of origin and the income they can expect in countries of immigration thanks to an increase in their investment in higher education. They assess the chances of emigration and access to the labor market in developed countries and also the probability of obtaining a job within a short period of time, depending on the type and level of their qualifications. This generally results in a strong increase in the demand for higher education. Several models have analyzed the conditions that determine the probabilities of decreasing or increasing the stock of human capital by comparing open economies that promote international migration with closed economies. Depending on several

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parameters, such as the asymmetric information faced by employers, the range of opportunities available to HQs and the weight of determinants that condition incentives for more investment in education, these empirical studies have been able to present situations where both brain “drain” and brain “gain” phenomena coexisted, albeit in different proportions (Stark et al., 1998). In a substantial and well-documented contribution, Docquier and Rapoport (2011) complement their theoretical presentation with an analysis of data on HQ emigration and human capital stock in a large number of countries. This research, which rejects the pessimistic point of view, places the phenomenon of emigration in the general framework of the globalization of the economy and the intensification of the international integration of the HQ labor market. The simulations indicate that the countries deriving most benefits have both a very low level of human capital and a low HQ emigration rate (less than 20%), while the countries deriving least have a high HQ emigration rate and a very high participation rate in higher education. The authors note that, in the end, there are more countries losing out than countries benefiting from the system. Moreover, the gains of the latter would be globally lower than the losses of the former. The large emerging countries would benefit little, in relative terms, from HQ emigration, while for many small countries the losses would be significant. However, in absolute terms and at the global level, the authors conclude that the gains outweigh the losses and, consequently, HQ emigration should be considered positive because it increases the volume of highly qualified personnel by a small amount for developing countries as a whole (Docquier and Rapoport, 2011: 25). Docquier and Rapoport’s conclusion is based on a previous analysis covering 127 countries and focusing on the immigration of HQ and unskilled people and the rate of human capital formation, which they update and complete. A detailed examination of the situation in each of these countries makes it possible to measure the effects of the brain drain on the percentage changes regarding the number of HQs, and to highlight very divergent trends. Firstly, the authors show that the effects are positive for countries with more than 20 million inhabitants and for countries classified in the groups “upper middle” and “lower middle”, but that they are negative for the others. Secondly, they identify China (+7.6%) and India (+7.0%) as the main beneficiaries of HQ emigration, followed by Indonesia, Egypt, Brazil and Argentina. The main losers are small countries in the Pacific (−41.4%) and the Caribbean (−32.9%), followed by small countries in Central America and sub-Saharan Africa (Beine et  al., 2008). Many other studies qualify, downplay or even exclude this incentive effect while others highlight several indirect negative effects.

Selection Bias Contrary to the widely held assumption that HQ migration takes place in a context in which a lack of information means that the same employment opportunities are available to all HQ migrants regardless of their skill levels, several analyses have

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shown that the “screening” process is often very effective. HQ migrants are in fact selected on the basis of their skills in the labor market of the host countries. The poorest performers have little chance of being recruited, and this creates a feeling of discouragement that leads many potential low-skilled migrants to forego further investment in higher education. This selection also causes a “skimming” effect that can result in a lowering of the average skill level of the educated individuals remaining in the sending countries (Schiff, 2006). Moreover, since the HQs of some developing countries are to a large extent affected by the “brain waste” phenomenon, some potential migrants, knowing that they would not ultimately obtain jobs corresponding to their level of qualifications, prefer to forego additional investment in higher education for themselves or their children, since their income will be higher than in their countries of origin anyway (McKenzie & Rapoport, 2007).9 In this case, the disincentive effect outweighs the incentive effect.

The Nature of Higher Education It is generally accepted that in developing countries characterized by large flows of HQ departures, whether spontaneous or resulting from a policy of “exportation” of skilled manpower, the type and content of higher education offered tend to correspond much more to the needs of the market of the host countries than to those of the countries of origin. The labor market for HQs in developed countries is characterized by a shortage of specialists in several areas. In the public sector, this results from a lack of investment in higher education or restrictive practices for access to certain professions. In the private sector, this is partly due to international competition for qualifications in high demand in the HQ market. The demand for higher education by the most privileged categories of the population in developing countries is probably fuelled more by the hope of increasing the chances of access to the market in developed countries than by the determinants of local labor supply. In large developing HQ “exporter” countries and in small countries with a too narrow labor market, the academic system, in its broad orientations and in the curricula of specific programs, responds more to the requirements of the economy of the host countries than to the needs of the countries of departure. For example, many studies have pinpointed quite aberrant situations in medical specializations. These include preferences for cosmetic surgery over epidemiology, or geriatrics over pediatrics; in short, specializations for which there is a high demand in hospital institutions in developed countries. The same trend can be seen in the curricula of other scientific training courses which appear more suited to the market in developed countries. This works to the detriment of specializations in agronomy, for example, 9  These authors presented the same argument in order to sound a sceptical note concerning the effects of remittances on education expenditure in relation to illegal migration from rural Mexico to the United States.

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and the production of services needed to meet basic needs. A recent study, based on surveys of post-graduate students in five small Pacific countries and also in Ghana, shows in part how this remodeling of curricula and subjects plays out in reality (Gibson & McKenzie, 2011). In the case of Ghana, 32% of students changed their study choices in response to better opportunities for emigration. The extent of this phenomenon is, however, difficult to assess.

The Underemployment of HQ HQ emigration plans also have the effect of increasing the underemployment of higher education graduates in the sending countries. Two approaches have theorized this phenomenon. First, Todaro’s theory, discussed earlier, which describes the mechanism whereby the differential between observed income in the sending country and expected income in the receiving country induces households to manifest a high demand for higher education for their children. This demand is very often met by governments agreeing to increase the supply of places in higher education institutions. The result, according to Harris and Todaro, is contingents of graduates that exceed the capacity of home country economies to absorb this annual surplus of HQ.10 Another approach to HQ underemployment is based on the hypothesis of a “reservation salary” for graduates in the labor market of developing countries, which would increase in proportion to the probability of emigrating and successfully obtaining employment in a developed country. Thus, according to the analysis of Stark and Fan (2007), HQ candidates for emigration wait for a period before entering the market. Those who initially fail to obtain an employment contract abroad are very reluctant to implicate themselves in the labor market of their home country. They devote their time mainly to initiatives designed to improve their chances of employment abroad. Searching for a job on the international labor market requires a lot of time and availability and this prevents them from becoming fully involved in the national market. HQs who have already invested a lot in higher education choose to invest more of their available time in the effort to improve their job opportunities. It is not in their interest to offer their services on the local labor market and thus increase the number of inactive graduates. While, for all of the reasons explained above, underemployment of HQs is indeed very high in many developing countries, the departure of some of them abroad will not cause a loss of output for the economies of the countries of origin. However, the loss manifests itself on another level. Over-investment by the public authorities in  Michael Todaro articulated this theory first in relation to rural-urban migration and then subsequently extended it to cover international migration. It has provided a general explanatory framework and the key elements for later developments, notably by the researchers of the NTM (new theory of economic migration). Surprisingly, very few authors from this school, whatever their particular field of research, have explicitly acknowledged their indebtedness to the theory of Harris and Todaro (1970).

10

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39

the development of certain branches of higher education can work to the detriment of basic education. In this way, the brain drain distorts the allocation of scarce resources in a large number of developing countries. All the research available on these issues does not yet provide unambiguous proof of the positive effect of HQ emigration on the increase in the human and physical capital of developing countries. In a critical review of the literature, Schiff pinpointed highly contradictory results emerging from the major studies covering dozens of countries. While, as mentioned above, Docquier and Rapoport argue that, in certain hypotheses, the brain drain would induce positive effects on the growth of human capital in the countries of departure (Beine et al., 2008), according to other studies the impact would be globally negative (Lucas, 2004). For others still, there is no reliable possibility of concluding that HQ emigration would have a positive or negative effect on the growth of the countries of departure or on the variation of annual enrolment rates in higher education (Faini, 2006). Among other factors likely to considerably reduce the positive effects of the brain drain, Schiff presents a strong argument based on the heterogeneity of the category of HQs trained in developing countries. Considering the highly contrasting levels of skill and expertise among HQs on the international market, he argues that the most talented will have the best chance of being hired. As a result of this creaming off process, the overall level of competence of the group of HQs remaining in developing countries will be below the average of each year’s crop of new graduates (Schiff, 2006).

The Contributions of the “Diaspora” and Networks Networks of Researchers and Scientists An active diaspora made up mainly of individuals who are well integrated into the labor market of host countries and possess a higher level of education constitute an important asset for developing countries of origin. The beneficial effects are manifested in several areas. Firstly, HQs have the opportunity to form a community of entrepreneurs who, collectively, can exert an economic influence likely to promote international trade and investment with countries of origin. Secondly, they play a fundamental role in the implementation of various channels for the transfer of new scientific and technological knowledge to developing countries.11 Finally, HQ emigrants who return to their countries of origin form a potential skilled labor force that has acquired valuable expertise abroad, and which can contribute to strengthening academic openness and the autonomy of the national scientific community. Positive spillover effects materialize through various channels; some are incorporated into the dynamics of international trade and others are fostered by cooperation policies.

 Diasporas are sources of financial and technological externalities. Financial spillovers, in the strict sense, are presented in the framework of the determinants and effects of remittances.

11

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International trade generates technological externalities for developing countries.12 HQ emigrants facilitate the transfer of scientific knowledge as well as the managerial know-how of companies according to international standards. They also contribute indirectly to supporting the dissemination and adaptation of scientific progress incorporated in the goods and services imported by their countries of origin. The most commonly cited example is that of India, whose expatriate engineers have initiated and greatly stimulated the development of the IT and technology sector. The expertise of HQ migrants working in leading scientific institutions in developed countries can make a significant contribution to sectors of prime importance to the population of developing countries (health, demography, agronomy, etc.). Likewise, a dynamic and mobilized diaspora increases the opportunities offered by bilateral cooperation as expatriate scientific communities benefit from the academic environment that is not available in most developing countries. It also makes it possible to take advantage of technological innovations embodied in expertise, contacts and know-how when there is a significant flow of returning high-level personnel trained in host countries. The emergence and development of advanced technology activities in electronics and computing in Taiwan, China, Korea and India as a result of scientific exchanges with diasporas established in the United States is well-­ documented in the research. These positive spin-offs run counter to the “cosmopolite” brain drain theory. For the latter, the fundamental argument is based on the observation that HQs in developing countries have very low productivity because they do not have state-of-the-art infrastructures and, as a consequence, emigration to developed countries will increase their contribution to the general progress of science. At the level of global welfare, this would result in an increase in the general level of scientific and technological knowledge, the advantages of which, much later on, would benefit all the countries of the world. There are several major objections to this argument. First, it is important to distinguish between pure and applied research. Only the former offers free and open access to the entire global scientific community. Applied research, on the other hand, is available only through licenses, patents and “know-how” purchases, which represent a high cost, especially for developing countries that do not have a critical mass of scientists capable of formulating their demand, on behalf of the national interest, on the international market of technology transfer. Secondly, HQ migrants active in scientific research are of course mainly engaged in themes that correspond to the market needs of developed countries. Their contributions to R&D and innovation may not correspond to the economic, social and environmental priorities of the countries of origin. Thirdly, a very limited proportion of HQ migrant flows, according to recent data published by the National Science Foundation (NSF) and the US Bureau of Census, are engaged in scientific research and academic work that could benefit all at the international level. In fact, most of those who work in education, in engineering

12

 This is one of the strongest arguments in favour of the positive consequences of “brain drain”.

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positions and especially in the medical field, offer their skills in response to the demand for proximity services expressed by the population of host countries.

Returns Positive Scientific Spin-Offs For a long time, the literature has highlighted the fact that the return of a high proportion of HQ migrants was an important source of positive spin-offs for the economies of developing countries. However, despite the incentive programs put in place by some countries of departure, there have been few significant movements of HQ returns. Differences in wage levels, the availability of a favorable scientific environment and opportunities for promotion in the labor market make returning unattractive to HQ migrants except for a minority who are motivated by patriotic or sentimental reasons. In addition, a high proportion of migrant returns are not permanent. More generally, they take the form of temporary missions and consultations between institutions in the countries of origin and host countries. Several mechanisms have been set up to enable scientific institutions and the various public and private actors involved in the advancement of developing countries to benefit from the expertise of HQ “expatriates”. Among these, the success of the TOKTEN (Transfer of Knowledge through Expatriate Nationals) program initiated by UNDP and ILO is worth mentioning. Created in 1997, it has put into practice in more than 50 developing countries where the altruistic feelings of several thousand qualified expatriate volunteers have been mobilized, leading to the creation of short-term assistance projects in their countries of origin. The originality of this initiative, geared towards the transfer of skills and one-off scientific assistance programs, is that it is not based on the hypothesis of a permanent return, but rather on the volunteerism of highly qualified personnel who, in coordination with projects implemented by the UNDP, transmit their expertise to public bodies, research institutions, NGOs and also to the private sector.13 In recent years, many studies have examined the conditions necessary to ensure a successful mobilization of diasporas for the economic development of the countries of departure of HQ migrants. According to Kuznetsov (2006), in host countries, several factors need to be coordinated. This implies the combination of strong personal motivation and the desire to influence the society of these countries, a high level of expertise and abundant financial resources, as was the case for China.

 The TOTKEN program has been widely acclaimed as a success for more than 30 years. Initiated at a time when there were concerns about the negative effects of the brain drain for developing countries, it has sustained many networks of scientific and academic collaboration between countries. However, it is very difficult to assess the extent to which these programs compensate for the negative effects of the departure of qualified personnel from developing countries. For example, do the volunteer consultants have the same level of competence as the HQs who have emigrated?

13

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Kuznetsov proposes a model of the dynamics between, on the one hand, the socio-­ economic conditions and institutional framework in the countries of origin, which can be either very favorable or very unfavorable, and, on the other hand, the size and the degree of sophistication of the HQ diaspora from different countries. Several modes of interaction result from the different possible combinations. Only the two extreme configurations are mentioned here. The first consists in the interaction of favorable conditions in the country of origin and a sophisticated diaspora that allows the emergence of a “virtuous circle” and the transition to an “economy of knowledge”. This is the case of China, Ireland, India, Israel and Taiwan. The second is characterized by unfavorable conditions and a dispersed diaspora: this is the case of most African countries, small Latin American countries and countries of the former USSR such as Armenia and Ukraine.

Resource Mobilization The mobilization of diaspora resources has become in recent years one of the important themes in the many forums devoted to the migration and development nexus. Migration for Development in Africa (MIDA) programs organize hundreds of economic, social and political networks between diasporas and communities of origin. Taking a similar approach, IOM (2013) offers manuals, “guidelines”, training and expertise designed to create and maintain cooperation networks between emigrant communities and public institutions or private initiatives in countries of origin. Beyond the economic analysis, the issue of the transfer of Western norms and values, particularly economic rationality and the adoption of the principles of a democratic society through the influence of HQ migrants, has been the subject of many lively and exciting discussions. In this area, it is of course out of the question to attempt to quantify specific effects. It is not difficult to find many edifying examples that illustrate the beneficial influence of HQ expatriates on the society of their country of origin. At present, however, these direct effects generated by individual initiatives have lost some of their relevance, as globalization has multiplied the channels for disseminating the concepts and behaviors that structure incorporation into the operating standards of the international economy. A related problematic is that several factors are capable of influencing the political and ethical context that shapes bilateral relations between sending and receiving countries. The first is the influence that a prosperous and well-organized community of HQ emigrants is likely to have on the nature and quality of political and economic relations between host countries and countries of origin. In these countries of origin, a long-standing controversial question concerns the consequences of the departure of a substantial proportion of HQs. Are these departures likely to weaken emulation within the scientific and academic community of these countries? Does this result in a loss of capacity for political modernization? The answer depends, at least in part, on the circumstances under which the HQs emigrated. Was it tantamount to a form of quasi-expulsion, the forced departure of a “blocked minority” for which emigration

HQ Emigration and Public Finances

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was the only way out; or was it rather a cooperative migration process organized jointly by the public authorities and the candidates for emigration?

HQ Emigration and Public Finances Is there a “fiscal drain”, equivalent to the “brain drain”? What are its characteristics and nature? And is it possible to quantify it? These questions are all the more relevant given that higher education of HQs is largely funded by public budgets in most developing countries. This public sector support is justified, in principle, by the assurance of positive externalities that a larger educated workforce can bring to a society. Given the low level of average income of the population, and in the absence of public intervention, the volume of private expenditure on higher education would be suboptimal. Three questions merit attention here insofar as each year’s new cohort of HQ’s largely depends on funding from national budgets rather than private investments.

The Effects of Higher Education Spending First, one of the consequences of emigration would be that a substantial portion of public expenditure devoted to higher education could not be “recovered” through the productivity gains accruing from other factors of production. However, the cost differential between primary and secondary level education and higher education is particularly marked in many developing countries. The amount of total public expenditure for a graduate student is over 100% of GNP per capita in many countries, principally in sub-Saharan Africa. By comparison, in Western countries, it generally represents only 25% to 30% of average GNP. In these developing countries, public expenditure per higher cycle student is between 10 and 20 times higher than that for a primary school pupil, as shown in Table 3.1. The cost of investment in higher education is therefore proportionately very high given the budgetary constraints faced by these developing countries. The first question posed by HQ emigration is that of possible overinvestment in higher education. Secondly, and contrary to an opinion which was widely held at the time of the independence of many developing countries, education spending has not played a substantial role in reducing economic and social inequalities. Two types of factors can explain this. The discrepancies in the collection of direct taxes (from which the higher income brackets can more easily escape) on the one hand, and the significant selection bias in access to higher education (favoring children from households in the higher categories) on the other hand, have thwarted the redistributive effect that these education budgets might have generated. If the emulation effect stimulated by a high probability of HQ emigration reinforces the tendency of the public

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Table 3.1  Public expenditure per tertiary and primary school student as a percentage of GNP/ capita (year 2013–2014) The 10 countries with the highest percentage* Country Bhutan Burkina Faso Burundi Ghana Mali Mauritania Mozambique Niger Rwanda Togo

Public expenditure as % of GNP/ capita – Tertiary level 102 210

Public expenditure as % of GNP/ capita - Primary level 18 17

297 131 130 93 183 631 104 102

12 23 11 – 15 19 7 12

(*): World Bank (2014)

authorities to devote an increasing share of tax revenues to higher education, the regressive effect on inequality will be inevitably strengthened. Thirdly, to the extent that some of the HQ supported by the public sector emigrate when they enter working life, it can be assumed that they take with them the benefits expected from their education by the country of origin without providing “compensation”, and thus contribute to increasing inequalities. However, in response to this argument, some authors have recommended higher education financing that would be less dependent on public finances, but which would rely more on private investments by households accompanied by student loan programs repayable latter by the HQ. This system of financing studies is the practice in force in the United States and in several Western countries. However, a policy based on the withdrawal of the public sector from the education sector would be very difficult to implement in developing countries. Such a measure does not offer a realistic prospect of mitigating the effects of emigration on the increase in inequalities.

The Value of HQ Migrants The evaluation of the “replacement cost” of HQs who emigrated upon graduation raises theoretical and methodological problems. The first studies to consider the legitimacy of compensating for these costs were very polemical in tone, and focused on the role and significance of public expenditure on higher education. Is the community legitimately entitled to receive some form of reimbursement? The answer depends on how the countries of emigration interpret this expenditure. First, we can evoke the assumption of intergenerational solidarity, whereby the descendants of working people who are contributing today will enjoy a higher level of well-being. In this case, the financial outlay can be considered a donation, made without any

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expectation of compensation. Secondly, according to another approach, this expenditure is viewed as an intergenerational loan that will be recovered throughout the working life of the HQs by the countries which have financed their education. The third hypothesis consists in thinking of this expenditure as a public investment which will benefit the economy of the country of origin through positive externalities, leading to improved efficiency of all the factors of production; but also through the taxes which will be levied on high incomes earned by the HQs. The assessment of the “value” of the HQ migrant has also been the subject of conflicting methodological procedures which reflect divergent theoretical approaches. In a first approach, attempts were made to measure the “historical” cost by taking into account all the inputs that had been mobilized in the education system to produce, at the end of the process, a certain number of graduates. A second method which then prevailed was to calculate the present value of any future income that the HQ migrant might have obtained by exercising their professional competence in their country of origin.

Loss of Tax Revenue Few indicators are available to accurately determine the extent of tax revenue losses caused by the emigration of HQs after their training. These losses include the direct taxes that the HQs would have been required to pay, but also the indirect taxes on the consumption expenditure that they would have generated in the countries of departure. The volume of tax revenues that developing countries will lose is the product of several factors: first, the age of HQs at the time of emigration must be taken into account in calculating the present value of the taxes that they would have paid during the rest of their career and which, subsequent to their emigration, will be collected in the host countries. This also depends, though, to a large extent on the progressivity of the income tax and the level of remuneration of the HQ. Very few empirical studies have been able to provide reliable data on tax remittances lost through HQ emigration. In India, losses in 2005 have been estimated to represent 0.5% of GNP and 2.5% of total tax revenue (Desai et al., 2009).14 India has a diversified economy with a large scientific community and extensive public sector and is not therefore representative of the category of developing countries with significant HQ emigration. Another study was conducted in Ghana, which can be considered representative of sub-Saharan African countries. It calculated that the average loss per HQ migrant amounted to 6300 $ per year (Gibson & McKenzie, 2010). Based on this assessment, it is possible to calculate the total amount of tax revenue lost by this country. First, the loss for each HQ must be multiplied by the proportion that the HQ category represents among the total stock of emigrants, i.e.

 This data only takes into account emigration to the United States. It therefore greatly underestimates the losses resulting from the emigration of HQs from India to all other Western countries.

14

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51,225 migrants (34%) out of a total of 150,600 HQ migrants according to the OECD database (Dumont & Lemaitre, 2005).15 The total loss represented by HQ emigration can then be calculated: 51225 x $6300 per HQ migrant = $323 million. The GNP of Ghana for the same year 2005 was 30,409 million $. It appears then that the loss of tax revenue due to HQ emigration represents about 1.06% of the GNP for that year. Some authors who contest the negative effects of HQ emigration argue that the loss of tax revenue is equivalent to the volume of remittances, which would ultimately lead to a compensatory effect. While this argument is clearly irrelevant, it would not be unreasonable to take into account the additional tax obtained through indirect taxes levied on the increased consumption expenditure of households that benefited from remittances.

Return on Remittances and the Brain Drain Like other categories of migrants, HQs send part of their savings to back to their countries of origin. Chapter 7 presents the main research that attempts to determine whether HQs send more remittances than unskilled migrants overall and over the long term.16 Nevertheless, whatever the estimates, it is indisputable that remittances from HQs provide external resources that benefit sending countries. This raises the question, not discussed here, of whether sending countries could really benefit from deliberately pursuing education and emigration policies that would have the objective of promoting an increase of the HQ component of the outward flows. According to several surveys, the proportion and amount of remittances are highest among the most skilled migrants coming from countries experiencing a significant brain drain. The proportion of those who remit varies between 68% and 93%, and the average annual amount is estimated to be around US $ 5000 (Gibson & McKenzie, 2010). Another study of African physicians emigrating to the United States and Canada gives the same figure for annual remittances  - US $ 5000 (Clemens, 2011). The relationship between the level of education of migrants and the volume of remittances depends on many factors that make generalizations unreliable. A study by Bollard et al. (2011), based on data from 14 micro-surveys in 11  Annex 2, Table A6 « Total number of highly skilled expatriates and percentage of highly skilled expatriates by country of birth ». 16  In Chap. 6 “The decision to send a portion of the savings: determinants and actors” we consider how the propensity to send remittances varies, together with the proportions in relation to income and the annual volume of transfers of HQs compared to other categories of migrants. There are three positive arguments and three negative with regard to differences in migrants’ remittance behaviour. The positive arguments are: (1) HQs have higher incomes, (2) they are obliged to reimburse their families who financed their studies, (3) they are not illegal immigrants, and thus have free access to all the facilities of the banking system. The negative arguments are: (1) HQs generally emigrate with their families, (2) they come from wealthy families who do not need outside help, (3) they do not intend to return. 15

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OECD destination countries and representing 79% of all the HQ migrants from developing countries, distinguishes two opposing trends regarding the relationship between remittances and education. On the one hand, we observe a negative relationship between the level of education and the probability of sending funds (the “extensive” margin): the percentage of HQ migrants who send funds stands at 27%, while for unskilled migrants it is 32%. On the other hand, the relationship between the level of education and the amount of remittances sent by HQ migrants is positive (the “intensive” margin); the differential between the two sets of migrants stands at 9%. The results for this cross-sectional analysis show a transfer of an average annual amount of US $ 874 per HQ migrant and US $ 650 per unskilled migrant. The combined effect of these two trends would therefore indicate a positive outcome of emigration. However, these results depend on many factors specific to each migratory flow as well as the situation of HQs on the labor market of the host countries. We can underline, among other factors, the differences in return rates between HQ and unskilled migrants, and also the differences in the composition and location of migrants’ families. From a perspective that takes into account the economic inequalities between sending countries, these same data indicate a strong negative correlation between the average level of income of the sending countries and the degree of probability of remittances from HQ (Gibson & McKenzie, 2011).

References Arslan, C., Dumont, J.-C., Kone, Z., Moullan, Y., Özden, C., Parsons, C., & Xenogiani, T. (2015). A new profile of migrants in the aftermath of the recent economic crisis. OECD Social, Employment and Migration Working Papers, n° 160. https://doi.org/10.1787/5jxt2t3nnjr5-en Beine, M., Docquier, F., & Rapoport, H. (2008). Brain drain and human capital formation in developing countries: winners and losers. The Economic Journal, 118, 631–652. Berry, R., & Soligo, R. (1969). Some welfare aspects of international migration. Journal of Political Economy, 77(5), 778–794. Bhagwati, J. (1978). The brain drain, compensation and taxation, economic and demographic change: Issues for the 1980s (vol. 3, pp. 179–190). Proceedings of the IUSSP Conference, Helsinki. Bhagwati, J. (2009). Overview of issues. In J. Baghwati & G. Manson (Eds.), Skilled immigration: Problems, prospects and policies (pp. 3–11). Oxford University Press. Bhagwati, J., & Dellalfar, W. (1973). The brain drain and income taxation. World Development, 1(1–2), 94–101. Bhagwati, J., & Hamada, K. (1974). The brain drain, integration of markets for professionals and unemployment. A theorical analysis. Journal of Development Economics, 1(1), 19–42. Bollard, A., McKenzie, D., Morton, M., & Rapoport, H. (2011). Remittances and the brain drain revisited: The Microdata show that more educated migrants remit more. World Bank Economic Review, 25(1), 132–156. Clemens, M. (2011). The financial consequences of high-skill emigration: Lessons from African Doctors Abroad. In S. Plaza & D. Ratha (Eds.), Diaspora for development in Africa (pp. 165–182). World Bank. Desai, M., Kapur, D., McHale, J., & Rogers, K. (2009). The fiscal impact of high-skilled emigration: Flows of Indians to the US. Journal of Development Economics, 88(1), 32–44.

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Docquier, F., & Rapoport, H. (2011). Globalization, brain drain, and development. Journal of Economic Literature, 50(3), 681–730. Dumont, J., & Lemaitre, G. (2005). Country immigrants and expatriates in OECD countries: A new perspective. OECD social, employment and migration working papers, n 25. Faini, R. (2006). Remittances and the brain drain, IZA discussion papers, n°2155. Gibson, J., & McKenzie, D. (2010). The economic consequences of “Brain Drain” of the best and brightest: Microeconomic evidence from five countries (Policy research working paper, n°5394). World Bank. Gibson, J., & McKenzie, D. (2011). Eight Questions about Brain Drain. Journal of Economic Perspectives, 25(3), 107–128. Grubel, H. G., & Scott, A. D. (1968). The international flow of human capital: Reply. American Economic Review Papers and Proceeding, 58, 545–548. Harris, J., & Todaro, M. (1970). Migration, unemployment and development: A two-sector analyses. American Economic Review, 60(1), 120–142. International Organization for Migration. (2013). Diasporas and development: Bridging societies and states, Geneva. International dialogue on migration, n° 22. Kuznetsov, Y. (2006). Leveraging diasporas of talent: Toward a new policy agenda. In Y.  Kuznetsov (Ed.), Diaspora networks and the international migration of skills. The World Bank. Lucas, R. (2004). International migration regimes and economic development (Stockholm, Report for the Expert Group on Development Issues (EGDI)). Swedish Ministry of Foreign Affairs. Massey, D., Arango, J., Hugo, G., Kouaouci, A., Pellegrino, A., & Taylor, S. (1998). Worlds in motion. Understanding international migration at the end of the millenium. Clarendon Press. McKenzie, D., & Rapoport, H. (2007). Network effects and the dynamics of migration and inequality: Theory and evidence from Mexico. Journal of Development Economics, 84(1), 1–24. McKenzie, D., & Rapoport, H. (2011). Can migration reduce educational attainment? Evidence from Mexico. Journal of Population Economics, 24(4), 1331–1358. OCDE/Union européenne. (2015). Indicators of Immigrant Integration 2015 : Settling In, Éditions OCDE, Paris/Union européenne Brussels, https://doi.org/10.1787/9789264234024-en. Özden, C., & Schiff, M. (Eds.). (2006). International migration, remittances and the brain drain. World Bank et Palgrave Macmillan. Psacharopoulos, G. (1971). On some positive aspects of the economics of the brain drain. In C. Özden & M.  Schiff (Eds.), International migration, remittances & the brain drain (pp. 201–225). World Bank and Palgrave. Schiff, M. (2006). Brain gains: Claims about its size and impact on welfare and growth are greatly exaggerated. Mac Millan. Stark, O., & Fan, C. (2007). International migration and “Educated Unemployment”. Journal of Development Economics, 83(1), 76–87. Stark, O., Helmenstein, C., & Prskawetz, A. (1998). Human capital depletion, human capital formation and migration: A blessing or a “Curse”? Economics Letters, 60(3), 363–367. United Nations. (1985). Yearbook of the United Nations 1985. Department of Public Information. United Nations Conference on Trade and Development (UNCTAD). (1978). Monographie sur le transfert inverse de technologie (exode des compétences) : Examen des problèmes et des politiques au Pakistan, TD/B/C.G/AC.4/3, de l’Inde, TD/B/C.G/AC.4/6, du Sri Lanka, TD/B/C.G/ AC.4/4, aux Philippines, TD/B United Nations Conference on Trade and Development. (1987). Trends and current situation in taxing the brain drain. A reassessment of the Bhagwati proposal. World Bank Wilson, J. (2007). Taxing the brain drain. A reassessment of the Bhagwati proposal. In E. Dimopoulos, P. Krishna, A. Panagariya, & K. Way (Eds.), Trade, globalization and poverty. Routledge. World Bank. (2014). Data world development indicators. Government Expenditures on Education, World Bank.

Chapter 4

Emigration of Health Personnel from Developing Countries

I ntroduction. Measurement and Characteristics. The Emigration of Physicians Unlike the other components of HQ immigration flows, it is possible to assess the consequences of the emigration of a part of the medical staff of many developing countries according to objective and measurable criteria. Indeed, while it remains extremely difficult to estimate the extent to which the departure of engineers, managers and entrepreneurs influences the level of investment and consequently economic growth and average income in the countries of origin, the link between the volume of medical manpower and the level of infant and maternal morbidity and mortality is well documented. The medical “brain drain” induces measurable consequences in several areas: the level of health of the population, the cost of training doctors, and the quality and efficiency of the public health infrastructure of emigration countries. The specificities of the medical brain drain are first examined, and then the most significant data concerning the scale and impact of immigration of health personnel on the volume of medical manpower in developing countries are presented. This is followed by a presentation of the recent theories which develop the thesis that, contrary to general opinion, this emigration has the effect of encouraging an increase in the number of doctors in developing countries. Finally, a critical review is proposed of the measures recommended to restrict abusive practices in the international recruitment of doctors from developing countries.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_4

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4  Emigration of Health Personnel from Developing Countries

I s the Medical Brain Drain Fundamentally Different from Other HQ Emigration Flows? The specificities of the brain drain of doctors as well as the emigration of a significant section of the paramedical workforce raise first of all a question of principle. Is HQ migration from the health sector really of a different nature from all other migratory1 movements? Does the “brain drain”, as its supporters argue, contribute positively to the economic development of the countries of origin and to the well-being of their populations, or does it, on the contrary, risk seriously compromising the Millennium Development Goals (MDGs), recently replaced by the “goals for sustainable development”? According to the dominant opinion which prevails among the actors and within the organizations engaged in the problematic of “migration and development”, the free movement of unqualified migrants, but also of HQ, whatever their specialization, has globally positive effects for all, both emigration and host countries. This political credo, which was regularly reaffirmed in the annual reports of the General Secretariat to the UN General Assembly, the place of international consensus on this issue, has, however, been slowly reassessed in recent years. Several recent factors are at the origin of the increasingly widespread awareness of the contradictions which appear between, on the one hand, the concern resulting from the scale of the challenges to be overcome if we are to achieve a substantial improvement in public health and, on the other hand, the increasingly rapid growth of the medical “brain drain”.

The Changes Brought About by Globalization A New Awareness Globalization has greatly increased the ease of access to the international market for health professions at a time when WHO was expressing concern about the estimated global shortage of more than 4.3 million health workers. This shortage is particularly acute in 57 developing countries. Of these, 36 developing countries are in the sub-Saharan Africa region. According to the WHO, this large-scale labor shortage has been a major impediment to the achievement of several “Millennium objectives”, specifically those related to health progress and mortality reduction. It has also hindered the development and effective functioning of primary health-care infrastructure (WHO, 2006). This warning was quickly incorporated into the Agenda for Development Programs of several specialized agencies of the UN

1  The term “health personnel” includes all health service providers (doctors, nurses, physiotherapists, pharmacists, laboratory technicians) as well as the administrative and support staff needed to operate these services.

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Economic and Social Council (primarily by those responsible for social development, the status of women and population). Subsequently, the negative impact of the “brain drain” of physicians has clearly become a cause for concern that has weakened the broad consensus that had previously existed with regard to the positive aspects of HQ immigration (UN, Population and Development Division, 2010). Strangely, however, this concern was mentioned only in a very indirect manner2 in the various reports and resolutions of the UN General Assembly devoted to the Post-2014 Agenda of the Program of Action of the International Conference on Population and Development (ICPD) in Cairo. This contrasts with the much more explicit and alarmist reports and recommendations circulated by the WHO and UNCTAD (UN, 2014). The Brain Drain and the State of Health in Developing Countries The increase in the migratory flows of medical personnel from developing countries has been concomitant with strong international mobilization against the tapering off, observed in certain countries, of the downward trend in mortality caused by the emergence of new morbidity factors. In many developing countries, the human immunodeficiency virus (HIV/AIDS) and other pandemics have considerably increased mortality from contagious diseases. In addition, the rapid spread of new infectious agents such as the Severe Acute Respiratory Syndrome (SARS) and influenza A HCN1 viruses, together with the Ebola virus have threatened many populations with global pandemics (UN Population Division, 2010); and since the beginning of 2020, the covid-19 pandemic has been added to these threats. These new mortality factors have seriously altered the general health situation in several developing countries, which were already faced with major shortages of medical personnel and with largely inadequate primary health care infrastructures. By facilitating the international mobility of populations and consequently the very rapid spread of the risks of pandemic transmission throughout the world, globalization has resulted in encouraging investment programs in all health sectors in favor of the most vulnerable countries. This has led to paradoxical situations in which programs have been organized to send teams of health personnel from developed countries to developing countries while, at the same, doctors and paramedical personnel have been encouraged to emigrate in large numbers from these same countries to the donor countries providing the international aid. This sort of “crossover”, where the most dysfunctional developing countries contribute to the

2  This can be accurately assessed in the questionnaire concerning the priorities expressed by governments on the major themes of the “follow-up” to the ICDP Program of Action. Under the rubric “International migrations”, the priority of “reducing emigration by creating favorable conditions and preventing brain drain” appears only in ninth position. At the global level, this priority is indicated for only 19% of the 154 countries in the survey. In Europe, this issue is mentioned by only 25% of countries, in Africa by 24% and in Asia by only 17% of countries. See the Framework of Actions for the follow up (2014), General Assembly A/69/92 Annex 7.

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smooth running of hospital organization in developed countries, has led to a more searching inquiry into the main determinants of the dynamics of the international medical labor market. This imbalance is most acute in the group of African countries that have lost 70% of their medical personnel to developed countries. It is true that there is little research that can reliably establish a causal relationship between migration and performance in the health sector. Nevertheless, one study has shown that in sub-Saharan African countries with HIV prevalence above 3%, a doubling of the medical “brain drain” was associated with a 20% increase in adult HIV mortality (Bhargava & Docquier, 2008). Of course, these figures must be interpreted in an inclusive context that takes into account all the other serious deficiencies affecting the infrastructure of these countries’ health systems.

 ifficulties in Interpreting Variations in the Number D of Immigrant Doctors The growing scale of HQ emigration has played a decisive role in raising awareness in receiving countries of the urgency and acuteness of this problem. The very strong acceleration of the “brain drain” of health personnel over the last 20  years had already raised many concerns in the countries of departure as well as within international institutions such as the WHO and UNCTAD overseeing the health and well-being of these populations.

The Scale of Physician Migration The most reliable and most recent data on the emigrant medical and paramedical workforce has been collected and analyzed by the OECD (2015a, 2015b, 2015c).3 This data makes it possible to identify the following main characteristics. The total number of immigrant doctors and health workers in all OECD member countries increased by more than 60% in the 10 years between 2000 and 2010. On average, for the years 2010/2011, the proportion of immigrant doctors was 22% of the total number of doctors practicing in these countries4 and the proportion of paramedical staff was 14.5%.

3  See Chap. 3 of the OECD report “Perspectives of International Migration 2015” for a full discussion of the sources, methods, definition of categories and calculation of numbers of foreign-trained and -born medical labor (for data from previous years, see: Bhargava et al., 2011). 4  However, it is important to note the very large variations that exist between the countries of the EU. They cover a wide range with, for example, more than 35% foreign doctors in Ireland and only 3% in Poland.

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Although the scale of this movement and its acceleration in recent years have raised growing concerns about the medical brain drain, it is nevertheless necessary to consider 3 types of difficulties concerning the recording of this data in the immigration countries. These are likely to qualify, in one sense or another, the interpretations that one might be led to advance concerning variations in the numbers of health personnel. First, the data collected only covers movements to OECD countries; they therefore include the vast majority of developed countries, but not the countries of the Arabian Gulf. However, emigration, particularly of paramedical personnel, from South-East Asia to the countries of the Arabian Peninsula has accelerated rapidly over the past 20 years. Data limited to OECD member countries alone, therefore, are likely to underestimate the magnitude of the medical brain drain.

The International HQ Market In order to measure the real impact of the immigration of physicians on host countries, it is thus necessary to make a distinction between HQ “born abroad” and those “educated abroad”. In the early years of HQ migratory flows, this distinction was hardly relevant since migratory movements took place in a fairly linear fashion: after their training, HQ migrants from developing countries generally went directly to the countries of destination. Subsequently, HQ migrations diversified with periods in third countries, back and forth movements, circular movements, etc. The development of the international higher education market has given more opportunities to a growing number of students from developing countries to train in countries other than those of departure or arrival. This internationalization of medical training, together with the restrictive practices many countries employ in order to limit access to such training, have contributed to an increase in the offer of the category of “international graduates”. A growing share of HQ immigration is now made up of the “non-returning” group of students trained in the countries where they have settled permanently. The high proportion of non-returning students from developing countries who have obtained a specialization or additional training has raised many questions about the effectiveness of student exchange programs and the terms and conditions of scholarship programs designed to finance stays in academic institutions in developed countries. Specialists in this field find it very difficult to propose a quantitative evaluation of the “brain drain” because a substantial proportion of migrant HQs have obtained at least part of their higher education in the host country. Consequently, there is certainly a risk of overestimating the cost of the “brain drain” for the sending countries. Within the OECD countries, some of the HQ “born abroad” are not from developing countries. The immigrant population in developed countries currently includes an increasing proportion of HQ. Already in the early 1960s, doctors trained in the United Kingdom made up the bulk of the “brain drain” to Canada and the United States. Within the EU, intra-EU labor mobility was relatively low in the early years, but the consolidation of the free movement of persons and the

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harmonization of procedures for the recognition of diplomas have significantly increased the settlement of HQ in other EU countries. According to the OECD, in 2011, 26% of immigrant doctors and 29% of immigrant paramedical staff in these countries came from other OECD member countries. Failure to distinguish in each of the host countries between the proportion of immigrant doctors from other OECD countries and those from third countries may also lead to an overestimation of the “brain drain” from developing countries.

Major Trends in Physician Migration A synthesis of the main trends in the flow of health personnel, calculated according to figures from the host countries, provides a ranking of those countries that have received the largest number of immigrant doctors, allows us to measure the extent of the increase in stocks in recent years, as well as to assess the proportion of immigrant doctors in relation to the total number of doctors practicing in these countries, and also to highlight the diversity of national situations. It also makes it possible to identify the main countries of origin for the United Kingdom and the United States.

Foreign-Trained Doctors In 2014, there were approximately 2,700,000 doctors in all OECD countries, including 461,000, or 17.3%, who were trained outside the country where they were practicing. The 5 countries that had, over the years, hosted the highest numbers of foreign-trained doctors are, in order, the United States with 214,500 doctors, followed by the United Kingdom with 49,000 doctors, Germany with 29,000, Australia with 25,100 and France with 20,200. However, Germany and France are the two countries that, in absolute numbers, have seen the largest increase in the number of foreign-trained doctors over the recent period, between 2000 and 2014. Based on data collected by the OECD, Table 4.1 presents the 20 member countries with the highest proportion of foreign-trained doctors in relation to the total number of doctors practicing in these countries in 2013.5 In absolute numbers, two countries, the United States and the United Kingdom, account for more than 57% of the total number of foreign-trained doctors. This high concentration reflects the attractiveness of these countries in terms of the conditions of practice and the level  Only the doctors “trained abroad” (and not the doctors “born abroad”) are presented in this table, as this category provides better information on the extent of human capital transfers and the loss of public resources allocated to training health personnel in the countries of departure, mostly developing countries. Nevertheless, there are still many biases that make it very difficult to interpret these movements. For example, in some developed countries a significant proportion of students choose to study in another developed country before returning to work in the country of birth.

5

Major Trends in Physician Migration

55

Table 4.1  Percentages of Foreign-Trained Physicians in the Top 20 Countries of Physician Immigration in 2013* Israel New Zealand Norway Ireland Australia United Kingdom Switzerland* United States Sweden* Canada OECD 33***

58.5 43.5 35.8 34.2 30.5 28.7 27.0 25.0 23.5 23.5 17.3

Finland** Chile Slovenia Belgium Spain France Germany Hungary Denmark Austria

19.9 15.2 14.4 10.7 9.4 9.2 8.8 7.6 5.6 4.4

(*): OECD (2015a, 2015b) (**): 2012 (***): Total OECD countries

of remuneration for migrant doctors, but it also indicates the considerable savings made by these countries in terms of training costs and health sector infrastructure. Various types of factors explain these high proportions of foreign-trained doctors. Israel’s first place in the table is the result of significant immigration with a high HQ component sustained over a number of decades, together with a high proportion of students who recently graduated abroad. New Zealand and Australia are historically high immigration countries with very selective recruitment policies in favor of HQs. In these 2 countries, as well as in Belgium, Ireland and Switzerland (though for other reasons), immigration accounts for more than 50% of the increase in the total number of physicians between 2000 and 2014. The United Kingdom, Canada and the United States have always attracted large contingents of doctors from Europe, the Commonwealth and other developing countries for reasons related to their insufficient national production of health personnel, but also because of the strong incentive resulting from the level of remuneration which is much higher than in the countries of departure. Sweden, Finland and Switzerland receive doctors mainly from the countries bordering Scandinavia and from Eastern European countries. In France and Germany, a number of factors are responsible for the tripling of the number of foreign-trained doctors between 2000 and 2014 (OECD, 2015b). However, this very large increase is not entirely attributable to immigration, as during this period there was a “regularization” in the status of many foreign doctors who had been practicing for a long time in hospital institutions in these countries, and were not therefore listed in the category of “physicians trained abroad”. In other Western European countries, the recent trend shows a moderate increase in the proportion of foreign-trained doctors. At the bottom of the list of host countries in the EU are the southern European states. Portugal and Greece have been most severely affected by the economic crisis since 2008 and therefore do not have a sufficiently attractive labor market for doctors applying for immigration.

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 he Preponderance of Foreign-Trained Doctors, in the United T States and the United Kingdom A presentation taking into account the national origin of doctors trained abroad makes it possible to measure the weight of the contribution of doctors trained in developing countries compared to that of doctors trained in developed countries. Table 4.2 presents the main countries of origin for the top two immigration destinations for foreign-trained physicians, the United States and the United Kingdom. Data collected over the years 2013-2014 clearly show that Asia is the largest provider of physicians. It provided 54% of medical immigration to the United Kingdom and 48% of immigration to the United States. In the United Kingdom, continuing the historical flows from the former colonies, India, with 34.5%, and Pakistan, with 11%, provide almost half of the medical staff supply. Many authors hostile to the uncontrolled immigration of medical and paramedical personnel have regularly denounced the imbalances of a situation in which most of the United Kingdom’s medical institutions can only function by hiring migrants from the Indian subcontinent.6 Other EU countries account for 22% of doctors working in the UK. In the United States, India is also by far the largest contributor with 22% of the total number of foreign-trained doctors; followed by the Caribbean countries with 13%, the Philippines, Pakistan and Mexico. While the “brain drain” represents a significant Table 4.2  Major training Countries of Physicians “trained abroad”, in United States and United Kingdom, 2013–2014* United States – 2013 Country of Absolute training figures India 47,271 Caribbean 28,253 E.U. 22,984 Philippines

11,973

Pakistan Mexico Canada China Africa Other countries Asia Other countries TOTAL

11,779 10,501 8444 5442 12,399 26,572

Country of Percentage training 21,40% India 12,90% Pakistan 10,40% Other countries Asia 5,40% Other EU countries 5,30% Ireland 4,80% Africa 3,80% Other countries 2,40% 5,60% 12,00%

34,745 220,363

16,00% 100%

TOTAL

United Kingdom – 2014 Absolute figures Percentage 16,833 34,50% 5275 10,80% 4296 8,80% 8978

18,40%

1859 3694 7831

3,80% 7,60% 16,10%

48,766

100%

(*): OECD (2015c)  This situation is even more evident when paramedical personnel are taken into account.

6

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proportion of the medical staff in many African countries, the continent as a whole is only a very minor source of foreign-trained doctors for the United States and the United Kingdom.

 he Impact of the Immigration of Medical Personnel T on the Level of Health Services of the Developing Countries of Departure At present, it remains practically impossible to follow the annual migration of doctors from all developing countries over a sufficiently long period to identify the many consequences for public budgets for higher education, for the efficiency of health systems and for the level of well-being of populations. Nevertheless, three types of indicators can offer insight into the scale of the medical “brain drain”. Firstly, the expatriation rate of doctors born in developing countries and currently working in an OECD country provides a first indication of the extent of this phenomenon. Secondly, the discrepancy between medical density rates when inclusive and exclusive of emigration sheds light on the reality of the potential loss of health personnel. Finally, it is necessary to concretely access the influence of the “brain drain” on the level of critical shortages.

Physicians Expatriation Rates There are no reliable statistics on the annual emigration flows of doctors trained in developing countries. Many methodological difficulties must be overcome when evaluating the extent of the medical “brain drain” and measuring the medical coverage of these countries. Problems also arise in the method of standardization and the collection of data for a large number of departure countries with deficient statistics. The most realistic and reliable approach is to take into account only those doctors who were born in a sending country and practice their profession abroad. Table 4.3 presents the list of developing countries characterized by the highest emigration rates of doctors and only includes among these the top 10 countries in Africa, Latin America and Asia which are characterized by high expatriation rates. We only consider developing countries for which at least 500 doctors born in these countries worked in the OECD area during the years 2010-2011. The expatriation rate is defined as the ratio between the total number of doctors born in a country and working in one of the OECD countries and the total number of doctors practicing in the country of emigration. The interpretation of this indicator, the only one available for around 190 countries, requires some caution, however. First, when it comes to

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Table 4.3  Expatriation rates and number of foreign-born doctors working in OECD countries – Top 10 countries in Africa, Latin and Central America and Asia in 2010–2011 (*) Expatriation rate to the Country of birth OECD AFRICA Republic of Congo 84,6 Malawi 66,9 Zambia 62,6 Cameroon 61,8 Zimbabwe 55,9 Mozambique 49,8 Ghana 46,9 Senegal 43,6 Ethiopia 35,9 Madagascar 26,1 LATIN AND CENTRAL AMERICA French Guyana 84,6 Jamaica 70,7 Surinam 68,3 Trinidad and 58,3 Tobago Nicaragua 22,8 Peru 17,9 Colombia 9,5 Brazil 8,9 Cuba 8,1 Venezuela 8,1 ASIA Mauritius 52,8 Lebanon 33,3 Sri Lanka 28,3 Nepal 22,3 Iraq 21,2 Syria 19,7 Iran 17,1 Kuwait 15,5 Philippines 15,0 Jordan 12,2

Number of physicians working in an OECD country 2202 535 1399 2174 1048 902 2051 573 1207 1113 884 2659 861 2155 603 5950 7535 3450 6749 4244 1459 6799 5784 1548 5298 7516 12,758 983 16,568 2244

(*): OECD (2015a), Table 3.7, Table 3.A.1.1 and Annex

“stocks”, these reflect the accumulation of flows of doctors working abroad that took place during periods that were either old for some countries or very recent for others. However, they obviously cannot account for annual fluctuations or describe the most recent trends in migratory movements. Then, variations in expatriation rates between the years 2000 and 2011 may result from a positive or negative

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variation in migratory flows and/or variations in the number of doctors trained in the departure countries. There are no reliable statistics on the annual emigration flows of trained doctors to developing countries.7 There are many methodological difficulties in assessing the scale of the medical “brain drain” and measuring the medical coverage of these countries. There are also problems concerning the method of standardization and data collection for a large number of sending countries with deficient statistics. The most realistic and reliable approach is to consider only the stock of doctors born in a sending country and practicing abroad. Table 4.3 presents the list of developing countries characterized by the highest emigration of physicians and identifies the 10 countries in Africa, Latin America and Asia with the highest rates of expatriation. Only those developing countries were selected from which at least 500 doctors had emigrated and were working in the OECD area during 2010-2011.8 The expatriation rate is defined as the ratio of the total number of doctors born in a country and working in one of the OECD countries to the total number of doctors working in the country of emigration. It is necessary to exercise some caution when interpreting this indicator, which is the only one available for about 190 countries. Firstly, the “stocks” of doctors reflect the periodic accumulation of flows that took place either very recently or a certain time ago, depending on the country. However, these obviously cannot reflect annual fluctuations or describe the most recent trends in migration movements. Secondly, changes in expatriation rates between the years 2000 and 2011 may result from positive or negative changes in migration flows and/or changes in the number of doctors trained in the sending countries. Thus, as noted by the OECD, Angola’s expatriation rate between 2000 and 2011 fell from 63% to 34% although the number of expatriate doctors remained stable. This is explained by the fact that the number of doctors residing in the country increased sharply during that decade. In Nigeria, on the other hand, the number of expatriate doctors doubled, but as the number of doctors working in the country also grew strongly, the expatriation rate remained stable (OECD, 2015a. Moreover, these rates relate only to the physicians who have emigrated to OECD countries. Although these countries have indeed received the largest proportion of the medical “brain drain”, there are other important flows that have increasingly been directed towards the countries of the Arabian Gulf in recent years. There has also been a recent increase in the “South-South” HQ migratory movement, and more particularly with regard to the medical professions. Consequently, it can be concluded that these data underestimate the outflow of doctors. On the other hand, insofar as the available 7  Except, occasionally, for a few countries and for a few isolated periods, in a handful of monographs devoted to the evaluation of the medical workforce. 8  This restriction is intended to ensure that very marginal small island economies are not included in the classification. However, the imposition of this limit does exclude from the list a group of small countries with some of the highest expatriation rates in the world, such as Liberia with a rate of 80.2%, Sierra Leone with a rate of 71.3%, Guinea Bissau 60.8%, Burundi 52.6% and Niger 52.7%.

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data only take into account the doctors “born” in the countries of departure and not those who have been “trained” there, we must acknowledge that there is a risk of overestimating the “brain drain”. It is not possible, given the current state of data availability, to assess the level of compensation at work between these two opposing biases. Table 4.3 also ranks countries according to decreasing expatriation rates. This presentation therefore neglects the countries with the highest number of expatriate physicians. The top three are India with 87,000 physicians working in an OECD country, followed by China with 27,000 and Pakistan with 18,000 expatriate physicians. These countries have extremely low expatriation rates since, even though their emigrant flows are the highest of all countries with a medical “brain drain”, the size of their economies, populations and medical workforces, as well as the capacity to produce new graduates each year considerably reduce the impact of these departures. Africa is the continent with the highest expatriation rates. Half of the top 10 countries have expatriation rates above 50%; these are sub-Saharan African countries, almost all of which have very low average income or Human Development Index (HDI) levels. To cope with such high rates of expatriation (more than a third of the doctors born in these countries practice abroad) and perhaps compensate for departures among new cohorts of graduates, these countries need to make considerable additional investments in education. For each new year of graduating students trained and largely financed by the public budget, the wastage generated (akin to the phenomenon of school “drop out”) greatly increases the average cost of training for each medical graduate who will not emigrate.9 In Latin and Central America, it is mainly small countries and island economies that experienced the highest expatriation rates. Most other countries have experienced periods of political unrest and social instability that have also prompted a significant proportion of HQs to emigrate. It should be noted, however, that from this continent a substantial proportion of emigration flows have gone to neighboring countries. However, as recalled above, the available data are limited to OECD countries only. This results in an underestimation of the extent of intra-continental “brain drain”. In Asia, with the exception of Mauritius and Lebanon (which has a long tradition of professional emigration to the West), the highest rates are found among Middle Eastern countries that also have a long history of political instability and insecurity. The Philippines has one of the highest expatriation rates and total number of expatriate doctors in the region. This situation also reflects the migration policy of this country, which has long organized the “export” of a significant part of its medical and paramedical workforce. The expatriation of nurses and paramedical staff is much more significant than the emigration of doctors. Here again, the data are for all countries and not only developing countries. This emigration is not strongly correlated with the outflows of doctors. Several factors related to the labor market,

 The issue of the cost of physician emigration is discussed in the next section.

9

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deliberate policy moves designed to encourage emigration of their medical workforce, and the level of qualifications explain these differences. Thus, the 5 developing countries with the highest number of nurses working in an OECD country are: the Philippines with 220,000 people, India with 70,000, Jamaica with 39,000, Nigeria with 17,000 and Haiti with 25,000 nurses. The Covid-19 epidemic has served to highlight the imbalances in the international market for health personnel. Unlike other categories of under qualified migrants and HQs who risk being handicapped by restrictions on international mobility and declining economic activity, the stock of doctors from developing countries will increase in developed countries. Supply from emigration countries will remain high and demand from developed countries will certainly increase in an attempt to cope with the constant shortages of medical and health care personnel that characterize their public health networks. Thus, among all the OECD countries in 2016, the percentage of foreign-born physicians represented 27% of the total number of active physicians. Among the main beneficiary countries, the proportion was 47% in Switzerland, 38% in Canada, 33% in the United Kingdom, 30% in the United States and 20% in Germany. These countries have all been severely affected by Covid-19 (OECD 2019). These estimates do not give a very accurate picture of the contribution of developing countries, and in fact grossly overestimate them.10 However, they do provide useful indications of the savings in investment in training made by host countries, and also of their very high degree of dependence on the contribution of medical manpower recruited from abroad.

Medical Density and Emigration of Doctors Differences in Medical Density Rates with and Without Migration Although there are no precise criteria for determining the level of medical density needed to ensure the satisfactory functioning of a country’s health infrastructure, several studies and a few recommendations from specialized organizations provide valuable benchmarks. The WHO has provided the most widely accepted indicator: it considers that it is impossible to provide essential interventions for primary health care (which is a priority of the Millennium Development Goals) in countries with a density rate of less than 230 for 100,000 (counting doctors, nurses and midwives). In order to assess the extent to which the emigration of doctors is undermining the situation in many countries, we propose to compare the actual medical density rate as observed for the most recent year possible with the “virtual” density  The data produced by the OECD do not distinguish between foreign-born and foreign-trained doctors and those born abroad and trained in the country of immigration after 2015. As a result, they do not measure the extent of the medical brain drain. It is also important, as noted, to consider the mobility of physicians within OECD countries.

10

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rate – that is to say the rate that would pertain if all doctors practicing abroad had remained in the country of origin. These two rates are compared in Table 4.4. We calculate the level of the difference D1 (virtual rate) > to D0 (real rate)

PXi.D0 i = Nmxi



Nmxi  EXpxi  NTmXi



NTmXi = D1 P1

Where. Pxi = Total population of the country i year x. D0i = Real medical density rate observed in country i year x. D1i = Medical density rate without expatriation in country i year x. Nmxi = Number of doctors working in country i year x. Expxi = Stock of expatriate doctors to OECD from country i year x. Ntmxi = Total number of doctors working in country i without expatriation.

P1  Pxi  Expxi

N.B.: Year x is the last year for which data on the stock of expatriate doctors is available for each country. Table 4.4 presents a ranking of the 15 countries with the lowest physician density rates for Africa, Latin and Central America and Asia. The table then presents the rates they would show if none of the expatriate doctors had emigrated to an OECD country but practiced instead in his or her country of birth. Countries with less than one million inhabitants are not included in this list, although they are subject to a high level of doctor emigration. Indeed, the narrowness of their HQ labor market makes them atypical cases which are not representative of a general trend. The differences obtained at the end of this comparison are an important indicator of the extent of the increase in medical density rates that would have resulted if this hypothesis of a total absence of emigration had prevailed. They cannot, however, provide precise and indisputable figures. Indeed, several opposing biases disrupt to varying degrees the calculation of these “virtual” density rates in most countries. Firstly, as mentioned above, only expatriates in OECD countries are counted. However, part of the medical “brain drain” also goes to other countries with a high GNP per capita, but which are not members of this international institution. Secondly, a significant proportion of doctors have migrated to neighboring middle-­ income developing countries. Conversely, a number of emigration countries have also had recourse to significant recruitment of foreign doctors at the regional level. A complete assessment of the expatriation of healthcare personnel would require that, in addition to physicians, all other professions related to the medical sector, even if they are not part of the HQ category, should also be taken into account. For most developing countries, the number of expatriate nurses is 200% to 400% higher

D0** 1,4 1,9 1,9 5,7 2,5 2,8 3,1 3,5 3,7 4,0 4,7 4,8

5,3 5,6 5,9

Year 2008 2009 2008 2010 2009 2004 2012 2006 2006 2012 2010 2009

2008 2010 2008

9,2 7,4 9,1

D1*** 7,8 5,5 4,0 7,8 3,9 6,3 4,1 3,8 4,6 7,5 5,2 8,5

Ecuador Brazil Venezuela

Latin and Central America Country Haiti Honduras Jamaica Bolivia Guatemala Chile Peru Trinidad and Tobago Paraguay Colombia El Salvador Dominican Republic 2011 2013 2011

Year 1998 2005 2008 2011 2006 2009 2012 2007 2012 2010 2008 2011 172,4 189,1 193,9

D0** 25,0 37,2 41,1 47,3 93,2 102,4 113,2 117,2 122,7 147,1 159,6 159,7 183,1 190,8 210,7

D1*** 50,0 43,4 66,8 53,2 96,6 110,8 133,0 281,2 124,9 163,3 167,2 180,4

(*): WHO (2014, 2015), OECD (2015a), UN (2015) (**): D0 = Observed Density Rate (***): D1 = density rate assuming that doctors from developing countries would not have emigrated

Africa Country Liberia Malawi Niger Sierra Leone Ethiopia Burundi Tanzania Somalia Chad Mozambique Burkina Faso Central Afr Rep Togo Rwanda Benin Iran Vietnam Malaysia

Asia Country Cambodia Laos Yemen Indonesia Nepal Afghanistan Bangladesh Iraq Burma Sri Lanka India Pakistan 2005 2013 2010

Year 2012 2012 2010 2012 2004 2011 2011 2010 2012 2010 2012 2010 89,0 119,0 119,8

D0** 16,9 18,2 19,7 20,4 22,9 26,6 35,6 60,7 61,2 68,0 70,2 82,7

107,1 130,1 147,1

D1 *** 21,9 22,7 21,6 21,1 29,1 30,7 37,4 77,8 66,9 95,9 77,2 92,9

Table 4.4  Density of physicians per 100,000 of population. Actual rates and assumed rates in a situation whereby all physicians working in oecd countries would not have emigrated the 15 countries with the lowest densities*

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than the number of doctors. As this is a much less skilled workforce, it is the developing countries with the lowest GNP per capita that proportionally provide the largest contingents for this immigration sector. Nevertheless, it is worth noting some exceptional situations which are the result of a conscious policy of training paramedical personnel with a view to the market in developed countries. These flows follow the more traditional channels of immigration, principally Haiti, Jamaica, Nigeria and Mexico. There is no significant correlation between high expatriation rates and very low medical density rates. Firstly, because it is obviously not expatriation rates that are the only cause of the insufficient supply of doctors and, secondly, because the very low medical density rates in many developing countries clearly cannot constitute a supply source capable of sustaining a high level of doctor emigration. These countries do not have a medical labor force which, from a quantitative and qualitative point of view, could meet the criteria adopted by the international market for health professions. However, as Table 4.3 shows, if all expatriate doctors had remained in their country of birth, medical density rates would obviously be much higher: of the order of several hundred percent for the most vulnerable developing countries; and also in a very significant proportion for most other countries. This unrealistic assumption produces an excessive overvaluation, and yet it is used as the basis for calculating the density rate differences presented in this table. Although excessive in its approach, it nevertheless has the great advantage of reflecting the potential magnitude of the medical brain drain. Medical Densities by Country First, there are considerable differences in levels between the 3 continents. Africa stands out with the lowest medical density rates, whether under the “with expatriation” or “without expatriation” hypothesis, for the 15 countries of this continent shown in Table 4.4. As many international institutions have frequently pointed out, sub-Saharan Africa is principally the region that suffers from the most serious shortages in medical manpower. The health situation there is the worst in the world and medical coverage is largely insufficient to cope with the recent pandemics which have struck the developing countries. The WHO has pointed out that this region, which represents 12% of the world’s population, bears 24% of the global burden of disease, but accounts for only 3% of the global medical workforce (WHO, 2006). Latin and Central America are in an intermediate situation. For some countries, expatriation causes a very sharp decrease in the rate of medical density, while for other countries the impact turns out to be much more limited. In Asia, although medical density rates are generally low, only a small number of countries have suffered significant consequences from HQ emigration. The 15 African countries shown in Table 4.4 have physician density rates between 1/100,000 and 6/100,000. By comparison, in Western Europe, this rate is around 400/100,000. Half of the developing countries in this table have expatriation rates above 50%. The “virtual” density rates, calculated according to the model that

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excludes the emigration of doctors, would be between 200% and 300% higher than the actual density (except for the specific case of Somalia). For the worst-off countries, Liberia, Malawi, Niger and Burundi, the difference is well over 300%. For the other countries, the density rate is also increasing considerably. The difference is much less noticeable for Chad and Burkina Faso, as these countries have experienced relatively low emigration rates. However, it should be remembered that, even with the highly unrealistic assumption of a zero-emigration rate, the medical density would be at an extremely low level for these sub-Saharan African countries. For these 15 countries, it is below the level of 10/100000. As these are countries characterized by very poor medical coverage, many actors in the field were alarmed by the fact that the number of doctors working abroad is more or less equal to that of doctors working in the country of birth. The real impact on the health situation must nevertheless be assessed with caution. The rate of medical density would, of course, be higher without a medical “brain drain” (by several hundred percent), but the level reached would in any case be far below the WHO criteria for ensuring a minimum of primary health care services. The deficiencies in the equipment, personnel and medical infrastructure of these developing countries, all of which fall into the category of the world’s poorest countries, are such that the medical “brain drain” only worsens, marginally in some cases, the shortcomings of their health situation. With regard to Latin and Central America, two groups of countries can be clearly distinguished. For the first group composed of the developing countries with the lowest density rates, an absence of a “brain drain” of doctors would significantly improve medical coverage. In the second group, without the “brain drain” more than half of the countries would have seen a slight improvement over the last 10 years. This can be explained by the fact that they have experienced only a rather limited emigration of doctors and therefore, for some of them at least, the medical density rate remains at an intermediate level. Brazil, for its part, is not affected at all by the medical “brain drain”. On the other hand, the situation is catastrophic for most of the region’s small developing island countries which, given the small market and the low level of creditworthy demand for medical care, have not been able to retain the majority of the HQs they have trained (the emigration rate is around 80% in Barbados, Belize, Guyana, Grenada and Surinam). In Asia, the differences in density rates occur in a very different context. The medical density rate is very low for all the countries included in Table  4.4 (for Cambodia, Laos, Yemen and Indonesia, these rates are around 20/100000). Without the “brain drain” of doctors, medical coverage would improve only slightly, between 10% and 20% for most countries except for Sri Lanka, where the increase would be 50%. In terms of the total number of expatriate doctors, four countries have the highest total flows: India where HQ emigration is steadily increasing, China, Pakistan and the Philippines. These countries are not, however, the most affected by the “brain drain” because, on the one hand, they have an educational infrastructure capable of producing a large number of graduates in medicine each year, and, on the other hand, expatriations are moderate in relative terms compared to the overall size of the active medical workforce in these countries.

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Critical Shortage of Health Workers A third approach is to adopt the concept of “critical shortage” developed by the WHO in an attempt to assess the extent to which the emigration of health personnel serves to perpetuate or exacerbate this situation of shortage. According to the WHO, a country is expected to experience a critical shortage when the health workforce (doctors, nurses and midwives) falls below the threshold of 230/100000 inhabitants. This definition is not therefore limited to physicians, but includes many other categories of healthcare professionals. So, according to the WHO, as previously pointed out, in 2011 57 countries including 34 African countries experienced health workforce shortages estimated at two million people overall (WHO, 2014). Using these data, the OECD calculated the evolution of critical shortages over the period 2001-2011. This assessment indicates that emigration is often an aggravating factor when it comes to critical shortages. Emigration is thought to be responsible for 20% of the shortage in 2011 (OECD, 2015a, 2015b, 2015c). This approach sheds a very different light on the role of emigration, since it does not measure the evolution of an index such as the density rate, but provides an evaluation of the impact of the departure of a section of the healthcare workforce on critical shortages in each country. Table 4.5 presents the critical shortages calculated at the level of the major regional groups. For most developing countries in sub-Saharan Africa it should nevertheless be remembered that it is the maintenance of a very high fertility level that constitutes the main cause of the stagnation or deterioration of health coverage. The very high figures in Latin America are mainly due to the massive emigration of nurses.

 he Emigration of Doctors: A Loss or Profit Factor T for the Economic Development of LDCs? There are two opposing theses on this issue. According to the first, it is generally considered, in many developing countries and in some international organizations, that the emigration of doctors leads to financial losses and reinforces the obstacles that hinder the capacity of poor countries to utilize their health infrastructure and workforce. Medical density and coverage deficits were assessed in the previous section. The financial costs of training doctors and the tax losses resulting from their emigration are the other main arguments invoked. According to the second approach, the possibility of emigration creates opportunities for candidate doctors to make substantial profits which are likely to stimulate demand for this type of higher education. The result would be an increase in private investment in medical education, leading to the growth of specialized human capital in the health field, which would ultimately be much higher than if these opportunities for emigration of medical personnel had never existed.

(*): OECD (2015b)

Countries with critical shortage Total number of Estimated critical With critical shortage employees shortage WHO Region Total 2000/2001 2010/2011 2000/2001 2010/2011 2000/2001 2010/2011 Africa 46 36 31 464,865 579,748 817,992 941,505 Americas 35 5 5 82,647 59,695 37,886 49,376 Southeast Asia 11 6 7 1,763,637 2,318,101 1,164,001 661,267 Europe Eastern 52 0 0 … … … … Mediterranean 21 7 6 278,412 344,050 263,394 263,394 Western Pacific 27 3 5 20,091 26,443 38,269 38,269 Total countries in 57 2,610,552 3,328,037 1,953,811 1,953,811 critical shortage

Number of countries

Foreign-born doctors and nurses in OECD countries, by region of origin Percentage of estimated Staff critical shortage 2000/2001 2010/2011 2000/2001 2010/2011 61,212 124,824 7 13 26,917 36,689 71 74 90,216 177,018 8 27 … … … … 29,926 45,703 10 17 3577 5732 11 15 211,848 389,966 9 20

Table 4.5  Estimated critical shortages of doctors, nurses and midwives by WHO region 2000–2001 and 2010–2011*

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Losses Borne by Developing Countries The marginalist thesis, which argues that migrants take with them a power of production which balances out their income, and therefore that no negative externality accrues, as argued by authors such as Grubel and Scott (1966, 1968), is certainly not relevant for HQs and a fortiori for HQ physicians. Indeed, it assumes that migrants can finance the full cost of their studies themselves, which is far from being the case in developed countries and even less so in developing countries. The costs of training a doctor (teachers, laboratories, instruments, infrastructure and so on) are so high that only the public authorities are in a position to bear them. This raises the question of the optimal management of public finances, which should be discussed prior to any further consideration. Therefore, three types of losses can be envisaged11 Firstly, a reduction in the expected return on a public investment. Secondly, the evaluation of the replacement cost of a trained labor force which fulfils important functions in the health system. Third, the loss of tax revenues levied on the income of HQs, which are generally at the top of the wage scale, and which will be collected by countries of immigration. However, it is necessary to clarify how these arguments, concerning the emigration of doctors, differ from those already cited in relation to the “brain drain” in general. The calculation of these losses presents many difficulties, mainly regarding the definition and collection of data. As a result, there is little in the way of general assessment available which focuses on this issue for a group of countries and over an extended period. A few monographs provide some partial information. Thus, we can mention an analysis of the “brain drain” of doctors from Kenya to the United States and the United Kingdom which illustrates the limitations resulting from these unresolved methodological questions (Kirigia et al., 2006). According to this study, on the one hand, the cost of training for each medical graduate amounts to US $ 66,000 and, on the other hand, the cumulative losses of income for the country during the entire period of a career spent working abroad amount to US $ 518,000. It is this number that must then be multiplied by the total number of doctors who have emigrated in order to determine the total loss suffered by Kenya. This method of calculation raises two types of questions. First, with regard to the “historical cost” of training physicians, should we take into account, as this study does, the cumulative total of education costs from the primary education cycle to the end of the tertiary cycle? These authors consider that it is necessary to add up all the costs incurred during the lower levels of training, since, to enter the “pipeline” of doctor training, a student must first undergo the more basic forms of instruction. A different approach would involve just taking into account public funding for the higher education of physicians, as the lower levels represent the basic investment that the government must provide to all generations without conditions of reimbursement or compensation.  Consideration of the range of potential losses was highlighted early in the literature by Page and Plaza (2006).

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Secondly, the choice of the level of the interest rate to set in relation to future income is very complicated and rather sensitive since it will have a big impact on the total amount. A rate of 1% or 2% more or less is likely to halve or double the discount calculation in respect to total future income. In addition, the question arises as to whether to take into account all the income that emigrant doctors receive or only the amount of their savings that can be mobilized for productive investments. Another similar study evaluated the losses suffered by the nine countries of sub-­ Saharan Africa which have an HIV / AIDS prevalence rate of 5% or more (Mills et al., 2011). Two questions are addressed. The first concerns the consequences of the shortage of doctors in this particular context where HIV/AIDS strongly and primarily affects the various categories of health personnel; as well as destabilizing all public health infrastructures. The second part of the study calculates for each of these nine countries the total cost of training (from primary school to the end of higher education) of doctors who have emigrated to the United States, the United Kingdom, Canada and Australia. These costs range from US $ 21,000 for Uganda to US $ 58,700 for South Africa. The estimate of the total loss of expected future income from investments made for the training of physicians practicing in these four countries of immigration amounts to US $ 2.17 billion, more than half of which, or US $ 1.41 billion, will be suffered by South Africa. The country with the lowest loss in absolute numbers, at US $ 216 million, is Malawi, the poorest country and the provider of the smallest contingent of expatriate doctors to these four countries. Several solutions have been proposed to strengthen the health infrastructure of developing countries which are experiencing significant shortages of medical personnel and which, moreover, are simultaneously suffering losses caused by emigration to developed countries. Interventions take place in a range of areas: training, technical assistance, financial compensation, codes of good conduct. This issue is discussed in more detail below. On the other hand, as the financing of doctors’ education is mainly sourced from the public sector, the question of expected tax revenues arises at two levels. Firstly, at the individual level: to the extent that expenditure on higher education mainly benefits children from privileged sections of society, one might expect, in principle, that this unequal distribution would be corrected by a strong progressivity in the taxation of the income of beneficiaries. This policy is of course seriously impeded when the beneficiaries pay their taxes in a country of immigration. Some authors have referred to the term “fiscal drain” in this connection. Secondly, at the macroeconomic level, several studies evaluate the loss of tax revenue in relation to the GNP of the countries of departure. In India, it is estimated at 0.50% of GNP and 2.5% cent of total government revenue (Desai et al., 2009).12 In Ghana, tax losses are estimated at between US$ 5600 and 6300 per migrant per year (Gibson & McKenzie, 2010). The estimates of the size of tax losses can be qualified by two observations.

12

 These are tax revenue losses for all categories of emigrant HQs, not just physicians.

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First, several researchers have argued that remittances from migrants offset the decline in tax revenues. This argument is worth considering even though there are no reliable data to compare the amount of remittances to the amount of lost tax revenue. However, it should be remembered that in the one case it is a question of private transfers while in the other it is public resources which are at issue. Secondly, the size of the tax loss depends on the level of employment of HQs in the original developing countries. Even though many emigration countries are experiencing glaring shortages in medical manpower, a significant proportion of the available personnel are nevertheless underemployed due to lack of financial means and the multiple deficiencies of health systems. It is therefore likely that some of the doctors who emigrated would not have had the opportunity to make optimal use of their skills and would therefore not have obtained high salaries subject, in turn, to a high rate of taxation.

 he Benefits. Does Emigration Increase the Number T of Physicians in the Countries of Departure? Optimistic Arguments Following on from the “NTML” theory, which is based on family strategies linking investment in education and the decision to emigrate, several authors have developed models according to which higher earnings opportunities abroad increase the incentives for all individuals to acquire more education, even if only some of them will find relevant employment at the end of the process. The induced demand for education would have the effect of increasing the human capital of the sending developing countries even though a section of the HQs trained in these countries emigrate to developed countries. This would therefore result in a “brain gain” rather than a “brain drain”.13 Stark and Fan (2007a, 2007b) have synthesized this approach and distinguish the negative short-term effects from the positive long-term effects. Indeed, in the short term, we might expect this increase in the demand for education to have two negative effects: firstly, an increase in the underemployment of HQs in developing countries since the reservation wage increases with the prospect of emigration; and secondly, an effect of over qualification of HQs in relation to the needs of developing countries. In the long term, however, these disadvantages would, surprisingly, become a “blessing in disguise” according to Stark, for three reasons which are, however, subject to a number of criticisms. First, the level of over-education of parents could prove to be a positive factor in improving the intellectual and academic performance of children from HQ who have not emigrated. Second, the underemployment of HQ children leads them to prolong their search for jobs on the labor market in order to find an opportunity that best matches their

13

 These ideas were presented in Chap. 3.

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qualifications. They are therefore more demanding, and their efforts serve to improve the efficiency of the market. Finally, emigration opportunities encourage HQs to invest in training and in the acquisition of skills that best meet the technological requirements of the labor market in developed countries. In this way, a substantial proportion of HQ migrants contribute to the dissemination and increase of scientific and technological knowledge in developing countries. In the same perspective, an in-depth study by Beine, Docquier and Rapoport based on updated data for 127 countries provides an important and nuanced contribution to this debate. According to this study, the elasticity of human capital formation with respect to HQ emigration would be 5% overall. Countries with a low level of human capital and a low emigration rate would be most likely to benefit from the positive effects while, conversely, countries with a high level of human capital and high rates of HQ emigration would be negatively affected by “brain drain” (Beine et  al., 2008). Overall, there would be more losers than winners. The main losers would be small countries in Latin America and sub-Saharan Africa. In contrast, China, India and Brazil would be strong beneficiaries of the increase in human capital that would result from HQ emigration. These results are consistent with those presented in Table 4.3, which ranks countries according to expatriation rates. This study highlights the important finding that the losers lose more than the winners win! In the light of these findings, what can be said more specifically about the number of doctors in developing countries? Will the increase in the flow of emigrating doctors have the effect of increasing the number of those who will remain in the training countries? With regard to the international labor market, do HQ behave in the same way as managers, engineers and researchers? According to a very optimistic approach based on the theory of free trade, emigration would have positive consequences, that is to say that it would have the effect of increasing the volume of health personnel in the countries of departure through the emulation effect. According to this theory, not only would it not have a negative effect in these countries, but on the contrary, it would increase the level of “world welfare”. This is the thesis defended by Clemens (2007), who maintains that it is not possible to identify negative effects with regard to the number of doctors and the quality of public primary care services in African countries, even in situations of mass emigration of health professionals. This lack of negative effects could be explained, in large part, by the high positive elasticity of the labor supply of health personnel in relation to the increase in expected income through the option of emigration to countries where the salaries are much higher. Faced with the growth in demand for medical training originating from parents of young academics from the middle classes, the authorities could be forced for political reasons to increase the places for applicants and the number of medical schools.

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Critical Reactions to the Optimistic Viewpoint These contradictory assessments of the consequences of the massive emigration of doctors on the health situation of developing countries have drawn comments from several quarters. 1. 1 ° It is not possible to calculate with precision the impact that this incentive effect could have in stimulating a higher demand for medical education. However, by referring to the calculations presented in Table 4.4, which classifies the countries according to their “real” medical density rate and the rates that would be observed in the absence of doctor emigration (virtual rates), we see that, for the poorest countries, the anticipated discrepancy between the rates is considerable. In Africa, for example, the difference between these rates is between 50% and 500%. It is unrealistic to assume that the rate of elasticity of the incentive effect for the demand for medical education in relation to the rate of emigration will reach a level which could compensate for these discrepancies. As a result, the number of doctors currently present in the 15 developing countries of Africa, Asia, Latin and Central America is indeed significantly lower than the number of doctors trained there. The essential question is, therefore, to know what proportion of new graduates will emigrate in the future compared to those who will remain in the country of training. 2. Assuming that emigration actually has the effect of increasing the annual number of graduates from medical schools in these developing countries, the fact remains that the average cost for each graduate who will practice in the country where he or she was trained increases considerably. The situation is similar to that resulting from a very high “drop out” rate occurring throughout a university cursus. It therefore becomes necessary to introduce a much larger number of candidates into the medical education “pipeline” in order to ultimately obtain the same “output” of physicians active in these countries. This training is largely funded by public higher education budgets, as we have already mentioned. Consequently, this particular form of “drop out” produces an overinvestment in the cycles of higher education and this to the detriment of other levels of education which have an important role to play in increasing the general level of schooling. 3. Insofar as the “brain drain” has the effect of provoking an overinvestment in the higher education sectors most sought after on the international HQ market, it specifically favors children from wealthy urban families who make up the majority of students registered for these studies. In this way, the inequality of access to the school system, which is one of the main characteristics of a large number of developing countries, would thus be reinforced. Many development economists have found that public spending on higher education has a regressive effect on income redistribution. It is therefore legitimate to subscribe to the hypothesis that the emigration of physicians increases inequalities. 4. In order to optimize their possibilities of employment in the countries of immigration, future doctors are inclined to choose courses that best correspond to the

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demand for care in Western countries. As a consequence, the provision of m ­ edical education is distorted to the point that it fails to meet the primary health care priorities specific to developing countries. So, for example, geriatrics or cosmetic surgery become favorite choices for specialized training, to the detriment of tropical medicine and epidemiology. Nevertheless, it must be acknowledged that this bias in favor of certain specializations by medical schools in developing countries remains anecdotal; and while it has attracted a lot of criticism, it has until now not been the subject of serious empirical verifications. 5. Nevertheless, it would be a mistake to attribute all the deficiencies in the provision for the medical needs of developing countries to the emigration movements of doctors alone. This deplorable situation is mainly the result of numerous inadequacies in infrastructure and in the organization of public health services. It is aggravated by an imbalance at the level of the geographical distribution of medical care, which privileges the urban middle classes while disadvantaging poor populations in rural areas. In addition, the health situation of these developing countries can be explained in large part by the serious deficiencies of preventive care programs, which ought to constitute a priority objective of health policy. It has also been pointed out that, despite the shortages, a large number of physicians are underemployed and work under inadequate conditions, lacking the equipment and resources to practice their profession effectively.

Compensation for International Recruitment Practices The dynamics of the international market for medical personnel are obviously not only driven by the determinants of supply. Of course, the income differential is an important incentive for emigration, but the conditions for exercising the profession, the opportunities for promotion and specialization, the social status of the medical professional and the facilities for research and academic recognition also play an important role. On the demand side, it is not sufficient simply to stress the effects of the opening up of the international market to medical graduates from abroad and the large-scale hiring of medical personnel by private and public health institutions. In fact, in many cases students are hired even before completing their course by agencies using aggressive practices, which actively deploy recruitment strategies in developing countries. According to some estimates, there are more than 270 companies in the United States alone which are engaged in recruiting medical and paramedical personnel (Aluttis et al., 2014). Some of the recruiting practices used are frequently described as unethical or even illegal (Mills et al., 2008). The question of compensation for emigration countries arose in the 1970s and was theorized by Bhagwati and Hamada who proposed a tax in favor of emigration countries to be levied on the HQs who stand to earn a high income thanks to their emigration. Bhagwati’s proposal was discussed above. This path was not followed because of the multiple political objections and the technical difficulties it raised.

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Primarily, it was a tax that would have been levied only on individuals. A completely different initiative consists of organizing institutionally at the international level compensation mechanisms for the costs borne by developing countries, as well as procedures to ensure that the recruitment of doctors is controlled or reduced. An ethical dilemma appears at this point: while guaranteeing the individual freedom of potential migrants and protecting their fundamental rights, including the freedom of circulation, it is necessary to avoid jeopardizing the achievement of objective 3 – “good health and well-being” – included in the “objectives for a sustainable development” adopted during the last “Population and Development Program” of the United Nations. However, these principles are clearly in contradiction in many developing countries, where certain precisely targeted recruitment practices thwart the health programs initiated by international public aid. With this in mind, several “Ethical Recruitment Practices” agreements have been put in place in order to prevent or restrict the large-scale recruitment of doctors and paramedical personnel from developing countries which are experiencing significant shortages of health personnel. These bilateral agreements have started to regulate certain recruitment practices (for example: Great Britain with China and the Philippines, South Africa with Spain, certain regions of Italy with some regions in Romania, etc.) It should be noted that these initiatives have a very limited focus. They are not binding and are essentially based on very general principles. They are either very limited in geographical scope or restricted to only a few health sectors. The emigration of doctors has rapidly reached such a scale that the WHO felt moved, at the 63rd UN General Assembly in 2010, to propose a project for a “Global Code of Practice on the International Recruitment of Health Personnel” (WHO, 2010). This legal instrument is intended to serve as an ethical framework for recruitment practices. It does not aim to limit the migration of health personnel, but focuses on strengthening the balance between fundamental principles such as the right of health personnel to leave any country and the right of every human being to an adequate standard of health. The code proposed by the WHO is not legally binding. Nevertheless, it provides support to countries in a situation of shortage, and offers a form of deterrence to overly aggressive and unethical recruitment. Likewise, it promotes the coordination of medical training in both developed and developing countries. The divergences between actors in the field and the theorists of unlimited free trade are still evident. While the WHO and most United Nations organizations, the World Bank and the UNDP are now regularly alarmed at the loss of medical personnel, which is endangering the health of the populations of developing countries, some economists persist in maintaining that the measures advocated are a response to vague humanitarian motivations that are not based on any empirical verification of their effectiveness (Clemens, 2015). Thus far, the likely impact of this initiative appears to be modest. Many countries have reservations, and commitments are still very imprecise. There has been no concrete proposal on how to “compensate” for the losses of the countries of emigration. The WHO recently launched an open consultation aimed at all interested parties (academics, field specialists, health aid organizations, NGOs), inviting them to

References

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participate in the practical development of the “guidelines”. This consultation quickly revealed its limitations. A large number of interventions focused mainly on the free movement of people and opposed any restriction on recruitment. The onus was placed on developing countries to improve the efficiency of their health systems. Few original proposals have emerged for institutionalized collaborations between teaching and research networks, or even for better organized and lasting partnerships between hospitals in Western and developing countries. The Covid-19 pandemic hardly encourages progress in this direction, as international competition has only intensified between developed countries for the recruitment of foreign doctors. The impact of global deficits will be very serious for the poorest developing countries, which will have to bear excessive burdens in their health sectors. The magnitude of “critical shortages” and the number of countries experiencing such deficits will increase in relation to the figures shown for previous years in Table 4.5. In Nigeria, for example, 90% of each year’s medical graduates leave to practice abroad; and in many African countries this proportion of annual departures exceeds 50%. In spite of such dramatic figures, the likelihood is that the flow of departures will only increase. The health emergency caused by Covid-19 is not conducive to strengthening the WHO’s code of practice on international recruitment. On the contrary, barriers to recruitment are being alleviated by most developed countries which, due to long-­ standing underinvestment in their hospital systems, and their restrictive policies on medical studies applied via the numerus clausus, find themselves increasingly dependent on the contribution of doctors from developing countries.14

References Aluttis, C., Bishaw, T., & Frank, M. (2014). The workforce for health in a globalized context – Global shortages and international migration. Global Health Action, 7. https://doi.org/10.3402/ ghaV7.23611 Beine, M., Docquier, F., & Rapoport, H. (2008). Brain drain and human capital formation in developing countries: Winners and losers. The Economic Journal, 118, 631–652. Bhargava, A., & Docquier, F. (2008). HIV pandemic, medical brain drain and economic development in Sub-Saharan Africa. The World Bank Economic Review, 22(2), 345–366. Bhargava, A., Docquier, F., & Moullan, Y. (2011). Modeling the effects of physician emigration on human development. Economic and Human Biology, 2(9), 172–183. Clemens M., 2007, Do Visas Kill? Heath Effects of African Health Professional Emigration, , Center for Global Development Working Paper, n°114. Clemens, M. (2015). Smart policy toward high-skill emigrants. IZA World of Labor, (203). https:// doi.org/10.15185/IZAWOL203

 Faced with Covid-19, most Western countries with a shortfall of medical personnel have relaxed rules for the renewal of residence permits and access to the profession. More active recruitment procedures in medical schools in developing countries, easier recognition of qualifications or diplomas obtained abroad, and the relaxation of other regulations characterize the response to this emergency situation.

14

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Desai, M., Kapur, D., McHale, J., & Rogers, K. (2009). The fiscal impact of high-skilled emigration: Flows of Indians to the US. Journal of Development Economics, 88(1), 32–44. Gibson, J., & McKenzie, D. (2010). The economic consequences of “Brain Drain” of the best and brightest: Microeconomic evidence from five countries (Policy Research Working Paper, n°5394). World Bank. Grubel, H. G., & Scott, A. D. (1966). The international flow of human capital. American Economic Review Papers and Proceeding, 56(2), 268–275. Grubel, H. G., & Scott, A. D. (1968). The international flow of human capital: Reply. American Economic Review Papers and Proceeding, 58, 545–548. Kirigia J.  M., Gbary A.  R., Muthuri L.  K., Nyoni J., & Seddoh A. (2006). The Cost of Health Professionals’ Brain Drain in Kenya. BioMedCentral Health Research, 6: 89, http://www. biomedcentral.com/1472-­6963/6/89 Mills, E., Shabas, W., Volmink, J., Walker, R., & Ford, N. (2008). Should active recruitment of health workers from Sub-Saharian Africa be viewed as a crime? Lancet, 371, 685–688. Mills, E., Kanters, S., Hagopian, A., & Bansback, N. (2011). The Financial Cost of Doctors Emigrating from Sub-Sahara Africa: Human Capital Analysis. British Medical Journal, 343, d7031. Organisation for Economic Co-operation and Development. (2015a). Perspectives des migrations internationales 2015. Éditions OCDE. https://doi.org/10.1787/migr_outlook-­2015-­fr Organisation for Economic Co-operation and Development. (2015b). Panorama de la santé 2015: Les indicateurs de l’OCDE. Editions OCDE. https://doi.org/10.1787/health_glance-­2015-­fr, version 1, dernière mise à jour 27 octobre 2015. Organisation for Economic Co-operation and Development. (2015c). Health statistics 2015. Organisation for Economic Co-operation and Development. (2019). Recent Trends in International Migration of Doctors, Nurses and Medical Students. National Health Workforce Account. Page, J., & Plaza, S. (2006). Migration remittances and development. A review of global evidence. Journal of African Economics, 15(2), 245–336. Stark, O., & Fan, C. (2007a). International migration and “Educated Unemployment”. Journal of Development Economics, 83(1), 76–87. Stark, O., & Fan, C. (2007b). Losses and gains to developing countries from the migration of educated workers. World Economics, 8(2), 259–269. United Nations. (2010). Health workers international migration and development (Division of Population and Development, March 2010/2/E/Rev). United Nations. (2014). Framework of actions for the follow-up to the program of action of the international conference on population and development beyond 2014 (Report of the Secretary-­ General, A/69/62). United Nations. (2015). World population prospect. The 2015 revision (DESA, Population Division, POP/PD/WPP/Rev2015/POP/F-01). World Health Organization. (2006). The global shortage of health workers and its impact (Fact Sheet, n°2). WHO. World Health Organization. (2010). 63e Assemblée générale de l’OMS “International Recruitment of Health Personnel”, Draft Global Code of Practice, A63/in.doc/2. World Health Organization. (2014). The 2014 update. Global Health Workforce. Statistics, http:// www.who.int/hrb/statistics/inf.stat World Health Organization. (2015). Global Health Observatory (GHO), indicators views. The Data repository. Density of Physicians Latest Available Year, Absolute Numbers Data by Country.

Part II

Remittances to Developing Countries

Of all the arguments used to suggest that emigration is a favorable factor for the development of the countries of departure, those relating to the issue of remittances are undoubtedly the most convincing. Indeed, in a relatively short period of time flows of remittances have grown considerably. The total amount has risen from US$ 101 billion in 1995 to US$ 714 billion in 2019. Chapter 5 presents the main trends in remittances at the global and regional levels. It presents the most recent data on the main countries of origin of remittances and on the main recipient countries. Chapter 6 outlines the motivating factors which persuade migrants to send part of their savings back to their home countries. A large number of often contradictory theories and empirical studies have analyzed the consequences of remittances for developing countries. Chapter 7 examines the impact of remittances on the level of poverty of the population, the reduction of income inequality, changes in health and education levels, and the status of women. At the macroeconomic level, Chapter 8 assesses the positive and negative effects of remittances on economic growth, employment levels, external accounts and economic stabilization mechanisms. This chapter also presents differing views on labor supply, competitiveness, moral hazard and “Dutch disease”. Finally, Chapter 9 considers the role of remittances within development strategies. It assesses measures designed to reduce the costs of remittances, and examines policies intended to ensure the optimal allocation of these resources to recipient countries. It also highlights the important role of diasporas.

Chapter 5

Volume of Remittance Flows and Prevailing Trends

Long-Term Trends at the Global Level A large body of research has highlighted the very close causal links between the scale of migration movements and the volume of remittances. Of course, the main motivation for much international migration is the desire to transfer resources to the countries of origin. However, the important differences in the profile, magnitude and pace of these two flows over a long period of time invite several observations. The growth of remittances is out of all proportion to all other international flows of goods, services and capital (whether in the form of investment, equity, loans or grants); and, according to the forecasts of many international organizations, it will most likely continue to accelerate in the coming years. At the global level, let us recall some impressive figures. The annual amount of remittances increased from US$ 101 billion in 1995 to over US$ 747 billion in 2019, with a total increase of 640% worldwide. As a result of the Covid-19 pandemic, the volume of remittances will decrease, according to the latest estimates, to 572 billion in 2020 and then rise again to 602 billion in 2021 (World Bank, 2020). For the group of developing countries in particular, over the same 24-year period, the increase is 790%. The annual amount of remittances increased from US$55 billion to US$554 billion in 2019. In response to the pandemic, it is predicted to decline to US$445 billion in 2020 (a substantial decrease of 20%), and rise to US$470  billion in 2021 (World Bank, 2017a, 2020). While the volume of international migration has also increased substantially since the 1960s, this growth is much more modest than is widely believed, as shown in Chap. 1. Over the same period, the number of international migrants has grown constantly but relatively slowly, rising from 165 million migrants in 1995 to 258 million in 2017, a total increase of 56%. At the global level, the growth in remittances is thus about 15 times higher than the growth in the number of migrants. The comparison of these two flows clearly shows that the growth in the number of © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_5

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international migrants is insufficient to explain the increase in the volume of remittances. Many other factors need to be examined in depth. For an accurate assessment of these flows, it is necessary that the term “remittances” be defined in the same way by both sending and receiving countries. The term covers much more than the simple transfer of savings by workers who have emigrated. The IMF has standardized the nomenclatures and scope of the various categories and sub-categories that appear in the balance of payments and which can be grouped together under the heading “remittances”. The term covers three types of transfer: (a) Personal transfers, which include transfers between resident and non-resident households, whether or not they are activity-dependent; as well as net compensation of non-resident employees (b) Total remittances, which include personal transfers as well as social benefits paid abroad (c) Transfers to non-profit institutions, which are intended to benefit households (Alfieri et al., 2005). In this three-part definition the concept of “migrant” is replaced by that of “resident”, and transfers are recorded regardless of the source of the income that generated them, the nature of the relationship between sending and receiving households and the purpose of the transfer.1 Figure 5.1 illustrates global trends and short-term forecasts for remittances at the global level and allows the latter to be compared with developments in other sources of international financial flows. In 1980, the first year for which reliable data could be collected, remittances amounted to only a few tens of billions of US dollars. Growth since then has been steady and the established trend is an annual rate of around 4.5% with, exceptionally, a substantial but brief decline during the international financial crises in 2008 and 2015, and a projected decline in 2019 and 2020.2 Since 1995, the flows generated by remittances have largely exceeded the amounts allocated to Official Development Assistance, which have barely increased since the 1990s. They are currently three times higher than total ODA. Controversies have arisen as a result of the widening gap between these two sources of international flows. Several studies have argued that, since remittances are more efficient and stable, it would be preferable to focus on flows from private sources and rely much less on those from public institutions. There is now consensus that substituting ODA for private flows is out of the question, and that the two types of external resources are complementary. 1  The evolution of the definition of the terminology has produced some surprising results. For example, Belgium was for some years considered to be one of the main countries benefiting greatly from remittances. The sums incorporated into the country’s balance of payments included money generated by border workers, as well as the remuneration paid by international and European institutions to their staff domiciled in Belgium. 2  Chapter 8 returns to the economic stabilization argument in relation to remittance flows, reconsidering its merits in the light of the Covid-19 pandemic.

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Fig. 5.1  Remittances and other external financial flows to developing countries 1990–2020

Remittances are also higher than investments in private asset portfolios, which are inherently much more volatile in relation to fluctuations in international economic conditions. Currently, an 80% decrease has been registered with regard to this external source. A similar observation can be made when remittances are compared to international direct investment in developing countries, which is also characterized by very large fluctuations. For the first time since the 1990s, international direct investment is lower than the amount of remittances, even if we include investment in China. (If we leave aside investment in China, which is by far the country which benefits most from this type of investment, the total amount of investment in developing countries has been much lower than that of remittances for several years.) The volume of remittances to developing countries increased by an average of 5.5% until 2019. This represents about 75% of the global volume of remittances (World Bank, 2020). About 92% of these flows went to the group of middle-income per capita developing countries and only 8% to the group of low-income developing countries. With regard to remittances directed to the group of developing countries, two clarifications are necessary in order to correctly evaluate these trends. The first is the fact that, numerically speaking, the group of developing countries shrank during this period in line with the economic evolution of the countries, as several of them moved from the group of developing countries to that of developed

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countries;3 and the second is a reminder that the top ten remittance-receiving countries received more than 48% of the total flows benefiting all developing countries over the entire period. There are two very contrasting situations with regard to the impact of the volume of funds. The first concerns the countries that received the highest amounts of remittances in absolute terms. The second concerns the countries with the highest remittances as a proportion of GNP per capita. Table 5.1 presents this double classification. In the first part, the top 10 remittance-­ receiving countries are classified in absolute terms, as a percentage of GNP and also as a percentage of export earnings, in order to assess the extent to which remittances compensate for their economic dependence (WTO, 2013; World Bank, 2014a, b, c, d, e, f). The first two countries are inevitably India and China, which also have the world’s highest population figures and the largest number of emigrants. All of these 10 countries are among the most densely populated countries in the world, and all have a long history of mass emigration. Within this group, several countries, such as China and Mexico, have a high level of GNP, but also a high level of resources from international trade. As a result, in percentage terms, remittances represent a minor resource for them in relation to their exports. By contrast, for the Philippines, Egypt, Pakistan and Bangladesh, remittances account for between 1/2 and 2/3 of international trade revenues. The second part of Table 5.1 ranks the top 10 countries according to the level of remittances as a decreasing percentage of GNP. It clearly shows a very different and particularly disparate situation compared to the first list. The composition of this group depends on a wide variety of factors. Thus, unlike the classification of countries according to the volume of remittances, which is relatively stable over a long period of time, the volume of remittances for this group of countries is subject to significant changes over short periods of time. These changes largely reflect the instability generated by economic transformations, political changes and climate-­ induced crises (e.g. Haiti). The majority of countries which figure in this table are very poor (with the exception of Lebanon, a country with a high GNP, but which for decades has been experiencing significant emigration). They are small countries with a very low level of economic development and a small population. Lacking a diversified production structure, these countries largely correspond to the category of small island economies which are substantially dependent on external contributions. In Tajikistan, which is the extreme case, remittances account for 48% of GNP and 407% of exports. For many of these countries, remittances account for about 25% of their GNP and far exceed their export earnings. It is undeniable therefore that they represent a vital contribution to the economy. The special situation of the majority of the countries of Eastern Europe and Central Asia results from the economic effects of the break-up of the Soviet Union. Nepal’s current position is the result of the

3  Argentina, Chile, Latvia, Lithuania, Russia, Venezuela and Uruguay are currently included in the group of developed countries. This classification undergoes minor changes every year.

Remittances Percentage GNP (2012) 1.57 0.55 7.08 1.42 5.01 3.42 5.24 3.43 3.61 2.69

Remittances Percentage export (2013) 24.3 2.9 50.0 5.9 13.0 68.9 60.0 45.0 9.5 13.0

a

WTO (2013), Table E.171.8, CIA (2012) and World Bank (2014e)

Remittances Us$ Billions Country (2014) India 71 China 64 Philippines 28 Mexico 24 Nigeria 21 Egypt 18 Pakistan 17 Bangladesh 15 Vietnam 11 Ukraine 9

Remittances Us$ Billions Country (2014) Tajikistan 3362 Kyrgyzstan 2031 Nepal 4793 Lesotho 602 Moldova 1775 Armenia 2123 Haiti 1612 Samoa 139 Liberia 360 Lebanon 7322

Remittances Percentage GNP (2012) 48 31 25 24 24 21 21 21 20 17

Table 5.1  Top 10 remittance-receiving countries by volume and percentage, and remittances as a proportion of exportsa Remittances Percentage export (2013) 407 105.6 477.3 61.9 79.6 133.6 205.3 1219.2 46.4 130.4

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massive emigration triggered by the demand for labor in the Gulf countries, which are engaged in major public infrastructure projects (the football World Cup, construction of museums, etc.).

A Temporary Turnaround? The Impact of Covid-19 As with any analysis of historical trends, a distinction should be made between short-term developments and long-term trends. Over the extended period since 1990 the growth rate of remittances has been considerable. In recent years, however, growth has not only slowed down but has crossed the threshold into the negative range; this occurred in 2009, 2015, 2016 and most recently in 2019. Are these inflections due to unfavorable economic conditions or, more fundamentally, do they call into question the stability and permanence of these external resources? These negative rates do not reflect a sudden decline in a single large remittance-receiving country, but they do indicate a slump that has affected all regions (except Latin America). This decline in growth is particularly significant in Eastern and Central Europe, the Middle East and North Africa.4 There are a number of reasons for this recent shift in remittances. This decrease can be partly attributed to the result of cyclical variations in the economy, and consequently in the labor market, of the host countries; and partly by the drastic fall in oil prices. There are also other more structural causes, such as restrictions and controls on the hiring of migrants in immigration countries where political instability and insecurity have increased sharply in several regions. The Covid-19 epidemic has also exerted strong downward pressure on these indicators. According to World Bank estimates, the global volume of remittances will fall by −19.5% in 2020. Some regions will be affected more than others: a drop of −12.3% is predicted in East Asia, −23% in sub-Saharan Africa and −27% in Europe and Central Asia. However, World Bank forecasts suggest that this is only a temporary pause in the positive long-term trend, as they predict a 5.6% growth in remittances in 2021 (World Bank, 2020). These estimates, of course, include only official flows. It is necessary therefore to factor in informal flows and also to look more specifically at remittance flows at the regional level.

4  It should be noted, however, that this decrease was also partly the result of the fall in the value of the Euro, the Ruble and the Pound Sterling, which affect the total value of remittances that are denominated in US$.

Formal and Informal Transfers

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Formal and Informal Transfers The considerable progress made by the IMF in the collection of remittance data means that coverage of flows between all countries is now almost complete and substantially up to date; though this should not obscure the fact that it covers only official flows, and that informal flows, by their very nature, cannot be accurately assessed.5 These informal transfers, which are generally high, and sometimes much higher than official flows, must necessarily be taken into account in order to avoid a gross underestimation of the contribution provided by remittances. There are three main areas of debate with regard to informal flows: firstly, how exactly should they be measured? Secondly, which factors motivate the choice of this mode of transfer? Thirdly, the proposition that these flows should be redirected towards official channels. Some very general initial estimates indicate that the volume of informal flows is to be located somewhere between 35% and 250% of formal flows. Basing itself on the methodology used to assess the underground economy, one of the most reliable empirical studies covering more than 100 countries proposes an estimate of informal flows which ranges from 35% to 75% of total remittances to developing countries (Freund & Spatafora, 2008). Of course, these proportions vary widely across countries and regions. Informal remittances are estimated to be highest in Eastern Europe and especially in sub-Saharan Africa. In Ghana, informal remittances are estimated to account for 49% of total remittances (Adams, 2007), and in Zimbabwe one survey puts them at 98% (Chisasa, 2014). Informal flows to East Asian countries are considered to be proportionally the lowest in East Asia. The proportion of informal remittances also depends on the individual characteristics of migrants: highly qualified personnel, low-skilled labor, temporary migrants,6 or illegal7 migrants. There are many reasons why migrants may prefer to use informal channels. One of these is the level of transaction costs. Several studies have shown that the costs of informal transfers are significantly lower than those of official flows, especially in countries where banking networks are not well developed. These transfers are also characterized by greater speed and security, as they are 5  For methodological reasons, however, there are still areas of imprecision in many countries. The most notable concern differences in definitions of the term “remittances”, together with the practice of not recording transfers below a certain low threshold in the balance of payments. It should be recalled that the “illegal” flows represent only a proportion of the “informal” flows, and that this varies according to the country, There are different ways in which informal remittances are used, and definitions vary accordingly. We can limit ourselves here to specifying that informal remittances are cash flows that are not subject to a formal contract and are not recorded in the national accounts. 6  In the case of community-based migration, it is usually the workers who regularly return home who personally take care of transporting the cash. 7  Illegal or irregular migrants certainly find it more difficult to move their savings through official financial channels. However, in many host countries, banks issue “customer cards” which allow “undocumented migrants” to use their networks for remittances (mainly between the United States and Mexico).

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based on family ties or relationships with close relatives. In addition, recipients often have only limited access to the banking system or other financial intermediaries. It should be noted that this is also a way to avoid paying taxes in the recipient country, to escape the controls of public authorities and also to take advantage, in some cases, of more favorable black market exchange rates for foreign currency. Some of the informal remittance channels are also used for money-laundering operations. There is also a close correlation between the proportion of unofficial remittances and the share of the informal sector in the economies of the sending countries. From a development policy perspective, the majority of analyses stress the importance of distinguishing between formal and informal flows, since only the former contribute to external debt relief and lower interest rates. Moreover, these two types of transfers influence in different ways the composition of imports made by households and by firms. The preferences expressed by transfer mobilization policies therefore consist in substituting, as far as possible, formal channels for informal channels. These measures would have the advantage of strengthening competition between operators, preventing situation rents and providing the government with additional means of directing these resources towards its programs. In short, at the macroeconomic level, official flows increase the operational flexibility of the public sector. On the other hand, at the level of household welfare, no survey shows that informal flows are less efficient than formal flows.

Regional Trends and the Main Countries Concerned Countries of Origin of Remittances In order to attain a global view, it is essential to first provide some indications regarding the principle countries at the origin of remittances. Table 5.2 presents the top 12 countries ranked by volume of remittances The top three countries (the United States with US$65.5 billion, the UAE with US$44 billion, and Saudi Arabia with US$34 billion) alone accounted for more than 1/3 of total remittances to emigration countries in 2018. It was mainly rich countries which imported massive contingents of foreign labor8 (with the exception of the Russian Federation, which attracts migrants from the former USSR). However, these countries cover a broad and relatively divergent range, reflecting the greater diversification of migration systems both in terms of direction and composition. They are essentially a group of OECD member countries and a group of Gulf countries that exert a powerful magnetic effect on nearby countries in their region.

8  Although the list remains more or less stable, the order of countries and the size of the flows have been subject to wide variations in recent years due to strong variations in the exchange rates of the dollar, the euro and the ruble.

Regional Trends and the Main Countries Concerned Table 5.2  Top 12 countries of origin of remittances (in billions of US$) in 2018

87 United States United Arab Emirates Saudi Arabia Switzerland Germany Russian Federation China France Kuwait Luxembourg South Korea The Netherlands

68.5 44.3 33.6 26.7 25.0 23.8 16.5 15.2 14.3 13.7 13.4 13.3

Szmigiera. M Statista (2019)

The volume of remittances that come from these wealthy countries depends on several factors: the number of migrants present, their seniority and socio-economic status, the economic situation of the host countries and their labor markets, the cyclical demand for labor dependent on the launching of major infrastructure projects, the boom in activity in certain labor-intensive sectors such as mining and energy, and also the management of bilateral agreements that regulate international financial transfers. This list reflects the intensity of migration networks. Western Europe has in recent decades resorted to labor migration, initially on a temporary basis, and this has led to permanent settlement and generally to the acquisition of host country nationality. Migrants have formed large communities of foreign origin which maintain long-term links with their home countries and continue to contribute regularly to the flow of remittances. For France, Germany, the Netherlands, Luxembourg and Switzerland, remittance outflows have increased significantly in recent years and are evolving at a stable annual rate. For Italy and Spain, it should be added that, due to their geostrategic position, they have been much more subject to the numerous spikes of illegal immigration which, after a certain period of time, generate a strong growth in remittances. Since the increase in unemployment, there has been a clear downward trend marked by significant fluctuations. The United States and Canada have historically been countries of permanent immigration (with the addition of a very high proportion of undocumented workers in the United States), and the pace of remittances is mainly influenced by economic conditions. The economic crisis of 2007 retarded the growth of remittances until the end of 2009. Subsequently there was a sharp increase in remittances to Mexico which was closely correlated with the increase in sales of new houses and apartments, a sector that employs a large proportion of Hispanic migrants. Unemployment rates amongst the latter have thus fallen faster than those of other categories of workers. Despite the current decline, Mexico remains the main beneficiary of remittances in Latin America.

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In Russia, the volatility of remittances is very high, since they are highly dependent on multiple political and economic hazards. Growth was strong overall until 2013, but the subsequent deceleration was abrupt even before the Covid-19 lockdown took effect. Between 2014 and 2019, remittance outflows dropped from US$32.6 billion to US$21.8 billion. Cash outflows decreased to all recipient countries: Ukraine, Uzbekistan, and other former CIS (Commonwealth of Independent States) countries in Central Asia. The fall in the price of crude oil, the sector where the majority of migrants are employed, precipitated the drop in remittances; as did the overall deterioration in the economic situation, which resulted from high levels of political instability. Remittances from the Gulf countries have been growing very strongly for many years. However, the most recent figures show contrasting trends. For example, between 2014 and 2019, remittances from the UAE increased by 50% from 19.2 billion to 44.4 billion, while over the same period they decreased in Saudi Arabia (from 36.9 billion to 33.6 billion) and Kuwait (from 18.1 billion to 14.3 billion). In most countries in the region, the migrant labor force accounts for about 80% of the total labor force. A large proportion of the migrant workers are employed in two particular sectors: domestic labor and public works and construction. South-East Asian countries, and particularly the Philippines, will continue to provide the predominantly female labor force for domestic service. The major investment programs of the Gulf countries, whether in new luxury urban infrastructure, major exhibition construction or major sporting events such as the football World Cup, will continue to require a mainly underqualified workforce from South Asia and Nepal (World Bank, 2020). The acceleration of globalization between the years 2000–2020 has also resulted in the multiplication and diversification of migratory flows and, consequently, in the broadening of the range of countries of origin and destination of remittances. Nevertheless, the major remittance poles and the stability of the main channels at the level of the major regions have remained constant. In Latin America, all the countries of the region are highly dependent for their external resources on the economic situation in the United States, since 75% of remittances come solely from that country. For the countries of East Asia and the Pacific, the situation is more diversified and therefore less subject to the fluctuations that can occur in a small number of remittance-sending countries. The United States accounts for only 30% of remittances in this region and the “other developed countries” for 25%. The situation is quite different for the South Asian region where about half of remittances come from the Gulf countries and almost 20% from developing countries. As regards Europe and Central Asia, Russia plays the leading role, providing 31% of remittances from the oil and gas sector, whose revenues are subject to large fluctuations. The Middle East and North Africa region is in a situation of greater dependence on these external revenue sources. Indeed, 48% of remittances come from the Persian Gulf and 21% from the group of “other developed countries”. For sub-­ Saharan African countries, three roughly equivalent sources provide the bulk of remittances. First, the “other developed countries” with 35%, and then the United States and the “other developing countries” with 28% each. The latter source is a

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good indicator of the considerable flows of labor migration occurring between countries in sub-Saharan Africa. Western Europe’s share is rather low at only 8%, which may seem surprising given the intensity of the economic ties that continue to exist between the former colonial metropolises and African countries (World Bank, 2013a, b, 2017b).9

Regional Perspectives of Major Remittance-Receiving Countries Figure 5.2 ranks the top 10 remittance-receiving countries for each of the 6 regions first in terms of absolute volume and then as a percentage of their GNP. The profiles that emerge provide valuable insights into the geopolitical and economic contexts of the regions, the economic weight of some countries and their degree of dependence on remittances. Firstly, for 2018, as in previous years, it can be seen that in each region one country emerges very clearly as the main beneficiary in terms of volume: in East Asia it is China, in South Asia it is India, in Europe and Central Asia the dominant beneficiary country is Ukraine, in the Middle East it is Egypt, in sub-Saharan Africa it is Nigeria, and in Latin America it is Mexico. East Asia is the region of the world that had, until recently, experienced the highest rate of growth in remittances. World Bank forecasts indicate that, for the next few years, the rate of growth of these flows will remain higher than that of other regions even if, at the global level, we recorded a negative rate in 2016. This was almost exclusively due to a fall in remittances to Indonesia. This region is characterized by sustained economic growth and a stable macroeconomic situation. China, the Philippines and Vietnam are the main recipient countries in absolute terms. As a percentage of GNP, which is a good indicator of economic dependence, with the exception of the Philippines and Vietnam, very small island countries with very small populations appear as the main recipients. Their remittances come mainly from the United States and New Zealand. Forecasts of how Covid-19 will affect levels of remittances indicate a 13% drop in 2020.10 South Asian countries are also expected to experience long-term growth in remittances, but much more moderate than in the past, according to the World Bank; and there will be a marked slowdown in the volume of remittances to India and Bangladesh. In 2016, the fall was 6.4% for the region as a whole. This was mainly due to a sharp decline in flows to Indonesia. This slight reversal of the upward trend could already be explained by the sustained decline in oil prices in the host 9  There is little reliable data on which to base an assessment of remittances between countries of the “South”. The results are strongly conditioned by prior assumptions and the methodology used. A long-standing study puts “South-South” remittances somewhere between 10% and 29% of the total received by developing countries (Ratha & Shaw, 2007). 10  For this paragraph, we rely heavily for data on trend changes in 2020 on the document “Covid-19 Crisis Through a Migration Lens”, World Bank Migration and Development Brief 32, April 2020.

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Fig. 5.2  Top 10 remittance-receiving countries, in absolute terms and as a percentage of GNP in 2019, by major regions

Regional Trends and the Main Countries Concerned

Fig. 5.2 (continued)

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countries and their recent policies of tightening restrictions on the hiring of foreign workers. Forecasts for 2020 point to a general drop of 20%. In India and Pakistan, the expected fall will be 23%. In this region, remittances are by far the largest source of external resources, much larger than ODA and foreign direct investment. It is the same five countries that are the main beneficiaries both in absolute volume and as a percentage of GNP. These are countries with a large population, a high GNP, and which receive a very large proportion of their remittances from the Persian Gulf. This resource, for example, represents 25% of GNP in Nepal, 12% of GNP in Bangladesh, 10% in Sri Lanka, 7% in Pakistan and 4% in India. For these countries, remittances play a crucial role in the external accounts balance. In Pakistan, remittances accounted for 284% of foreign exchange reserves, and in Nepal 98% according to IMF and World Bank estimates.11 In the Middle East and North Africa, political instability has strongly influenced the volume and regularity of remittances. Conflicts in Iraq and Syria, massive population displacements and an increase in the number of refugees have changed the direction of flows. Trends in the coming years will depend on the evolution of the two main sources of remittances: the Gulf countries and Europe. The factors at work respond to very different dynamics. In the Gulf countries and Arabia, the “nationalization” of the labor force and the fall in oil prices are having an impact on the countries of the Middle East. North Africa, for its part, will depend much more on the economic situation in Europe. Egypt is clearly the main beneficiary in this region with US$26.8  billion in 2019, although the amount of money sent by its workforce abroad has decreased in recent years. This resource nevertheless represents three times the revenue generated by the Suez Canal and tourism. Forecasts indicate a 20% drop in remittances to the region by 2020. The extent to which remittances will recover will depend on the longer-term effects of the Covid-19 pandemic and the recovery of oil prices, which have fallen dramatically. The war in Libya led to the forced departure of migrant workers from Egypt and Tunisia. The situation is very different in sub-Saharan Africa. For a long time, the growth rate of remittances has remained relatively low, but from 2014 onwards there has been a considerable increase: the volume of remittances will rise from US$ 32 billion in 2014 to US$ 47 billion in 2029. Within the group of developing countries, the region receives the lowest amount of remittances. The profile of the recipient countries is marked by sharp divergences. In terms of absolute amounts, Nigeria alone receives US$ 23.8 billion, or 2/3 of the total flows to the region. For all other countries, the total amount of remittances in absolute terms is very low. On the other hand, given the underdeveloped economies of these countries, these inflows, measured as a percentage of GNP, are very high. The projected drop of 23% in 2020 will certainly cause a large number of household incomes to fall below the poverty line. To fully appreciate the contribution of the various external sources, it should be stressed that sub-Saharan Africa is also the only region where levels of ODA remain much higher than those of remittances.

11

 The figures for the same year were 89% in Sri Lanka, 78% in Bangladesh and 25% in India.

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Unlike in most other regions, in Latin America remittance growth remained high until 2019. The contrasting upward trend in all these countries was curbed by the economic crisis. Latin America is the region characterized by the highest volatility of external financial resources. This is due to the fact that, for Latin America, unlike other regions that are linked with several supplier countries, the United States alone accounts for more than 3/4 of remittances. The volume of these flows is, therefore, strongly influenced by the economic and labor market conditions in sectors that employ a high proportion of migrants. Covid-19 is expected to cause a 19.3% drop in remittances. This can be explained by the particularly virulent impact of the pandemic in the 3 main countries of origin of these transfers: the United States, Spain and Italy. To simplify, we can distinguish two groups of countries. On the one hand, the large countries of the South, such as Brazil, Argentina and Chile, where remittances actually play only a marginal role; and on the other hand, Central America, the Caribbean and Mexico, where their role is much more important. In absolute terms in 2019, Mexico alone, with US$ 38.5 billion received more than all the other countries of the continent. As a percentage of GNP, it was the small Central American countries that were the main beneficiaries: first Haiti with 37%, then Honduras with 22% and El Salvador with 21%. The “Europe and Central Asia” region is to be viewed in a very different context from the other regions. Total remittances received in 2019 amounted to US$ 65 billion (a drop in the growth rate of these transfers from 20% to 4% compared to the previous year). The first forecasts of the World Bank indicate a 28% drop in 2020. This is the region where the growth of these flows will be the lowest. One country, Russia, accounts for a large majority of remittances. This is the only case where the country which sends the most remittances is also the first or second largest recipient of transfers. The flows from this country are to a great extent determined by 3 types of factors: the price of oil and natural gas, the economic situation and the price of the ruble, and also political developments in the region. In Russia, more than 11 million migrants from the former Soviet Union countries are transferring remittances, the volume of which will be negatively affected by the departure of some of these migrants due to political unrest. In terms of volume, Ukraine was the main beneficiary of these flows in 2019 with US$15.8 billion. Ukrainian migrants in Poland provide the highest share of remittances. The war in eastern Ukraine has greatly reduced this flow. All the other beneficiary countries, with the exception of Romania, are members of the former CIS (Commonwealth of Independent States). The ranking as a percentage of GNP, ranging between 10% and 30%, reflects the strong economic dependence of all the beneficiary countries; first Kyrgyzstan, then Tajikistan, Moldova and Kosovo. All of these countries have their roots in the former Soviet Union and the former Yugoslavia. More than in other regions, the economies of a majority of these countries would become very fragile in the event of a sudden and sustained decline in remittances.

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References Alfieri, A., Havinga, I., et Hvidsten, V. (2005). Definition of Remittances and relevant BPM5 flows (United Nations Statistics Division, Technical Subgroup on Movement of Natural Persons – Mode 5 – TSG 2/16 – TSG /3). Central Intelligence Agency. (2012). World factbook. Washington Government Publications. Chisasa, J. (2014). Nature and characteristics of informal migrant remittances transfer channels: Empirical study of remittances from South Africa to Zimbabwe. Banks and Bank Systems, 9(2), 58–69. Freund, C., & Spatafora, N. (2008). Remittances, transaction costs and informality. Journal of Development Economics, 86(2), 356–366. Ratha, D., et Shaw, W. (2007). South-south migration and remittances (World Bank Working Paper n° 102). The World Bank. Szmiera, M. (2019). Leading countries worldwide by value of migrant remittances outflows 2018. https://Statista.com. (30 Oct 2019). World Bank. (2013a). Migration and development. Brief, n°20, April 19, 2013. World Bank. (2013b). Migration and development. Brief, n°21, October 21, 2013. World Bank. (2014a). Send money Africa. African Institute for Remittances (AIR). http://www. sendmoneyafrica.worldbank.org World Bank. (2014b). Remittances price worldwide. An analysis of trends in the cost of migrants remittance services. http://remittanceprices.worldbank.org World Bank. (2014c). Report on the remittances agenda of the G20, financial inclusion and infrastructure global practice. World Bank. World Bank. (2014d). Data world development indicators. Government expenditures on education. World Bank. World Bank. (2014e). Annual remittances, data inflow staff calculations prospect data & research. IMF balance of payments, statistics yearbook. World Bank. (2014f). Data & research prospect. Migration and research data, remittances outflows. Annual remittances data. World Bank. (2017a). Migration and remittances (Migration and Development Brief, n°27). World Bank. (2017b). Remittances data. Migration and annual remittances updated. World Bank & KNOMAD. (2020). Covid-19 crisis through a migration lens (Migration and Development Brief N°32). April 2020, 42p. WTO International Trade Statistics. (2013). https://www.wto.org/english/res_e/statis_e/its2013_e/ its13_toc_e.htm1. Apr 03, 2017 - https://www.wto.org/english/res_e/statis_e/its2013_e/its13_ toc_e.ht

Chapter 6

The Decision to Remit: Determinants and Actors

Who are the migrants who decide to send part of their savings back to their country of origin? What are the average amounts transferred? For what reasons and for how long do migrants send remittances? According to several surveys, only half of migrants send a portion of their savings to their families. The volume of amounts transferred varies according to the type of migration; as does the length of time for which the practice is maintained. Whether the migration is temporary or permanent, whether they are made up of skilled or unskilled workers, or whether they are individuals or families. The amounts sent also depend fundamentally on the motivations behind the departure, the length of stay and also the general migratory context determined by other economic, social and political characteristics of the host countries. A range of both micro- and macroeconomic approaches have been used to analyze the determinants of these behaviors. The former focus mainly on the individual variables linking migrants, their families and relatives; while the latter tend to highlight the factors in the countries of origin that influence the decision of migrant workers to send back a proportion of their savings. A common point between the theoretical tendencies is that they tend to rule out explanations based solely on calculations of the individual profit made by migrants while at the same time retaining only the income differentials observed between countries of departure and countries of arrival at the time of migration. On the other hand, all now take into account family strategies which embrace distant and uncertain outcomes. Of course, it is important in any analysis not to dissociate the motivations for international migration from those which determine remittance behavior, since the possibility of sending money back home is often the main reason for leaving the country of origin. Even if the decision to remit funds can be motivated by a wide range of factors, it is nevertheless possible to identify the most salient forms of behavior.1 1  Rapoport H. and F. Docquier (2006) provide the most comprehensive review of the literature on the theoretical and empirical aspects of this issue published up to 2005.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_6

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Microeconomic Determinants Solidarity and Self-Interest One of the most important motivations is to maintain family solidarity. At bottom, the behavior of migrants is to be explained by altruistic imperatives. Transfers to parents and relatives result from a kind of moral obligation which it would be almost impossible for migrants to shirk. The migrant chooses a level of remittances that maximizes his utility, taking into account his own levels of consumption as well as those of his family back in the country of origin. According to this hypothesis, remittances increase in step with the income level of migrants, and diminish as average household incomes in the sending country improve. The main motive of migrants would be to contribute to the needs of their families and not to reimburse them for expenses incurred or for the reduction of family labor caused by their departure. Nevertheless, in most cases, families mobilize significant resources to organize and facilitate youth migration. This effort, implicitly at least, is motivated by the hope of receiving in return a source of income in the form of remittances which will raise their daily living standards. Underpinning this arrangement is the moral obligation to show solidarity with those who stayed at home, and to take in charge their welfare, at least partially. An analysis of remittances over the period 1980–2009 for 36 sub-Saharan African countries has highlighted the role of this perceived obligation to compensate (Fonchamnyo, 2012). From another perspective, much research initiated by the work of Lucas and Stark in Botswana has shown that motivations based on the “selfishness” of migrants should not be overlooked. These authors have highlighted the importance of quasi-­ contractual, long-term transactions between migrants and their families which, in reality, outweigh purely altruistic considerations (Lucas & Stark, 1985). From this perspective, remittances are the product of a calculation of “selfishness” on the part of the migrant. In the first instance, the migrant tries to preserve and augment the family patrimony. Subsequently, the priority is to safeguard his rights and thus secure a share of the inheritance at a later date. Surveys conducted in communities marked by high emigration from Africa (Aggarwal & Horowitz, 2002) and Latin America (Pozo, 2005) lend support to the hypothesis of an altruistic motivation and also to a more opportunistic approach. It is obviously not possible to identify situations relying exclusively on any one determinant since remittances are frequently the result of both enlightened selfishness and tempered altruism.

Risk Aversion Stark, one of the initiators of the theory of the “new political economy of migration” (NPEM) developed an innovative and very fruitful theory based on the assumption that migration should be analyzed as a type of portfolio diversification strategy

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(Katz & Stark, 1986). From this perspective it is the strong risk aversion of families that is the main explanatory factor behind the “migration for transfers”. Migration is seen as the result of a deliberate strategy of putting into place insurance mechanisms designed to limit the exposure of minimally subsistent incomes to economic and environmental hazards and the excessive volatility they unleash. When harvests are threatened by extreme weather conditions, or if a sudden deterioration of the economic situation occurs, other family members would thus have a permanent external resource at their disposal. The importance of the relationship between remittances and risk levels has been well documented in relation to Mexico-United States migration2 (Amuedo-Dorantes & Pozo, 2006a, b). The principle aim of such rural-urban migration, whether internal or international, is to reduce the very high level of instability in living conditions. Striving to diversify the location and source of income is part of the strategy of collective risk management within households and communities. Migration can also be the most appropriate way to protect households’ “capital” by allowing them to achieve a wider diversification of their “portfolio” of assets (land, equipment, workshops, small businesses, cash) in a context where market imperfections severely restrict their access to credit. This risk-­ minimization approach concerns both families in the country of origin and the migrants themselves. In the event of a return home, the migrants guarantee themselves better material resettlement opportunities as they maintain links with family members who can look after their interests. They also facilitate opportunities for reintegration into the social network from which they have temporarily absented themselves.

Migration as Investment This implies the existence of a preconceived plan to send a child of the family abroad in order to bring in a profit further down the line. To this end, and especially in the case of highly skilled migrants, a concerted effort will have been made throughout the child’s education to mobilize family resources and increase the human capital of the future migrant in order to increase his chances of securing good quality employment abroad more quickly. Families make a double investment: first, an investment in migration and, second, an investment in education. It is the combined rate of return on these two investments that drive remittance migration. Since market imperfections and liquidity constraints do not allow households to access the usual funding channels available to them, they rely on these transfers to sustain and develop the family business, whether agricultural, artisanal or commercial. From the migrant’s point of view, there are two distinct investment approaches. The first implies a “pure” investment made with the sole objective of improving his

2  This insurance against the risk of a drop-in income is a reciprocal process, with the migrant also being guaranteed the support of his or her family in the event of difficulties in the host country.

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economic situation and that of his family. In the second, the migrant strives to optimize the range of options open to him, carefully conserving the possibilities of returning to the country of origin or remaining in the host country. He tries to guarantee for himself the best conditions for a possible return and, therefore, will strive to increase the volume of his remittances. Along the same lines, we can hypothesize that the probability of return increases in direct proportion to the financial productivity of the investment. In short, remittances represent either a partial or total compensation for the training costs and expenses incurred by the family, or the expected return on the investment it has made. Both scenarios imply a form of voluntary contract, which migrants and their families have an interest in respecting. A question also arises at the macroeconomic level concerning the allocation of public expenditure and the costs of education. An interesting line of analysis is to explore the link between the decision to migrate and send remittances and the subsequent use made of these remittances by recipient households. Indeed, it can be assumed that the ways in which beneficiaries spend remittances reflect their perception of the migrant and his motivation: was the aim of the migration to reimburse the costs borne by the parents, or was it conceived more as an insurance strategy? Or was it borne out of “altruistic” or perhaps “selfish” priorities?

Macroeconomic Determinants Measuring the sensitivity of remittances to changes in large macroeconomic aggregates such as interest rates, inflation rates, exchange rate movements and the cost of transfers has been the subject of several econometric studies, the results of which are not always convergent. The individual parameters of migrants should also be taken into account.

Levels of Remittances The economic situation of a host country determines the level of disposable income of migrants as well as the probability for them to obtain a job more or less quickly. It therefore determines their savings capacity. The situation of migrants on the labor market, the cost of living, housing conditions, their consumption behavior and also their access to banking services greatly influence the share of their savings they set aside for remittance to their families. The composition of migratory flows largely conditions the propensity of individual migrants to send back a portion of their savings. We note that this propensity is much higher among temporary migrants than among permanent migrants. The former have limited in advance the period they will stay in the host country, creating for themselves a deadline against which they will

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seek to maximize transfers. Permanent migrants, on the other hand, are mainly concerned with arranging for the arrival and integration of their spouse and children. The level of qualification of migrants also plays a significant role. A very controversial question is whether highly skilled migrants (HQ) send more or less remittances to their country than unskilled migrants. There are 3 types of indicators which must be taken into account here. First, what is the propensity to send remittances? Is it possible to know whether, among the category of HQ migrants, the percentage of those who transfer part of their savings is higher or lower than for the other categories of migrants? Next, it is a question of whether HQ migrants send a greater proportion of their income than other migrants. Finally, it must be determined whether the absolute amount of annual remittances from HQs is higher than that of other migrants. A priori, the higher income level of HQ migrants is a factor which favorably influences the volume of remittances. However, several research studies at the macroeconomic level in a large number of countries have shown that unskilled migrants tend to send a greater proportion of their income than highly skilled migrants. There are 3 reasons why migrants with a high level of education have a reduced propensity to send funds. First, as they generally come from the richest families it seems less likely that their parents incurred the costs of education and migration with the principle aim of realizing a return on their investment. Second, HQs find it easier to bring their families, spouses and descendants to the host country. In doing so, they must devote a significant portion of their income to installation and school fees, and this has the effect of drying up the flow of remittances to ascendants (Faini, 2007a, b; Niimi et al., 2010). Third, HQs do not usually emigrate with the intention of returning to the country of origin; they are therefore less likely to use a portion of their savings to secure for themselves social and financial advantages in the home country. This analysis needs to be qualified, however. Adams’ work, based on regressions for about 70 countries of departure, as well as the analyses of Faini (2007a, b) and Niimi et  al. (2010), are now being challenged by other studies which employ a microeconomic approach. Thus, based on micro-surveys of 33,000 migrant households in 11 OECD host countries, Bolard et al. conclude that migrants with a high level of education transfer greater volumes. Two factors explain these results: the first is the higher propensity of these migrants to send remittances; the second is their much higher level of average incomes. The combination of these two factors is thought to have a positive effect on the volume of remittances (Bollard et al., 2011).3 On average, the annual level of remittances from HQ migrants is $300 higher than that of migrants with only primary or secondary education. Other factors also play an important role, principally immigration history and the length of stay. Two opposing trends are at work here. On the one hand, migrants’ incomes increase with 3  This paragraph discusses the motivations of highly skilled migrants compared to the more diverse motivations of unskilled migrants. The question of whether the amounts that HQs send compensate for the losses that developing countries suffer as a result of their departure is analyzed in the section devoted to “brain drain”. The question of whether HQ migrants send higher amounts than unskilled migrants is also discussed from a different angle in Chap. 4.

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the length of time they have been in the labor market and, in principle, increase their capacity to transfer remittances. On the other hand, family ties with ascendants weaken over time and the migration project is likely to change, as many temporary migrants decide, after a certain period, to settle permanently in the host country.

Incentives in the Country of Origin Countries of origin are also in a position to play an important role in promoting various initiatives and incentives to encourage remittances. Firstly, in response to situations of economic, political or climatic crisis, if support structures and appropriate accompanying programs have been put in place and are proving effective, migrants will increase the amount of their remittances, as has been pointed out (emigration flows also tend to increase in such situations). The UN’s Quinquennial International Migration Policy Survey provides an overview of government assessments and policies regarding emigration in 150 countries (UN, 2013). Between 1976 and 2011, the number of developing countries which considered the volume of their emigration satisfactory fell from 136 to 113, while the number of countries which concluded that their level of emigration was too low rose from 5 to 19. The number of countries which judged their emigration to be too high increased from 19 to 57. The reasons given were mainly connected with concerns about the loss of skills and qualified personnel. More specifically, as regards the concrete policies implemented to curb emigration flows, over the same 35-year period the number of developing countries which seek to maintain their level of departures decreased from 136 to 124; the number of those which try to reduce these flows increased from 17 to 45; while the number of countries taking measures to increase emigration rose from 5 to 25. It is mainly in Asia that proactive policies favoring emigration were implemented; the percentage of countries concerned falling during this period from 11% to 26%. In these countries, which have a type of labor “export” policy in place, vocational training, especially in the paramedical and domestic service fields, is provided to future migrants in response to the exigencies of the host country market. Throughout almost of their working life, these migrants will provide material assistance to their families. On another level, several factors come into play as a result of government initiatives. Examples would include preferential exchange rates, regulations on foreign exchange inflows, or banking services which facilitate transactions and render them more accessible to beneficiary families, such as subsidized interest rates or tax exemptions. Governments also play a key role through specific programs designed to encourage investment by migrants (see Chap. 9). Mexico and the Philippines have for a long time implemented the most effective incentive policies in this area. The lack of consensus in the literature on this issue, however, should be noted. The empirical studies which seek to identify the most decisive motivations frequently contradict each other. The conclusion to be drawn from these studies is that it is wiser to recognize a multiplicity of motivations which includes social and

Who Sends a Portion of Their Savings?

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cultural incentives and constraints alongside the more obvious economic goals (Amuedo-Dorantes & Pozo, 2006a, b).

Who Sends a Portion of Their Savings? There are many surveys available of the socio-economic characteristics of migrants. Studies focusing more specifically on the profiles of migrants who return funds to the country of origin are, however, much less plentiful. According to numerous studies, only half of migrant households send remittances to countries of origin. There are significant differences in behavior depending on the country of origin, the types of migrants involved, but also on the country of destination. The comparisons made with remittances linked to older rural-urban migration reveal some interesting similarities; for example with regard to the intentions of the actors. But they also reveal major differences, if only with regard to the volume and duration of transfers. The socioeconomic composition of migratory flows in relation to the population of the country of origin and the country of destination is a characteristic to be taken into account. The proportions of unskilled and HQ migrants, for example, may be different; and these two groups do not share the same savings capacity. Neither do they adopt the same transfer behavior in relation to their families. Several surveys have revealed trends in remittances. A few examples illustrate the wide range of possible situations. Thus, migration from Latin America to the US is mostly made up of undocumented migrants (around 45% among Mexicans) with a low income and a low level of education. It is the youngest migrants who have the strongest propensity to send part of their savings to their parents or spouse back home. It is also recently arrived migrants who, proportionally, transfer the most, though the volume of remittances tends to decrease over time. In addition, most of these migrants are unfamiliar with banking practices. More than 40% of them do not have accounts, and beneficiary families often do not have access to banking networks. In contrast, Latin American migrants (mainly Brazilians) settled in Japan have a higher level of education than migrants in the United States (85% with higher education compared to only 17%). Over 90% of them have a bank account and their average income is equivalent to that of the Japanese (Page & Plaza, 2006). Both in terms of education level, income level and personal security, their situation is much better than that of migrants in the United States, and this has an impact on the volume of remittance flows. For a just appreciation of the potential of transfers, it is also necessary to distinguish between those which are part of South-North circuits and those which concern South-South flows. First, the remunerations received by migrants are obviously lower in developing countries than in developed countries and, as a consequence, their transfer potential is lower. Second, South-South migrants mostly come from families which are significantly poorer than those of migrants who re-locate to the North. These two differences occur at the level of remittances.

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This presentation of the parameters that influence the decision to send remittances reflects the broad consensus that prevails in the literature of migration economics and which recognizes the overall positive effects of remittances on the well-being of migrant families and, in many cases, on the economic development of the emigration countries. These beneficial impacts materialize, however, in a wide variety of fields and some are often difficult to assess with any precision. Furthermore, one should not overlook the many studies which have highlighted the reality of certain negative effects of remittances. It is therefore necessary to review these positive and negative effects, distinguishing those which act at the microeconomic level from those which intervene at the macroeconomic level.

References Aggarwal, R., & Horowitz, A.  W. (2002). Are international remittances altruism or insurance? Evidence from Guyana using multiple-migrant households. World Development, 30(11), 2033–2044. Amuedo-Dorantes, C., et Pozo, S. (2006a). Remittances as insurance: Evidence from Mexican immigrants. Journal of Political Economics, 19(4), 227–254. Amuedo-Dorantes, C., et Pozo, S. (2006b). Migration, remittances and male and female employment patterns. American Economic Review, 26(2), 222–226. Bollard, A., McKenzie, D., Morton, M., et Rapoport, H. (2011). Remittances and the brain drain revisited: The microdata show that more educated migrants remit more. World Bank Economic Review, 25(1), 132–156. Docquier, F., et Marfouk, A. (2006). International migration by education attainment, 1990–2000. In C. Özden, et M.  Schiff (Eds.), International migration, remittances and the brain drain. Trade and development (pp. 151–200). World Bank/Palgrave Macmillan. Faini, R. (2007a). Migrations et transferts de fonds, Impact sur les pays d’origine. Revue d’économie du développement, 2–3, 153–182. Faini, R. (2007b). Remittances and the brain drain: Do more skilled migrants remit more? The World Bank Economic Review, 21(2), 177–191. Fonchamnyo, D. (2012). The altruistic motive of remittances: A panel data analysis of economies in sub Saharan Africa. International Journal of Economics and Finance, 4(10), 192–201. Katz, E., et Stark, O. (1986). Labor migration and risk aversion in less developed countries. Journal of Labor Economics, 4, 134–149. Lucas, R., et Stark, O. (1985). Motivations to remit: Evidence from Botswana. Journal of Political Economy, 93(5), 901–917. Niimi, Y., Özden, C., et Schiff, M. (2010). Remittances and the brain drain: Skilled migrants do remit less. Annals of Economics and Statistics, 97/98(1), 123–141. Page, J., et Plaza, S. (2006). Migration remittances and development. A review of global evidence. Journal of African Economics, 15(2), 245–336. Pozo, S. (2005). On remittance and risk. In D.  Terry, et S.  Wilson (Eds.), Beyond small change: Making migrant remittances, work for development (pp.  71–94). Inter-American Development Bank. United Nations. (2013). New trends in migration demographic aspects (Report of the Secretary-­ General, U.N. Economic and Social Council, Commission on Population and Development, ­E/ CN39/2013/3).

Chapter 7

Remittances and Household Welfare

It is generally accepted that remittances contribute to an improvement in the standard of living of the families of migrants from a developing country insofar as they help to bring about some of the following effects: a reduction of poverty among the population and a reduction of inequalities in income, a general improvement in the health situation, an increase in the overall level of education and also a greater empowerment of women. The vast majority of studies unreservedly recognize that in most countries of emigration remittances have contributed to a reduction in the extent and intensity of poverty. Three methodologies have been used in empirical studies to measure these outcomes: poverty simulation models, household surveys and cross-national regressions. Most of this research confirms that transfers received directly by poor households substantially increase their income and, consequently, reduce the total number of people living below the poverty line. One of the best-known of these studies, which is credited with being the first to highlight this general trend, was carried out by Adams and Page (2005). After taking into account the risks of reverse causality for a sample of 71 developing countries, this study shows that a 10% increase in remittances flowing through official channels induced a 3.5% decrease in the proportion of people living below the poverty line. An World Bank (2006) study using a sample of 101 countries yielded similar results. A first general remark is necessary to assess the scope of the phenomenon at the global level. Chap. 1 showed that the top 3 recipient countries, China, India and Mexico, received more than a third of total remittances. Although a large proportion of their population is below the poverty line, these are not countries that are at the lowest level according to the UNDP Human Development Indicators. Among Sub-­ Saharan African countries, only one, Nigeria, is among the top 25 recipients of remittances in absolute terms (Gupta et al., 2007).

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_7

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Poverty Reduction Measuring Impact on Poverty Levels In order to ensure a correct interpretation of the results of these numerous surveys, the choice of the different indicators used for measuring poverty must be clearly specified. A first indicator, “the poverty rate”, provides information on the percentage of the total population living below the poverty line (defined as $1.25 or $2 per day per person, or 60% of median income). The depth of poverty is determined by a “poverty gap” index which measures the difference in percentage points between the average income of the poor and the poverty line.1 Finally, the severity of poverty is measured by the “squared poverty gap”, which is defined as the average of the squared poverty gaps of individuals living in poverty. This is a weighting which is proportional to the poverty gap of individuals. It takes into account the degrees of inequality of individuals within the overall category of the poor. Econometric research has highlighted the need to take into account a large number of variables such as the level of GNP, the proportional relation of flows received to GNP and to the total external resources of sending countries, the origin of migrants and their number as a proportion of the total population, the degree of income inequality measured by the GINI index, and, above all, the extent and severity of poverty. Numerous research studies have analyzed the impact of remittances on the level of poverty in various countries. Among the most important is Adams’ research on Guatemala, which confirms a positive impact of remittances on the poverty line and its fluctuations, as well as on the severity of the poverty endured by affected populations. In Guatemala, remittances account for up to half of the income of the poorest households. Thus, the impact changes according to variations in the definition of poverty. For example, the poverty line is reduced by only 1.6%, but the intensity and severity of poverty is reduced by 23.5% and 21.9% (Adams, 2006a). In the case of Ghana, again according to Adams, the impact of remittances on the poverty rate is very small, while its impact on the intensity and severity of poverty is very high. This study also shows that the effects are very different depending on whether one distinguishes between remittances from internal and international migration. For example, poverty severity declines by only 4.1% for internal remittances but by 34.8% for international remittances (Adams, 2006b). For the Philippines, several research studies have shown that an increase in remittances of 10 percentage points reduces the probability of households falling below the poverty line by 2.8%. Other households belonging to communities characterized by high emigration also benefit through increased expenditure by migrant families (Martinez & Yang, 2007). In a report published in 2010, UNCTAD identified and synthesized several studies that confirm the positive effect of remittances on poverty reduction, principally in the case of Mexico (Lopez-Cordova, 2006), rural Mexico (Taylor et al., 2005) and 1  For example, a 10% poverty gap means that the individuals concerned are living, on average, 90% below the poverty line.

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Lesotho (Gustafsson & Makonnen, 1993). In addition, this report presents a cross-­ sectional analysis based on a group of 77 developing countries covering the period from 1980 to 2008. This econometric study shows that the reduction of poverty is most significant in the 29 countries for which the flow of funds amounts to more than 5% of GNP.  For the majority of the countries analyzed, a 10% increase in remittances leads to a 3.9% decrease in the poverty rate and a decrease of about 3.5% in the poverty gap (UNCTAD, 2011). While the vast majority of research highlights poverty reduction in all regions, it also reveals that these results vary considerably across recipient countries. In Asia, a study covering a dozen countries measures the degree of elasticity of the percentage increase in remittances relative to GNP against the decrease in the percentage of the population living below the poverty line. Two poverty lines are used: US$1.25 and US$2.00 per day, and three hypotheses for increasing the remittances/GNP ratio, namely 10 percentage points, 20 points and 50 points.2 The simulations indicate a significant decrease for Indonesia, Bangladesh, India, Nepal and the Philippines, but a much smaller decrease in the other countries (Imaî et al., 2014). In Latin America, research initiated by the World Bank on the impact of remittances concludes that, in many countries, the effect on poverty is relatively modest. On average, a 1% increase in the remittances/GNP ratio only causes a 0.4% decline in poverty, while some negative consequences of emigration such as the absence of the head of household and the possible dislocation of families is neglected or underestimated in most assessments (Fajnzylber & Humberto Lopez, 2007). In Africa, the impact is greater than in other regions according to a study of 33 countries covering the period 1990–2005. A 10% increase in the share of remittances in GNP would reduce the poverty rate by 2.9%. The intensity and severity of poverty would decrease by the same amount (Anyanwu & Erhijakpor, 2010). More recently, an UNCTAD report on policies designed to maximize the impact of remittances on the economic and social development of recipient countries confirms the positive impact on the situation of the poorest households in all the countries examined. At the same time, the report notes large discrepancies in the size and net effects of the remittances. In some of the poorest countries, remittances account for about 50% of the income of recipient households. This report looks in more detail at Bangladesh, the Philippines, Senegal, Morocco and Ghana. It concludes that the magnitude of the positive effects depends largely on the policies developed by governments to frame, facilitate and guide these private remittance flows so that they contribute effectively to the achievement of the “Millennium Development Goals”, and more particularly Goal 1: “eradicate extreme poverty” (UNCTAD, 2013).

2  Using only the lowest poverty rate of US$1.25 per day and the highest assumed increase in remittances of 50 percentage points relative to GNP, the poverty level falls from 49.6% to 38.7% in Bangladesh, from 41.6% to 32.4% in India, from 55.01 to 43%in Nepal, and from 22.6% to 17.6% in the Philippines.

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A Wide Range of Situations In a review of more than 50 survey-based research studies on the impact of remittances on household income levels, Adams (2011) concludes that while remittances clearly contribute to poverty reduction in most countries, accurate estimation of this effect is difficult due to complex methodological problems mainly involving reverse causality and selection bias.3 Three remarks are needed to complete the discussion of this issue. First, the positive effects are not confined to the families of the beneficiaries, but spread indirectly to affect the standard of living and the degree of poverty of households without migrants. Through the multiplier effect, demand for locally produced basic necessities rises and this in turn boosts local employment. More generally, in cases where remittances boost economic growth, everyone has an opportunity to improve their standard of living. Secondly, emigration rates are relatively low in developing countries with the highest levels of poverty. In many cases, these flows are directed to neighboring countries with low income levels. As a result, their savings and transfer capacities are limited. On the other hand, flows that circulate through unofficial channels tend to go to the poorest households. According to this hypothesis, there is a risk of underestimating the beneficial effects. It should be added that insofar as remittances have counter-cyclical effects they are of greater benefit to the most vulnerable households which are close to the subsistence minimum. Thirdly, while remittances have undoubtedly lifted a large number of migrant households out of poverty, a more comprehensive evaluation of how they affect entire populations of developing countries is very difficult to formulate. The stated aim of Millennium Development Goal No. 1 was to halve absolute poverty between 1990 and 2015. This is one of the few MDGs that has been achieved, since the rate of absolute poverty in the world (less than US$1.25 per capita) fell from 47% in 1990 to 21% in 2014 (United Nations, 2014). How important, though, were remittances compared to the other initiatives taken during this period to reduce poverty? Did remittances have a determinant or marginal role? Most household surveys and econometric studies not only measure the impact of remittances on poverty, but also examine how they contribute to a reduction of income inequality and how recipient households used these resources.

3  Adams illustrates the reverse causality bias by pointing out that while remittances can help reduce poverty, the level of poverty can in turn influence the amount of remittances sent to households. He explains this by evoking the selection bias which results from the “selectivity” of migrant flows. That is to say that in the case of “positive selection”, households with the most education and income will receive the most remittances; and in the case of “negative selection”, the opposite result will be the case (Adams, 2011: 811).

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Reducing Inequality While there is consensus on the positive contribution of remittances to poverty reduction, the same cannot be said for the reduction of inequalities. The analyses reveal divergences and contrasting interpretations.

Inconclusive Results A first positive argument of a socio-political nature can be noted. It highlights the fact that remittances are the product of individual initiatives. As instances of international aid, they are of an entirely private nature, delivered directly to individuals and households linked to migrants. In this sense they are to be distinguished from flows which pass through bureaucratic channels. Remittances are therefore not included in public aid programs, which are allocated to a broad range of selected beneficiaries. Official assistance-funded development interventions are the subject of much criticism. They are often seen as ineffective because they are vulnerable to corrupt practices, whereas this is not a risk incurred by individual intra-family donations. The huge number of private donors can be sure that their interpersonal transfers, which usually involve very small amounts, will reach their intended recipients in full. As a means of reducing inequality, it would appear from the foregoing that, thanks to their redistributive effect, remittances have been far more successful than the multiple programs implemented by governments (De Haas, 2005). Other studies have arrived at the opposite conclusion by identifying three factors that tend to suggest that remittances are likely to increase income inequality. First, it is mainly the better-off families that benefit from remittances since they are able to mobilize the human and financial capital necessary to successfully send a family member abroad. Migrants from wealthier sections of the population may also have more time to seek out the best opportunities in the labor market of the host country. In addition, with high-income households there is a higher likelihood that migrants will be accompanied by their families. Secondly, it is the more prosperous regions within sending countries that participate most dynamically in international migration.4 For example, in the specific case of the countries of Eastern Europe and the former Soviet Union, the World Bank has noted that, proportionally speaking, it is the better-off households that have benefited most from migrant remittances. Third, it costs a lot more to emigrate to a rich and remote country than to a country in the same geographical area. Low-income households therefore find it more difficult to benefit from the expected high income differential between sending and receiving countries, and this has a regressive impact on the level of inequality among migrant families. 4  With regard to international inequality, it should be noted that the emigration rates of countries with a very low HDI index (human development index) are the lowest of all developing countries.

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In scrutinizing this phenomenon, we should remember that changes in income inequality levels are generally measured by one of the following three indicators: variations in the Gini indicator, changes in the ratio of the first and last quintile of the population relative to their share in national income, and changes in the share of the income of the poorest 40% (or 60%) of the population in national income. Empirical studies also provide highly contrasting results depending on whether they focus on the socio-professional composition of migrant flows, the volume of remittances sent, the degree of social and economic inequality of the population in sending countries, or the nature of the labor market in receiving countries. Their results also depend, to a very large extent, on the methodology used. For example, in Ghana, the Gini index is estimated to have increased by 4% as a result of domestic remittances and by 17% as a result of international remittances (Adams et al., 2008). Inequality is reported to have increased in rural Egypt partly because the top quintiles are overrepresented in migration flows (Adams, 1991). The same would be true in Pakistan, where it has been found that, while domestic remittances reduce inequality, international flows increase income inequality (Adams and Page, 2005). Similarly, Rodriguez (1996) shows that remittances have worsened the unequal distribution of income in the Philippines. After a broad review of the available data, the World Bank’s annual report “Global Economics Prospects” concluded that remittances in fact had only a very limited influence on fluctuations in levels of inequality (World Bank, 2006). At the regional level, the analyses provide nuanced and sometimes highly contrasting insights. A World Bank report on 11 Latin American countries indicates great diversity with regard to the number of beneficiaries, the categories they fall into and the amount of resources transferred. The spectrum between the extreme situations is very wide. For example, in Haiti and Santo Domingo, more than 25% of all households receive remittances, while in Peru and Bolivia the figure is only 3%. With regard to the categories of recipient households, taking only non-­ remittance income into account, on average the lowest quintile received 30% of total remittances while 70% went to the other 4 quintiles. Contrarily, if remittances are included in household income, the lowest quintile received only 10% of remitted funds while the highest quintile received 30% (Acosta et al., 2008). The same study highlights the striking heterogeneity of situations among Latin American countries. In Mexico, for example, the recipients of transfers are mainly households situated in the least wealthy categories, with about 61% of the sums going to the lowest quintile and 4% to the highest quintile. The situation is completely different in most other countries, notably in Peru and Nicaragua, where 6% of remittances go to households in the bottom quintile and 40% to wealthier households in the top quintile. If calculations incorporate remittances into the average income of recipients, these differences are much higher.

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 ew Approaches to Measuring the Effects of Migration N on Income Inequality In order to better understand the impact of remittances on the degree of inequality, two fundamental parameters should be addressed: firstly, the time horizon of the migration-savings transfer process; and secondly, the level of economic development of the recipient countries. According to a convincing hypothesis corroborated by several econometric surveys, the effect of remittances on the degree of income inequality varies according to the phases of the migration cycle. In the first phase of migration, the costs borne by families are high and thus induce a high selectivity of flows. The costs and degree of selectivity decrease in later stages of the process. One study argues that migration aggravates inequalities in the short term, but reduces them in the long term. Stark et  al. (1988) were the first to develop the theory (which has been fleshed out by many subsequent researchers), that the first migrants in a community are always precursors from the most advantaged households and that their remittances therefore increase inequality. It is only later, when, thanks to better information and lower settlement costs facilitated by the presence of community networks, migration becomes feasible for other categories of the population, that remittances start contributing to the reduction of inequalities. Taking a similar line to Stark, research by McKenzie and Rapoport (2007) analyzing the impact of remittances from the United States to Mexican villages, highlights the importance of the time factor. Here, a distinction is made between flows according to whether they come from regions of high or low emigration. In communities characterized by a low level of emigration, it is argued, remittances have the effect of increasing inequalities. But this trend is reversed for communities experiencing high-level and long-term emigration, as this movement expands to embrace other poorer categories of the population. Over time, the selectivity of migratory flows decreases considerably. In addition, after a certain period the first beneficiary households, through their consumption and investment behavior, redistribute part of their additional income to non-migrant households in their community and thus contribute to reducing income inequalities. The economic situation of the countries of emigration also plays a role with regard to the redistributive impact of remittances, as demonstrated by a study involving a group of 46 countries and covering the period 1970 to 2000 (Portes, 2009). This work aims to quantify the relative effect of remittances on income changes for all population deciles in recipient countries and, therefore, to assess whether they decrease or increase income inequality. The general trend that emerges indicates that in the poorest countries, remittances have a positive but decreasing effect on the national income share of the poorest 70% of the population, and a negative effect for the 20% located at the top of the scale. This implies a decrease in inequality. For richer countries, remittances increase the income of the bottom 2 deciles of the scale and therefore also have a positive, though much more moderate, effect on reducing income inequality.

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However, for some researchers, the impact of remittances on inequality should not be considered a priority issue for two reasons. First, in contrast to estimations of the effect of remittances on poverty, the many evaluations with regard to inequality produce highly divergent results, depending on the nature of the situation and the country involved. Second, this impact is relatively marginal. Thus, according to the study by Portes (2009), a 1% increase in remittances would, in an average country from the group, increase the income of the first decile by only 0.04%; and for the category of low-income countries, the effect on the first decile would be 0.4%. Moreover, in most developing countries, many political, economic and social factors are responsible for the persistence and even the exacerbation of strong income inequalities. In the panoply of economic policy measures introduced with the intention of correcting income redistribution and rendering it more egalitarian, remittances are judged to play only a very secondary role.

The Consequences of Remittances on the Situation of Women In all cases where emigration is motivated principally by the objective of sending material assistance to the family, it necessarily affects the economic and social position of women. This happens in two very different contexts. In a first perspective, the question arises as to the positive or negative economic and social repercussions for women who remain in the country of origin and who are responsible for their households. The second perspective examines the living conditions experienced abroad by women who have emigrated in order to send remittances to their families. More generally, does the growing role of women in the “migration-remittances-­ development” nexus bring them greater financial and social autonomy within their communities and families? This issue can also be approached from another angle of analysis. On the one hand, is the amount of remittances sent by migrant women higher or lower than that of men? On the other hand, are the expenses of those women who have remained in their countries of origin, and who benefit from remittances from a family member, significantly different from the expenses of women from non-migrant households? A number of research studies have provided very different answers to these questions.

Non-migrant Women A first observation, widely shared, confirms the positive effects of remittances. Women remaining in their communities benefit from additional income sent by their husbands or children and are thus able to better control the nature of household spending. Their involvement in community organization is stronger and this increases their “empowerment”, a determining factor in economic and social development, as confirmed by all the initiatives taken by the United Nations for the

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further implementation of the “post-Cairo” and “post-Beijing” programs of action. Many field actors in Africa have confirmed that while the money generated by remittances is used mainly to increase the well-being of the family, it also provides women with more opportunities to participate in associative activities and become involved in production and purchasing cooperatives. Several IOM reports (2010) show that behavior in regard to the use of remittances differs according to gender: women devote a larger share of these additional resources to children’s nutrition, education and health. However, control over the use of remittances also depends to a large extent on power relations and the status of women in the sending communities. For example, in some regions, men remit money to brothers or cousins rather than to their wife. Others, such as Charbit (2007), and with particular reference to the special situation in Kerala, point out the many economic benefits obtained by the wives of emigrants. However, there is no unanimity on this issue and several negative aspects have been highlighted. Some researchers point in particular to the unfavorable impact on family cohesion of a husband’s prolonged absence. Other analysts point out that remittances may, in some societies, lead to a reduction in the supply of female labor. Women are reportedly under pressure to withdraw from the labor market, as shown, for example, by a study conducted in Morocco where the decline in female labor supply is estimated to be about 10% (De Haas, 2005). In more recent research, De Haas and Rooij refute the argument that remittances substantially change gender relations in highly patriarchal societies. In some cases, the income effect of remittances can increase pressure on husbands to force their wives to leave jobs outside the home. Of course, unlike the economic impact, the “socio-cultural” ramifications of remittances cannot be quantified, and any changes in norms necessarily occur over the long term (De Haas & Van Rooij, 2010).

Migrant Women For more than a decade, there has been a very strong trend towards the “feminization” of migration flows, mainly from Mexico to the United States and from the Philippines to the Gulf countries and Europe. Currently, at the global level, women account for 50% of migratory flows. More and more women are migrating alone rather than as accompanying persons or in the context of a family reunification procedure. The jobs they occupy are concentrated mainly in the domestic service, health, personal assistance and agriculture sectors, but also in the sex industry. These women who emigrate alone are often the financial mainstay of their families. This movement is particularly marked in certain countries of departure. For example, data obtained on emigration permits issued for employment in South and South-­ East Asia indicate that in Indonesia, the Philippines and Sri Lanka, 70% of such permits are issued to women (UN Secretary General’s Report, 2013). Several case studies indicate that remittances sent by women migrants are on average equivalent to those sent by men, while, generally speaking, their levels of remuneration are

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lower. Proportionally, they send more remittances than men and on a more regular basis (Abrego, 2009). These additional resources are mainly devoted to the health and education of their family members. A few additional remarks are needed to complete this very general picture. First, the emigration of young girls is often seen as a desired escape route from patriarchal constraints. However, it has been observed on many occasions that these young girls, just like non-migrant women, continue to be subject to family controls regarding the use and management of their income, Petit and Charbit have explored the relationship between demographic measures and cultural norms (2012). Building on this research perspective, Petit has studied in detail the main determinants of the demographic and economic characteristics of female heads of households in Senegal (forthcoming). The findings of this study are consistent with those of several other monographs focusing on traditional societies, which note that in many cases non-­ migrant women are reluctant to assume increased maintenance burdens for their families and additional charges linked to the absence of their husbands, and often do so only under some form of duress. An increase in domestic work, for example, does not guarantee an increase in a woman’s bargaining power with regard to household management. The effects are negligible in terms of improving gender relations and, in some cases, migration and remittances only serve to exacerbate problems. Finally, remittances received by families are often seen as a quasi-constant resource which they find themselves unable to forgo. As a result, emigration which may have initially been only temporary becomes permanent and contributes to maintaining situations of dependency. A broader assessment of the effects of female emigration should therefore not underestimate the abuses, violence and violations of human rights to which women are subjected in several countries of immigration.

Consumption or Investment Expenditure: A False Dilemma While identifying which households receive the remittances is an important first step, it is also important to understand how these additional resources are spent. Early research on how decisions regarding the use of remittances impact on the economies of countries of origin was based on assumptions that are now considered far too simplistic. Remittances were rated positive or negative depending on whether they were used for investment or for consumption. Commentators with a pessimistic perspective focused on the tendency of beneficiary households to increase their spending on consumer goods, housing and especially ostentatious luxury goods with a high import component. Resources, it was argued, were not being used to make productive investments (Chami et  al., 2005). This approach is now largely outdated. First of all because these are resources received by private agents, transferred to them by members of their families who have emigrated. The argument rests on the central assumption that both donors and recipients are free to make decisions that optimize the well-being of their families. We are not therefore talking about funds which are intended to augment national exchequers before being

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re-allocated to consumption expenditure and public investment. Secondly, the context for the debate changed when some analyzes showed that, even for low-income households, increased cash-flow allowed for greater spending on capital goods, land and materials in the agricultural sector. Likewise, having more facilities for accessing the credit market made it possible to keep afloat small agricultural or craft businesses which, otherwise, squeezed by usurious interest rates, would inevitably have foundered. If the additional consumption induced by remittances is spent on ostentatious and generally imported luxury goods (cars, hifi equipment, gadgets of all kinds), it tends to generate a counterproductive dependency. On the other hand, if it caters for “basic needs” it certainly improves the well-being of the entire population. Many surveys that have looked at household spending clearly show that remittance recipient households spend a higher proportion of their income on education and housing than other non-migrant households (Adams & Cuecuecha, 2010). The long-­standing opposition between consumption and investment expenditure is largely outdated in the literature. Certainly, providing a population with more education and better health is justified “in its own right” since these are indispensable for the achievement of “development goals”. These are welfare-enhancing consumer expenditures, not investments in material goods. It is essentially the impact of increased human capital on labor productivity that is the central focus of this perspective. In populations subject to a Malthusian regime with a very low standard of living, the potential labor force is largely unproductive and deficient. Spending on food and health improves the quality and skills of the labor force; while spending on education increases skill levels. Such expenditure also helps to stimulate demand for local labor-intensive products and has a positive impact on levels of employment.5 According to a UNDP report on the use of remittances in five Central American countries,6 investment in the “strict sense”, i.e., in the creation or expansion of entrepreneurial activity, accounted for only 1–8% of total remittance expenditure (Orozco, 2006a, b). These very low figures are probably no longer representative of the current situation. They date from the early 2000s, and other emigration regions are showing greater economic dynamism than Central America. Remittances and how they are spent are one of the central themes of development, which explains why many international organizations have promoted a large number of initiatives to stimulate investment expenditure. And it is important to note that other research on the issue has led to less pessimistic conclusions.7 For example, among the main recommendations of a recent UNCTAD report, prominence is given to encouraging migrant families to use these external resources as collateral to facilitate loans to small businesses (Mashayekhi, 2013). The household 5  Multiplier effects at the macroeconomic level are discussed in more detail in Chap. 8, and leverage effects in Chap. 9. 6  Ecuador, El Salvador, Guatemala, Honduras and Mexico. 7  Taking into account the selectivity factor of urban households in Mexico receiving remittances, for example, Woodruff and Zentano (2007) find positive effects among small and medium-sized businesses.

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expenditure surveys presented in the World Bank’s African Migration Project provide interesting information on the deployment of expenditures by migrant households. In each of the five sub-Saharan African countries in these surveys, an in-depth socio-demographic and economic analysis was made of about 2000 households; it provides an overview of the use of remittances which transcends national specificities8 (Plaza et al., 2011). Table 7.1 presents most of the data collated under a few headings. A first observation confirms that, depending on the origin of the remittances (i.e. whether they are external to the continent, internal to Africa or domestic), their deployment is very different. Expenditure on food comes largely from domestic migration (49% in Burkina Faso, 82% in Senegal). Capital expenditure is mainly driven by remittances from OECD countries (21.7% in Nigeria)9 Spending on health and education is spread over a very wide range depending on the recipient country (from a minimum of 3% in Senegal to a maximum of 25% in Uganda). These data refer to countries which do not have a long practice of international emigration. Countries which do have such experience will normally have created efficient governmental mechanisms for the allocation of external resources, as is the case for example in the Philippines and Mexico. The overriding objective of migration projects must also be taken into consideration, as it largely informs decisions about how remittances are spent. Thus, temporary migration is often organized with the specific aim of raising funds for small-scale family investment. This is the case for some urban communities in Mexico and for seasonal migration from Eastern to Western Europe. As a result, temporary migrants tend to have a greater propensity to save and transfer funds for the benefit of their relatives (and also for themselves) than permanent migrants. In this context, the question arises as to whether remittances are likely to generate increasingly large subsequent waves of migration? On this subject, initial indications can appear quite contradictory, as the theory of rural-urban migration had already highlighted (Todaro, 1969). In fact, on the one hand, remittances offer the possibility of increasing educational expenditure and thus raising the level of human capital of the youngest members of these families, thereby increasing their potential for international mobility. On the other hand, the stabilizing effect of remittances has been widely documented in the literature. In many farms which function at the limit of viability, artisanal or agricultural activities remain possible thanks to these external resources. These stabilization and insurance effects can reduce the scale of internal and international rural-urban migration flows. The question remains as to why the positive effects manifest themselves more strongly in some countries and much less so in others. What are the economic and social policies and behaviors that are conducive to beneficial impacts? To answer this question, it is necessary to look at the macroeconomic policies of countries of

 Burkina Faso, Kenya, Nigeria, Senegal, and Uganda.  Investment expenditure includes the purchase of land, the improvement of exploitation techniques, and the purchase of agricultural equipment. 8 9

Dom. 48.7 2.6 9.7 12.5 2.4 24.1 100%

Kenya Ext. 12.8 11.2 0.6 7.3 3.9 55.2 100% Int. 14.5 27.5 22.9 5.8 8.4 21.2 100%

Ext. For outside Africa: transfers from migrants outside Africa Int. For within Africa: transfers from migrants from Africa Dom. For domestic: transfers from migrants in the country a Calculations based on Plaza et al. (2011)

Food Construction Education Health Business-Investment Others Total

Burkina Faso Ext. Int. 23.5 34.9 25.7 10.1 12.4 5.9 11.3 10.1 10.4 2.6 16.7 36.4 100% 100% Dom. 29.7 1.3 20.5 7.0 13.0 28.5 100%

Nigéria Ext. Int. 10.1 21.1 5.8 0.0 22.1 19.6 5.1 12.0 21.1 20.2 35.2 28.2 100% 100%

Table 7.1  Allocation of remittances-financed expenditurea (percent of total remittances) Dom. 1.0 0.1 4.5 10.6 11.1 72.7 100%

Sénégal Ext. 52.6 7.0 3.6 10.7 1.3 24.8 100% Int. 72.6 0.7 2.3 7.3 5.7 11.4 100%

Dom. 81.9 0.0 4.6 2.9 0.2 10.4 100%

Ouganda Ext. Int. 52.6 72.6 2.3 1.6 3.6 2.3 10.7 7.3 1.3 5.7 29.5 10.5 100% 100%

Dom. 12.4 0.4 20.2 24.8 2.1 40.1 100%

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emigration, whether or not they have an explicit migration policy, what their attitude is towards investments made by their diaspora, what kinds of local initiatives are present on the ground, and how strong is their culture and practice of entrepreneurship.

The Effects of Remittances on Education and Health Remittances play a direct and positive role in increasing and improving the human capital of migrant households, which in turn indirectly spills over to the rest of the population. Household consumption surveys in developing countries have shown that levels of health expenditure, without exception, fluctuate according to the levels of external resources provided by migrants. This is also true, in general, for expenditure on education, though there are significant differences.

Expenditure on Education The General Trend Initial studies have highlighted the decisive influence of remittances on the level of schooling and the school performance of the children of migrants who remain in the home country. Numerous surveys in Latin America show that the children of those receiving remittances are characterized by higher, longer schooling and lower dropout rates compared to households without migrants. Thus, the results of a survey in El Salvador, largely confirmed by research conducted in other countries in the region, indicate an increase in years of schooling and a decrease of more than 50% in the proportion of dropouts during the school cycle (Cox-Edwards & Ureta, 2003). According to this survey, in urban areas the impact of remittances is 10 times greater than other sources of income when it comes to reducing the possibility of dropout. In rural areas, on the other hand, the impact of remittances is only 2.6 times higher than other sources of income. In Guatemala, recipient households spend twice as much on education as they would have done without remittances (Adams & Cuecuecha, 2010). In Mexico, illiteracy decreases by 3% for a 1% increase in remittances in the under-14 age group (Lopez-Cordova, 2006). Moreover, several surveys show that the average level of educational attainment is higher in households with international migrants because they spend proportionally more on education than other households. All these positive effects are confirmed, a contrario, by analyses of the impact of the 2008 economic crisis, which led to a 20% decline in remittances from Mexican migrants. These surveys indicate that in 2009, in households receiving international remittances, for the 12–16 age group the probability of child labor increased by 9.8% and, conversely, the probability of school attendance decreased by 15.6%

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(Alcaraz & Chiquiar, 2012).10 Other surveys on household expenditure confirm similar trends in Africa and Asia. In South Africa, among the black population, remittances are one of the main factors in increasing the probability of school attendance in migrant households, reducing child labor and also reducing gender inequalities within families (Lu & Treiman, 2007). Likewise in Ghana, where remittances reduce the probability of child labor by 6% (Joseph & Plaza, 2010). Based on the data on the allocation of remittances presented in Table  7.1, other surveys have found that in Nigeria, Senegal and Uganda, on average twice as many children completed secondary education among households that received international remittances compared to those that did not. For tertiary education, the proportion was even higher (Mohapatra & Ratha, 2011). However, as in many other surveys, these data do not sufficiently isolate the endogeneity between education, migration and remittances. A similar phenomenon can be observed in Asia with respect to the likely effects of education levels. For the Philippines, the most frequently cited country, surveys have shown that a 10% increase in remittances leads to a 10.5% increase in schooling among young people aged 17–21 years and a substantial decrease in working hours for the youngest (Martinez & Yang, 2007). Similar trends are found in Nepal, Pakistan and Sri Lanka. Many case studies also show that when these resources are sent by migrant women the positive effects are much more pronounced, supporting the hypothesis that women migrate very often with the main intention of financing their children’s education. Divergent Results There are also several studies which arrive at opposing conclusions to those presented above. These studies have highlighted situations where remittances have had negative effects on the level of education within recipient households. Two phenomena of a different nature are involved here: the first is the disruptive effects of migration itself; and the second is the negative impact of remittances on school attendance. Firstly, we can distinguish situations where emigration increases the risk of family dislocation. The absence of one or both parents can affect family cohesion and lead to negative consequences for children’s school performance. A huge longitudinal survey conducted in Thailand highlights the effects of parental absence on the school attendance and performance of children remaining in the country. In cases of paternal absence, the negative effects are real but minimal; when the mother is absent the negative impact is much greater (Jampaklay, 2006). Secondly, remittances themselves can, in some contexts, become a factor in reducing the propensity to attend school. For example, in Mexico, Lopez-Cordova (2006) calculated the positive effects of remittances on the school attendance of children aged 6–14 and  However, some work has produced much less favorable results. Remittances are reported to be positively associated with better school performance in only 6 out of 11 Latin American countries (Acosta et al., 2008).

10

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found that this trend is reversed for 15–17-year-olds. This phenomenon is analyzed in detail by McKenzie and Rapoport, who show that, in contrast to favorable effects such as the reduction of the liquidity constraint of poor households, which facilitates investment in education, two other factors – parental absence and the greater propensity of young people to migrate earlier - can have negative effects on school attendance. There are two reasons for this phenomenon. First, the absence of one or both parents may force young children or adolescents to spend more time managing the family property. Secondly, in these households, which are strongly influenced by a culture of migration, adolescents are also encouraged at a very early age to start preparing for their own emigration. For example, in some regions of Mexico, for young boys aged 16–18, participation in schooling networks is reported to be 22% lower than in households without migrants. The decline is less pronounced for girls, for whom the difference is less than 15%. This can be explained by the fact that Mexican migrants (many of whom are illegal immigrants) to the United States are mainly hired for unskilled jobs, and this has a disincentive effect on investment in education. In this particular context, the marginal return on an additional year of education can fall to almost zero for those who wish to find a job in the United States compared to those who stay at home (McKenzie & Rapoport 2011). However, most of this work does not satisfactorily address the problem of endogeneity, as Özden and Schiff (2006) have aptly pointed out. How to determine the direction of the causal relationship between education spending and resource transfers (Özden & Schiff, 2006). Do remittances cause increased education expenditures among recipient households, or do the latter invest in education to facilitate subsequent labor market access for migrants in receiving countries? This question illustrates the complexity of the relationship between international migration and education. Here we consider only the direct effect of remittances on the level of education in sending countries. It is also necessary to take into account the “losses” of human capital caused by the departure of highly skilled migrants. Also not to be overlooked are the incentives to invest more in education, which are strengthened by the prospect of international migration to high-income countries.

Health Care Expenditures While the impact of remittances on the level of education in the sending countries has often been the subject of conflicting assessments, the same cannot be said of the positive effects on health, on which there is a very broad consensus. These effects materialize first through household expenditure behavior, both directly and indirectly, and secondly through changes in the health environment in the countries of emigration. Indirectly, the increase in expenditure on food, housing and education helps to improve the level of health within migrant households. The effects which increased spending on education has on the health status of the population are well documented. Better education increases awareness of risk behaviors, promotes

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participation in preventive health programs and ensures better management of disease treatment. In addition, the inverse relationship between education level and fertility decline, verified in all countries, is a very important aspect of morbidity reduction since birth spacing reduces the prevalence of maternal and infant mortality. The relationship between reduced illiteracy and a fall in morbidity and mortality, as well as the relationship between remittances and lower child mortality, has been verified by a large number of surveys in the majority of emigration countries. Increased income thanks to remittances gives households the direct opportunity to increase the budget for welfare expenditures, especially for preventive and curative health.11 For example, in Mexico a 1% increase in remittances translates into a 1.2% decrease in the proportion of deaths of children under the age of 1  year (Lopez-­Cordova, 2006). Remittances enable mothers to spend longer in their homes caring for their babies. Hildebrandt and McKenzie’s (2005) survey arrives at similar results for rural Mexico. Children born in households receiving remittances have a 3% lower probability than others of dying during their first year; they also have a higher average birth weight. Other household surveys in Africa, Asia and Latin America provide similar results. Based on a group of 109 countries, a study by Chauvet, Gubert and Mesplé-­ Somps (2009a, b) on the impact of foreign aid and remittances on children’s health, develops a more global perspective. This analysis measures health progress through variations in infant and child mortality rates between and within countries. With respect to the impact of remittances, the positive effects on health are well established, but the analysis proposes that these results should be situated in the context of the overall impact of international migration. Thus, if the emigration of doctors from developing countries is taken into account, the positive effects are very much mitigated. This finding is in line with the results of numerous studies on the consequences of the “brain drain”. By limiting itself to a sample of 47 countries, this study also shows that it is children from households in the upper quintiles that profit most from the positive effects on health. Thus, according to this research, if remittances do reduce child mortality in the majority of countries, they also contribute to increasing health inequalities within these countries. It is also important to distinguish the roles of private agents from those of the public sector in the management of health needs. At an institutional level, in countries where the health system does not have the capacity to ensure universal insurance coverage and adequate health care, mobilizing remittances can play an important role in establishing and improving local and community-based public health services. Health is one of the priorities of international aid programs, and it involves many development partners in addition to the WHO.  More and more resources are needed to finance projects in primary health care and the control of communicable and non-communicable diseases. Motivated by altruism, emigrant

11  It should be noted, however, that for the five African countries analyzed in Table 7.1 health is never cited as the number one priority for household expenditure financed by remittances.

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networks and diaspora institutions generously support the implementation of these projects in their countries of origin. Improved education and health raise the level of well-being of remittance-­ receiving households and also the quality of human capital. There is general agreement that, while they are not in themselves the key to success, remittances have a role to play as one of the set of practices promoted to achieve the Millennium Development Goals and the Goals for Sustainable Development which succeeded the MDGs in 2015: the eradication of extreme poverty, reduction of child mortality, provision of universal primary education, promotion of women’s empowerment and, by means of these achievements, a reduction of the total number of people living below the poverty line. After adjustment for risks of reverse causality in a sample of 71 developing countries, Adams’ initial research showed that a 10% increase in remittances flowing through official channels led to a 3.5% decrease in the proportion of people living below the poverty line. An IMF (2006) study with a sample of 101 countries found similar results.

References Abrego, L. (2009). Economic well-being in Salvadoran transnational families: How gender affects remittances practices. Journal of Marriage and Family, 71, 1070–1085. Acosta, P., Fajnzylber, P., et Humberto Lopez, J. (2008). How important are remittances in Latin America? In P. Acosta, P. Fajnzylber, et J. Humberto Lopez (Eds.), Remittances and development: Lessons from Latin America (pp. 21–49). World Bank. Adams, R. (1991). The effects of international remittances on poverty, inequality and development in rural Egypt (International Food Policy Research Institute (IFPRI), Research Report 86). Adams, R. (2006a). Remittances, poverty and investment in Guatemala. In C. Özden & M. Schiff (Eds.), International migration, Remittances and the brain drain (pp.  53–80). World Bank/ Palgrave Mac Millan. Adams, R. (2006b). Remittances and Poverty in Ghana (Development Research Group (DECRG), MSN MC3 303, World Bank, WPS3838). Adams, R. (2011). Evaluating the economic impact of international remittances on developing countries using household surveys: A literature review. Journal of Development Studies, 47(6), 809–828. Adams, R., & Cuecuecha. (2010). Remittances household expenditure and investment in Guatemala. World Development, 33(11), 1626–1641. Adams, R., et Page, J. (2005). Do international migration and remittances reduce poverty in developing countries? World Development, 33, 1645–1669. Adams, R., Cuecuecha, A., et Page, J. (2008). The impact of remittances on poverty and inequality in Ghana (World Bank, Policy Research Working Paper, n°4732). Alcaraz, C., et Chiquiar, D. (2012). Remittances, schooling and child labor in Mexico. Journal of Development Economics, 97(1), 156–165. Anyanwu, J., et Erhijakpor, A. (2010). Do international remittances affect poverty in Africa? African Development Review, 22(1), 51–91. Chami, R., Fullenkamp, C., et Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? International Monetary Fund, Staff Papers, 52(1). Charbit, Y. (2007). Transferts, retours et développement. Données, concepts et problématiques. In V. Petit (Ed.), Les migrations internationales de retour dans la perspective des pays du Sud (pp. 44–75). CEPED.

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Chauvet, L., Gubert, F., & Mesplé-Somps, S. (2009a). Les transferts des migrants sont-ils plus efficaces que l’aide pour améliorer la santé des enfants? Une évaluation économétrique sur des données inter et intra-pays. Revue d’économie du développement, 17, 41–80. Chauvet, L., Gubert, F., et Meslé-Somps, S. (2009b). Les transferts des migrants sont-ils plus efficaces que l’aide pour améliorer la santé des enfants? Une évaluation économétrique sur des données inter- et intra-pays. Revue d’économie du développement, 23(4), 41–80. Cox-Edwards, A., et Ureta, M. (2003). International migration remittances and schooling: Evidence from El Salvador. Journal of Development Economics, 72(2), 429–461. De Haas, H. (2005). International migration, remittances and development: Myths and facts. Third World Quarterly, 26(8), 1269–1284. De Haas, H., et Van Rooij, A. (2010). Migration as emancipation? The impact of internal and international migration on the position of women left behind in rural Marocco. Oxford Development Studies, 38(1), 43–62. Fajnzylber, P., et Humberto Lopez, J. (2007). Close to home. The development impact of remittances in Latin America. The World Bank. Gupta, S., Patillo, C., et Wagh, S. (2007). Impact of remittances on poverty and financial development in sub-Shaharian Africa (IMF Working Paper, WP/07/38). Gustafsson, B., et Makonnen, N. (1993). Poverty remittances in Lesotho. Journal of African Economics, 2(1), 49–73. Hildebrandt N., et McKenzie D. (2005). The effects of migration on child health in Mexico. Economia, 61(1), 257–289. Imaî, K., Gaiha, R., Ali, A., et Kaicker, N. (2014). Remittances, growth and poverty: New evidence from Asian countries. Journal of Policy Modelling, 36(3), 524–538. Jampaklay, A. (2006). Parental absence and children’s school enrolment. Asian Population Studies, 2(1), 93–110. Joseph, G., et Plaza, S. (2010). Impact of remittances on child labor in Ghana (Draft Paper). The World Bank. Lopez-Cordova, J.  E. (2006). Globalization, migration and development: The role of Mexican migrant remittances. Economia, 6(1), 217–256. Lu, Y., et Treiman, D. (2007). The effect of labor migration and remittances on children’s education among blacks in South Africa. California Center for Population Research, University of California. https://escholarship.org/uc/item/4s38n8qh Martinez, C., et Yang, D. (2007). Remittances and poverty in migrants home areas: Evidence from the Philippines. Departemento de Economia de la Universidad de Chili, SDT n°257. Mashayekhi, M. (2013). Maximizing the development impact of remittances. UNCTAD. McKenzie, D., & Rapoport, H. (2007). Network effects and the dynamics of migration and inequality: Theory and evidence from Mexico. Journal of Development Economics, 84(1), 1–24. McKenzie, D., & Rapoport, H. (2011). Can migration reduce educational attainment? Evidence from Mexico. Journal of Population Economics, 24(4), 1331–1358. Mohapatra, S., et Ratha, D. (Eds.). (2011). Migration, remittances in Africa. An Overview. World Bank, Remittances Markets in Africa, DID Finance. Orozco, M. (2006a). International finance flows and workers remittances. Best practices. UNDP. www.thedialogue.org/publicationsfiles Orozco, M. (2006b). Migration, money and markets: The new realities for Central America. In D.  Terry, et S.  Wilson (Eds.), Beyond small change: Making migrant remittances work for development (pp. 193–218). Inter-American Development Bank. Özden, C., et Schiff, M. (Eds.). (2006). International migration, remittances and the brain drain. World Bank et Palgrave Macmillan. Plaza, S., Navarrete, M., et Ratha, D. (2011). Migration and remittances household surveys in Sub-­ Saharan Africa: Methodological aspects and main findings. World Bank, African Migration Project Migration and Remittances Unit of the Development Economics, 31 Mar 2011, 35p. Portes, L. (2009). Remittances, poverty and inequality. Journal of Economic Development, 34(1), 127–140.

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Rodriguez, E. (1996). International migrants’ remittances in Phillippines. Canadian Journal of Economics 9. http:// doi. ORG:10.2307/136082 Stark, O., Taylor, J., et Yitshaki, S. (1988). Migration, remittances and inequality. Journal of Development Economics, 28, 309–322. Taylor, J., Mora, J., et Adams, R. (2005). Remittances, inequality and poverty: Evidence from rural Mexico. In World Bank (Ed.), Research program on international migration and development (pp. 103–130). Todaro, M. (1969). A model of labor migration and urban unemployment in less developed countries. American Economic Review, 59(1), 138–148. United Nations. (2013). New trends in migration demographic aspects (Report of the Secretary-­ General, U.N. Economic and Social Council, Commission on Population and Development, E/ CN39/2013/3). United Nations. (2014). Framework of actions for the follow-up to the program of action of the international conference on population and development beyond 2014 (Report of the Secretary-­ General, A/69/62). United Nations Conference on Trade and Development. (2011). Impact of remittances in poverty in developing countries (UN Geneva, UNCTAD/DITC/TNCD/2010/8). United Nations Conference on Trade and Development. (2013). Maximizing the development impact of remittances (UN Geneva, UNCTAD/DITC/TNCD/2011/8). Woodruff, C., et Zentano, R. (2007). Migration networks and micro-enterprises in Mexico. Journal of Development Economics, 82(2), 509–528. World Bank. (2006). Global economic prospects. Economic implications of remittances and migration, World Bank’ Washington 2006.

Chapter 8

The Impact of Remittances on the Economy of the Countries of Emigration

At the macroeconomic level, the favorable impact of remittances on the rate of economic growth is not confirmed by the majority of theoretical and empirical studies. Initially, positive effects were found to be concentrated in specific sectors of activity such as construction, retail trade and infrastructure. With regard to the major macroeconomic aggregates, the research highlighted changes that lead to effective improvements in the following areas: production factor endowment, increased foreign exchange reserves and an improved balance of payments, a stabilizing effect on economic conditions and also, to a lesser extent, a very slight downward trend in interest rates.1 However, it is very difficult to determine to what extent and in which direction the distribution of income is affected by remittances. Taking a different approach, on the other hand, many recent analyzes have highlighted certain negative effects generated by remittances, particularly with regard to labor supply and the competitiveness of recipient countries.

 irst Traditional Approach to the Impact of Immigration F and Remittances on Countries of Origin According to traditional analyzes, emigration causes a loss of wellbeing for the country of departure, which may be redressed later by the inflow of remittances. Before examining these arguments and comparing them with the more recent perspectives which tend to conclude that emigration generates both positive and negative effects for the country of origin, we will first present a synopsis of the classical model. 1  The inflow of liquidity from abroad makes it possible for more households to access the credit market, but it is unlikely to have a substantial effect on the general level of interest rates.

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_8

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The Simple Model The emigration of a section of the labor force obviously leads to an increase in the labor supply in the host country and a decrease in the sending country. The result is an increase in the average wages of the remaining workers in the sending country and a decrease in production and national income. It also produces an increase in total income in the host country and, of course, in the income of migrants.2 There are two phases in this adjustment process. In the first phase, as illustrated in Fig. 8.1, the shift in labor supply from OQ to O1Q1 leads to an increase in the general level of wages from LE to LD for the workers who have not emigrated (d + h) and a decrease in total output from LXAQ0 to LXCQ1. Other production factors lose areas h and g. The increase in wages in the sending country (from level A, which represents the marginal productivity value of labor and labor supply OQ, to level C for the new supply O1Q1) depends essentially on the elasticity of labor demand. If it is the least productive workers or those who are underemployed who migrate first, the effect on wages will be small and the loss of output will be negligible. If, on the other hand, it is the more skilled and more highly qualified workers, Income Z

Q1

Q0

X Y G C

D M

F E

0

g

A

Q1

Q0

B

PmVT1 PmVT0

PmVT2

Total labor

Fig. 8.1  Losses incurred by developing countries through the emigration of part of their labour force

2  The economic consequences in immigration countries will not be discussed here, though we would point out that there is obviously no symmetry between the two movements and that there is therefore no equalization between the levels of possible losses and gains between countries of departure and countries of arrival.

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the effect will be greater. This will also depend largely on the impact of their departure on other factors of production. As for the reduction in wellbeing represented by the area g (the CBA triangle), this is the surplus, or the “deadweight loss”. Before emigration, all Q0Q1 migrant workers, like the rest of the labor force, were paid according to their marginal productivity value, OE.  As a result, their departure causes a loss of wellbeing for the remaining population in the host country. Disagreement over the actual scale of this loss was at the root of early theoretical controversies in migration economics research and in attempts to evaluate the consequences of the emigration of a section of the labor force. They brought into conflict researchers from the “individualist” school, who emphasized the personal choice of migrants in search of profit maximization, and those of the “developmentist” school, who warned of the risks of human resource shortages in developing countries. Johnson (1968) was the economist most representative of the “cosmopolitans”, who concentrated exclusively on “global wellbeing”. Patinkin (1968), on the other hand, was the most emblematic spokesman for the “nationalists”, who cautioned against the loss of scarce human capital resources in developing countries. One of the questions that arose at the outset was how to define the entities or groups of individuals who would be advantaged or disadvantaged.3 The “individualist” argument was synthesized by Grubel and Scott (1966: 270) who argued that “in a market economy where people are paid according to their marginal productivity, the emigrant, in leaving, simultaneously removes his own contribution to national production and the income he received; his equivalent portion, as it were, of this production. The totality of remaining income remains unchanged”. This individualistic and marginalist reasoning is based on the assumption that migration flows are very low. It is a static analysis that assumes that these infinitesimal losses along a perfectly homogeneous labor demand curve do not affect the efficiency of other factors of production, since substitution between them would be seamless and immediate. This analysis therefore ignores the short-term adjustment costs of the production apparatus, the training and education costs of migrants borne by the countries of departure, the positive effects of monetary and technological externalities, the selectivity of migratory flows, the balance of public finances and the economic consequences of the loss of skills and highly qualified personnel, which are fundamental to initiating and guaranteeing the sustainable development of developing countries (Feld, 1982). According to Grubel, Scott and Johnson, if negative effects were to occur, they would be largely offset by technological spillovers, the increase in scientific knowledge available to all countries and also by remittances. A second effect arising from the persistence of a large migration flow is also illustrated in Fig.  8.1. In addition to the reduction in domestic production and changes in the distribution of income among factors of production, emigration causes a second contraction in total output through the reduction in aggregate demand. With a reduced labor force, total consumption falls in the country of

3  For a detailed presentation of the arguments developed in the various theses at the origin of these controversies, see Feld (1982).

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emigration. Although migrants and the remaining labor force will have obtained an increase in their income which boosts their demand for consumer goods compared to pre-migration levels, this demand will be distributed differently in terms of goods produced in the sending country, in the receiving country and in the rest of the world. It is likely that this additional consumption will be proportionally less oriented towards goods produced in the countries of departure. As a result, in the country of departure, labor demand will decrease from PMVT0 to PMVT1, with a further decrease in total production equivalent to the DFCM area. This area is represented by LYMQ1. The general level of wages, while not falling back to LE, nevertheless decreases from LD to OF.4

Migrants Send Part of Their Savings After these developments, we move on to a second phase where we assume that migrants send part of their income to the country of origin rather than consuming or saving it in the host country. This additional resource for migrant households leads to increased consumption of local goods and, to some extent, higher demand for labor. Thus, although migration has caused a decrease in the volume of labor, the flow of remittances could restore it to the same level or push it even higher. Figure 8.2 Income

Q1

Q0

X Y

K

C

D

h

F E

M

g

A

Q1

Q0

B j

L

PMVT0 PMVT1

Total labor

Fig. 8.2  Emigrants send part of their savings to the country of origin 4  This result is based on the realistic assumption that the decrease in aggregate demand XY will be less than the initial increase in ED wages.

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illustrates this situation. The line representing MPP (marginal productivity in labor value) normally shifts to the right, and it can be reasonably assumed that MPP2 will be above MPP0. However, the question is how large this shift in labor demand will be: does it partially or fully compensate for the loss of migrant production or, more importantly, does it induce economic growth in the country of emigration? First of all, there is a rise in the level of wages from LF to LG. This increase depends both on the size of migration flows in relation to the total labor force and on the level of remittances. As the differential in marginal labor productivity – and thus in average income between countries of origin and destination – is very high, the share devoted to remittances most likely exceeds the wages received by migrants before their departure. However, a more adequate assessment would require a comparison between remittances and the level of migrants’ pre-departure savings, rather than with their wages. This would allow for a more accurate assessment of the effect of remittances on the wellbeing of the remaining population. Assuming that total remittances are greater than area g in Fig. 8.2, the income of non-migrant workers will increase. The result of the emigration of part of the labor force is indeed a “welfare gain at the world level” with, of course, diverse national situations and with different categories of workers winning and losing. This raises the question of identifying and compensating the losers. Is the volume of remittances sufficient to compensate for the loss of production in the countries of emigration and, if so, is this the most relevant means of guaranteeing this compensation? It has been pointed out that this analysis suffers from too many reductive assumptions. For example, it implies homogeneity in the flows of migrants, even though they are made up of various categories of workers ranging from the least qualified to the highly qualified. The latter generally migrate after having accumulated physical or human capital above the national average. The K/L ratio is likely to deteriorate under this assumption. Do remittances compensate for the decline in capital per capita? This approach, which limits itself to a form of auditing, neglects many aspects of the question, and leaves us undecided as to the real economic impact of migration on the various entities concerned. The first analyzes of the phenomenon using comparative statics, although now outdated, nevertheless had the merit of clearly presenting the general framework of a phenomenon that was initially expressed only in polemical terms. But to go beyond this analysis, it is necessary to place the examination of migratory movements within a frame of reference which integrates the recent contributions of demography, labor economics and development economics.

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The Effects of Emigration on Economic Growth Can Remittances Generate Negative Economic Effects? Contrary to the view that had long prevailed in the literature exploring the links between migration and development, several studies initiated by the IMF have concluded that remittances negatively influence economic growth. Among the earliest, a study conducted by Chami et al. (2005), covering 113 countries over a period of 29  years (1970–1998), surprisingly found a strong negative correlation between remittances and GNP growth rates. According to this research, remittances, by their very nature, do not lend themselves to productive activities since profit maximization is not their chief motivation. Comparison with foreign investment would reveal that their essential function is to offset poor economic performance, and that they hardly represent a source of capital that can be mobilized for economic development projects. In a later study, the same authors also confirmed the negative relationship between remittances and long-term growth by incorporating other explanatory variables analyzed over a longer period (Barajas et  al., 2009). They pointed out that the recipients do not belong to the category of entrepreneurs and that these external resources do not contribute to the accumulation of capital, nor do they increase the quantity and quality of labor supply, nor even improve the general productivity of all other factors. They noted, curiously, that they could not cite a single “success story” from an emigration country where remittances, even when they reached 10% of GNP, had made a significant contribution to economic growth. In the same vein, Spatafora (2005), following other studies in an IMF evaluation, comes to very similar conclusions. The regressions for 101 countries for the period 1970–2003 show that there is no statistically significant relationship between per capita growth and the remittances/GNP ratio. The models used show that there is no positive relationship between remittances to GNP ratios on the one hand and education /GNP and investment/GNP ratios on the other. A large number of subsequent studies do not provide a definitive answer: some confirm the negative relationship between remittances and growth rates; others conclude that there is no significant relationship.

An Overestimation of the Role of Remittances All these negative remarks initially dampened the enthusiasm shown by many development policy actors who had overestimated the impact of remittances when developing their strategies. However, these critical findings also need to be qualified. Other econometric analyses have reached much more positive conclusions. This point was made by Faini (2007a, b) who, in an analysis covering 89 countries over the period 1980–2004, found that a 1% increase in the remittances-to-GNP ratio increased the GNP growth rate by 0.08%. However, this positive impact on

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growth, he argued, was largely dependent on the presence of several incentives for investment and the absence of political uncertainties. More recent research taking into account a larger number of variables leads to more positive conclusions. For example, Ziesemer (2012), concluding an analysis of a panel of countries whose per capita GNP is less than US$1200, identifies several positive indirect effects of emigration and remittances on levels of savings, public expenditure, education, investment and literacy rates. Econometric analyses of this kind, covering a very wide variety of countries over relatively long periods of time cannot avoid difficulties of interpretation due to the endogeneity of the variables and the inverse causal relationships between remittances and economic growth, or between remittances and the level of education or poverty. More recent research has clearly established that the effectiveness of remittances depends critically on the efficiency with which infrastructure and institutions channel them effectively to growth-enhancing uses. The hypothesis that the analyzes are outdated also merits consideration. Any survey which covers an extended time period may find that, due to shifts in trends and conditions, its initial framework is no longer relevant. Thus, the group of beneficiary countries embraces a broad heterogeneity of situations, all of which have evolved over time: the reliability and scope of the data have improved, the amounts transferred are much higher, and governments and international agencies are now more aware of the potential impact of these transfers and are trying to establish more effective procedures.

Addressing Credit Market Imperfections With respect to this discrepancy between microeconomic analyzes, which highlight the positive aspects, and the much more reserved macroeconomic analyzes, the approach proposed by the theory of the New Economics of Labor Migration (NELM) opens up some interesting avenues. Indeed, it is indisputable that the improvement in the standard of living of beneficiary households positively influences the quality and therefore the productivity of the entire labor force. According to the NELM theory, however, the positive effects of remittances on growth manifest themselves first by correcting market imperfections and then by stimulating consumer expenditure. In loosening their budgetary constraints, remittances should actually provide households with more opportunities to increase their capacity to undertake, invest or simply sustain their economic activities. Improved access to bank credit for beneficiary households, whether they are small-scale self-employed or in the farming sector, means that they no longer have to resort to more expensive intermediaries and lenders. In many developing countries, the failures of the financial system and the frequent absence of banking networks exclude the poorest sections of the population. The possibility of reducing the liquidity constraint also provides access to the services offered by the financial system. The result is a significant increase in the proportion of the population holding bank accounts, a phenomenon observable

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especially in Latin America and Africa (Mohapatra & Ratha, 2011). A long-term study of about 100 countries (1975–2002) concluded that remittances support economic growth especially in countries with less developed financial systems, since they provide alternative investment channels which compensate for the inefficiency or even the lack of a credit market (Giuliano & Ruiz-Arranz, 2009). In addition, remittances have a long-term insurance function which can facilitate new initiatives insofar as they reduce a household’s exposure to risk. This is the case especially amongst those households which are closest to subsistence level (Stark & Katz, 1986). However, other research points to some adverse consequences connected to a certain propensity of beneficiary households, through a lack of experience and know-how, to engage indiscriminately in investments that are far too risky or unproductive (Gapen et al., 2008).

Impact of Employment, Consumption and Other Factors With regard to consumer expenditure, many case studies have stressed that household spending by migrants is also an important growth factor in sending countries. Rather than being limited to remittance-receiving households, these studies suggest that expenditures have an impact on the consumption level of the entire population and, as a result, increase the average income of all members of urban or rural communities (Taylor, 2005). The NELM theory, which has also provided very relevant analyses, relies here on a well-known mechanism, namely the Keynesian multiplier of income and employment, which it applies to a specific situation. These analyses show that the positive externalities of these additional resources, thanks to the high marginal propensity of the beneficiaries to consume, will spread to the rest of the economy. It is the central role of the multiplier which currently underpins many of the programs initiated by the World Bank and which is encouraged by most international institutions relying on the “leverage effect” derived from the expenditure generated by the first beneficiaries (Ratha, 2007).5 It has been pointed out that labor emigration generally implies a loss of production for the country of origin, but also losses of technological externalities resulting from the departure of part of the labor force together with the technical and scientific skills essential for economic development. Can the inflow of external resources provided by remittances compensate for these losses? There are also other positive spillovers for countries of origin which, while not strictly equivalent to remittances, share their modus operandi. Firstly, will the return of migrants who have acquired new skills actually benefit the society of origin? And secondly, will the establishment of channels for the transfer of technological knowledge take place in an

5  The “High Level Dialogue on Migration and Development” and the “Global Forum on Migration and Development”, organizations linked to the UN, are the most influential ideological and political actors in this connection.

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efficient manner?6 The quantitative assessment of these effects is obviously much more difficult to establish. Moreover, to the extent that remittances do indeed fulfill a compensatory function, some researchers argue that they may weaken the political will to undertake necessary reforms. Indeed, if it is possible to anticipate compensatory remittances that would exogenously and permanently guarantee resources to alleviate household economic hardship, governments might be tempted to remain inactive. This is one of the particular manifestations of the often-noted links between remittances and emigration, where the latter can become a dependency or even an addiction. It can also be seen as one of the modalities of the moral hazard discussed below; although the same argument can be made in relation to foreign official aid. Several studies have pointed out that the permanent nature of the inflow of resources from abroad provides a strong incentive for households to progressively increase their propensity for consumption expenditure at the expense of other, more productive allocations. In conclusion, while the volume of remittances has exploded in recent years, conflicting assessments of their impact on the rate of GNP growth raise questions about the feasibility of measuring this influence with any degree of precision. This issue is addressed by two researchers who point out in “Why Don’t Remittances Appear to Affect Growth” the methodological limitations of most of these analyzes (Clemens & McKenzie, 2014). They formulate three types of criticisms. First, there is an overestimation of the growth in remittances (79% of the growth in remittances between 1990 and 2010 is believed to be the result of measurement errors). Second, cross-sectional regressions based on national groups do not make it possible to grasp, over time, the impact of changes in the volume and nature of remittances on the GNP/capita growth rate of countries with highly dissimilar economic and social structures. Finally, changes in remittance volumes in each country should be compared with changes in the number of migrants. The volume of remittances is largely the result of increased migration flows, which leads to a decrease in the labor supply in emigration countries. This again raises the question of the possibility of assessing the extent to which external resources compensate for production losses caused by the decline in the volume of domestic labor. According to Clemens and McKenzie, these criticisms render illusory any attempt to attribute, even partially, the evolution of the growth rate of GNP per capita to an increase in remittances.

Remittances, Exports and the External Balance Remittances help improve the balance of payments of the countries of origin. However, if the beneficiaries of remittances have a very high propensity to consume imported goods, the result could be a worsening of the external account imbalance. Changes in the volume and composition of import flows depend largely on

 These effects will be discussed at greater length in the section devoted to the “brain drain”.

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household behavior. Since a majority of these households belong to the lower income groups, it can be assumed that they will devote most of the increase in their resources to the purchase of locally produced basic goods. Of course, there is still uncertainty about the exact scale of these transfers since a high proportion of them pass through informal channels, making them invisible to official recording mechanisms. Important differences between countries with regard to the breadth and quality of data collection also need to be taken into account.

Remittances and Exports In order to make a just comparison between the resources provided by remittances and those resulting from exports, it is necessary to take into account diverse factors ranging from the economic and demographic weight of the countries of origin, the duration and size of migratory flows in relation to the total population, the integration of the economy within international trade, the level of development, the structure of the production system, but also the characteristics of migration policy. Three very specific situations can be distinguished. First, the 10 countries that receive the highest amounts of remittances in absolute terms are considered in parallel. Secondly, the 10 countries are classified according to the ratio of remittances to GNP per capita. Then, in the third section, the specific situations of the poorest developing countries are examined. Table 8.1 presents the top 10 remittance-receiving countries in absolute terms for the year 2016 and as a percentage of their export volume. This list has changed little over the past five years, except for the exclusion of Ukraine and the inclusion of Indonesia. Nevertheless, the absolute figures and proportions have undergone substantial changes, partly as a result of the stagnation of international trade, but also Table 8.1  Top 10 remittance-receiving countries - absolute figures - level of exports - remittances as a percentage of exports (us$ billion) – 2015–2016* Remittances (US$ billion Total exports (US$ 2016) billion 2015) India 62.7 288 China 61.0 2275 Philippines 29.9 59 Mexico 28.5 430 Pakistan 19.8 24 Nigeria 19.0 51 Egypt 16.6 21 Bangladesh 13.7 30 Vietnam 13.4 159 Indonesia 9.2 153

Remittances as a percentage of exports 21.7 2.6 50.6 6.6 82.5 38.8 79.0 45.6 8.4 6.0

*WTO, (2015), Table and Annex A6 and World Bank Calculations Based on MFIs, Balance of Payments, Statistics Yearbooks

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due to changes in the exchange rates of the currencies used for remittance, and changes in movements of emigrant labor. The two most significant beneficiary countries are obviously China and India, which have the world’s highest populations. However, there is a very significant difference between these two countries in terms of the weight of remittances in relation to their exports. For China, remittances represent a negligible source of income compared to export earnings; in India, however, emigration is an important component of the national economy, and remittances are almost ten times higher than those of China. These contrasts reflect the differences in growth patterns and also the place that these two countries occupy in the process of trade globalization. In large, medium-industrialized and highly populated countries with high population growth, which have been implementing for many years policies designed to massively expand labor emigration (such as the Philippines, Egypt, Nigeria, Bangladesh and Pakistan), remittances account for between 50% and 79% of export earnings. These levels are much higher than in Mexico, which is frequently cited as a major recipient. For a number of countries, remittance receipts are higher than those obtained from their main trading asset. For example, they are higher than receipts from tourism in Morocco and from tea exports in Sri Lanka. On the other hand, when examining the characteristics of the countries classified according to the percentage of their GNP which is provided by remittances, as in Table 8.2, the overall pattern that emerges is of one of considerable variation. The figures diverge significantly from the situations one would expect to find when taking into account the respective weight of the various sources of international revenue. Table 8.2 first presents the ranking of the 10 countries that received the highest percentage of remittances relative to their GNP for the year 2016. In the second Table 8.2  Remittances as a percentage of gnp, top 10 countries – total remittances and exports – percentage of remittances compared to exports – 2016* Remittances (percentage of GNP) Kyrgyzstan 34.5 Nepal 29.7 Liberia 29.6 Haiti 27.8 Tajikistan 26.9 Moldova 21.7 Gambia 20.4 Honduras 18.4 Jamaica 17.6 Lesotho 17.5

Exports (millions US$) ** 1933 924 440 1029 555 1967 102 7759 1192 941

Remittances (millions US$) 1997 628 642 2268 1778 1444 181 3845 2439 316

*World Bank (2017) database and CIA (2017) **Countries with more than 1 million inhabitants Nota Bene: Figures for 2015, 2014 and 2013 depending on the country

Remittances (percentage of exports) 103.3 67.9 69.5 220.4 320.3 73.4 177.4 49.5 204.6 33.6

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section, it presents the percentage of remittances in relation to export earnings. In contrast to Table 8.1, the ranking order of countries is subject to large fluctuations over very short periods of time. Unlike other developing countries that benefit from international resources, the fragility of these countries is reflected in variations in export earnings or remittances of several hundred per cent, sometimes in the space of just two or three years. The composition of this list is principally influenced by economic, political and climate-related crises (e.g. Haiti). It is made up mainly of very poor countries (to which should be added Lebanon, a country with a high GNP but which for decades has been experiencing significant emigration). The bulk of the countries are in Eastern Europe and Central Asia and emerged on the international labor market after the break-up of the Soviet Union. This is the case of Kyrgyzstan, where remittances account for 34.5% of GNP and 103% of exports; and Tajikistan, where they account for 26.9% of GNP and 320% of exports. Nepal’s current position is the result of the massive emigration of labor in response to the demand from the Gulf countries, which are engaged in major infrastructure construction programs. Looking beyond the top ten countries in this table, we find a group of states characterized by low levels of economic development, small populations, small surface areas, and a lack of a diversified production apparatus; in short, countries that basically fall into the category of small island economies largely dependent on external inputs. These figures must be taken with the usual precautions. Thus, for some countries included in both Tables 8.1 and 8.2, there are large discrepancies between the figures provided by UNCTAD and those calculated using data for each country from the World Bank’s “Immigration and Remittances Unit”.

The impact of remittances on the least developed countries In order to assess the development impact of remittances on recipient countries and also when gauging their importance in relation to other external resources, it is preferable not to focus on just a few specific situations, but rather to broaden the analysis to a larger group which includes a maximum number of countries classified as least developed. UNCTAD has specifically analyzed the situation of the 48 “poorest” countries defined according to the criteria established by ECOSOC for the lengthy period 1980–2017. It should be remembered that for this group of countries the collection of remittance data is often deficient, and that the standardized method of collection is not universally applied. Equally we should remember that transfers via informal channels are far more frequent in the poorest countries compared to middle-income countries. Overall, for this group of countries, the total volume of transfers increased by more than 400%, from US$6.3 billion in 2000 to US$27 billion in 2011. The distribution of remittances within this group of recipient countries is highly concentrated, as already noted for total remittance flows at world level. For example, only three countries, Bangladesh, Nepal and Sudan, receive 66% of the global total

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(UNCTAD, 2012). Despite this large increase in absolute terms over the past 30 years, remittances as a percentage of total exports have dropped by half from 28% to 14%. Two factors explain this trend. First, the least developed countries receive a relatively small share of the total volume of remittances. Secondly, several of these countries are now participating much more dynamically in the process of accelerating globalization. Their greater involvement in world trade has boosted their exports, whereas their situation was previously much more peripheral. Nevertheless, expressed in terms of volume, the average increase in remittances for these countries was substantial, rising from US$7 per capita in 1990 to US$30 per capita in 2011. In the group of medium-developed countries, on the other hand, the share of remittances within export earnings was much lower, and it declined further in the latter period from 8.5% to 4.5%. Comparisons of remittance-to-export ratios between 1998 and 2012 do not show a clear trend within the group of least developed countries. These ratios have been moving in both directions over the past two decades, depending on the types of development, the scale of migratory movements and participation in international trade. For example, the proportion of remittances to export earnings has grown very strongly in Bangladesh, Haiti (159%), Nepal (214%), Senegal, Sudan, Gambia, Guinea Bissau and Togo. On the other hand, the ratio declined sharply in Lesotho, Uganda, Sudan, Yemen and Sierra Leone (UNCTAD, 2012). For the majority of countries in this group, an examination of these trends suggests that remittances do not ultimately play a major role. Migration flows are proportionally much lower than those of other countries with longer migration histories. Moreover, especially in sub-Saharan African countries, the majority of migrants go to other neighboring African countries where income levels are not much higher and, as a result, the amount of remittances is smaller than for migrants in developed countries. For example, only 30% of migrants from this region have settled in Europe and the United States. However, in order to grasp the true scope of the various external financial flows it is not sufficient just to distinguish between categories of developing countries. For example, even in the category of the poorest countries, a group of nine countries stands out clearly, as official remittances to these countries in recent years have exceeded the combined total of official external assistance and foreign direct investment.7

7  Bangladesh, Haiti, Lesotho, Nepal, Samoa, Senegal, Sudan, Togo and Yemen (UNCTAD, 2012: 63).

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Remittances as a Stabilizing Factor The role of remittances is not limited to providing additional external resources to the countries of origin of the migrants. They also play an important role in two other areas. On the one hand, they are both a stabilizing factor and a counter-cyclical instrument reducing macroeconomic imbalances in countries of emigration. On the other hand, they also fluctuate in response to economic crises and natural disasters, thus helping to slow down the fall in household living standards in crisis situations.

The Stabilizing Function of Remittances The General Trend in Flows Capital flows generated by migration have grown steadily for a long period of time. More importantly, however, they have proved much more consistent than flows of official external assistance, external financial participation or even foreign direct investment. Figure 5.1 permitted a comparison of the profile of remittances with that of other flows. The latter are much more volatile, as they are subject to the vicissitudes of international trade, the economic situation of host countries and the political vagaries of the countries of origin. Over recent years (with the exception of 2009, 2016 and 2020, when negative rates were recorded), the annual growth rate of worldwide remittances has been high (as shown in Chap. 5). The World Bank forecasts an annual growth rate of between 4% and 5% from 2021 onwards (World Bank & KNOMAD, 2018). Several analyses have highlighted the importance of this consistently of levels of remittances for a broad range of sending and receiving countries; a consistency which is not reflected in investment flows. Data on remittance flows in most bilateral corridors clearly show a counter-cyclical effect relative to labor incomes in sending countries and also a pro-cyclical effect relative to incomes in receiving countries (Frankel, 2011). Over the period 1980–2010, according to UNCTAD, the volatility of external flows was twice as high for official aid, four times as high for external investment, and eight times as high for export earnings (UNCTAD, 2012).8 The regularity of these flows depends heavily on the behavior of migrants, but also, to a large extent, on the economic and political situation in host countries. The financial crisis temporarily reduced the demand for foreign labor in many host countries. At the global level, migration flows declined in the years following the crisis in 2008 and also in 2015. The increasing underemployment of migrants and the decline in their incomes reduced their ability to transfer a fixed percentage of their savings. Changes in exchange rates also had a significant impact: the depreciation of the dollar reduced the value of flows from the United States and other  Calculated by UNCTAD based on the standard deviation of inflows/GNP.

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countries whose national currency is tied to that currency. While there has been unanimous agreement until now regarding the stabilizing function of remittances, the negative rates recorded in 2009, 2016 and 2020 raise doubts over the perennity of this effect. Several events explain these cyclical phenomena. Firstly, political unrest and economic upheavals disrupt the free movement of individuals and capital, and consequently curb migration and remittance flows. Is this instability likely to continue? An analysis at the regional level highlights the impact of the main geo-economic risk factors. For example, the amount of remittances declined by 20.3% in Eastern Europe and Central Asia during 2015; it declined by 0.9% in the Middle East; it remained low in sub-Saharan Africa at 1.0%, but increased by 4.8% in Latin America. The fall in Eastern Europe and Central Asia was the result of the decline in economic activity in the region, the sharp fall in the Russian ruble and the collapse of oil prices. In the Middle East, the decline was due to armed conflicts and lower crude oil prices in the Arab States, which led to mass layoffs and departures of migrant workers. In Latin America, on the other hand, remittances continued to increase as a result of the economic recovery and a strong labor market in the United States. From another perspective, several authors argue that remittances represent a kind of “free lunch” modality in that, unlike all other financial income from external sources, they are available without any conditionality or subsequent financial commitment on the part of recipient countries. They are less volatile than other flows, but, more importantly, they help to reduce external and internal macroeconomic imbalances. Stabilization of Macroeconomic Imbalances First, the imbalances in the external accounts need to be analyzed. Remittances offer an opportunity to lower the reference benchmarks for public debt. They have the effect of contributing to the improvement of the sovereign debt ratings of these countries, thereby consolidating a more favorable assessment of the sustainability of their deficits (World Bank, 2013). For example, in 2009, a joint World Bank-IMF Framework Program took into account, for the first time, the volume of remittances received by countries of emigration, which resulted in an increase in their authorized debt ratios. In this program,9 the incorporation of this parameter resulted in an increase in the debt rating. This provision has already benefited a category of countries characterized by both a 10% remittances-to-GNP ratio and a 20% remittances-­ to-­exports ratio. To date, Bolivia, Vietnam, Zimbabwe, Armenia, Lesotho, Nepal and Senegal have benefited from this provision.

9  Plaza S.  Staff, (2012), Guidance Note on the Treatment of Remittances, IMF; IMF, (2013), Interim Guidance on the Use of Remittances in the Debt Sustainability Framework for Low-­ Income Countries.

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Second, with regard to domestic debt, an IMF study has identified the potential role of remittances in public debt sustainability. Until very recently, it was not thought that remittances could be taken into account in the implementation of measures to reduce the public debt/GNP ratio. Other international resources feed directly into national budget revenues, while remittances, which play only an indirect role through increased household consumption expenditure, were, until recently, largely neglected. Thanks to these flows, however, the tax base becomes broader, since disposable income is higher. This would provide governments with more leeway to increase levels of public expenditure. Remittances increase consumer spending as well as household savings. Additional taxation on consumption and on imported goods purchased by recipient households (the two main sources of government revenue in developing countries) increases the tax revenues of the sending countries. In addition, the increase in personal savings encourages a higher demand for public sector bonds. Deficit reduction efforts and fiscal adjustments would, therefore, be easier to control. However, in order to work most effectively, this process necessarily implies that the growth rate of remittances must remain consistently higher than the growth rate of GNP (Abdih et al., 2009).

 emittances in Response to a Crisis or Natural R Disaster Situation Natural and health disasters cause upheavals in migration flows, in the behavior of the diasporas concerned and also in the volume of funds provided to help the victims. The response of diasporas, which intervene massively and very quickly, is well documented. They also play an important role in raising public awareness in host countries and in mobilizing the assistance of migrants. They intervene through various channels such as reconstruction programs, emergency aid in-kind and co-­ ordination with local institutions and NGOs. Numerous studies clearly show large and rapid increases in migrant remittances in several countries of origin during the years marked by the emergence of economic crises (Mexico: 1995, Korea and Philippines: 1997), wars, political conflicts and ecological disasters (Haiti, Nepal: 2011 and 2015). This contribution of migrants to sustaining the consumption level of their families confirms the importance of insurance strategies and altruistic motivations as factors driving emigration. In contrast, remittances for investment purposes are likely to be negatively affected by the deterioration of economic infrastructure and market disruption. Several recent macroeconomic and microeconomic analyzes provide further insight into this process by highlighting the ex ante but also the ex post effects of these flows. Thus, ex ante, in several countries, remittances have made it possible to finance projects and implement measures preventively, with the aim of reducing the failures and risks that are often at the root of natural disasters. In other, more numerous cases, these flows, which are on the

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increase, make it possible to finance programs launched after the fact. Several countries characterized by high emigration (Bangladesh, Ethiopia, Haiti, Ghana, Burkina Faso, Indonesia, Pakistan) have been victims of food shortages, droughts, floods, cyclones, earthquakes or tsunamis, and have benefited from substantial growth in remittance flows following these disasters (Mohapatra et al., 2012). These transfers have thus largely contributed to reducing the precarity of the populations most vulnerable to natural disasters. Currently, the greater geographical diversification of remittance sources is helping to mitigate the impact of unfavorable situations in countries of immigration. A World Bank study identified several factors that explain this form of remittance “resilience” in the face of adverse circumstances. First of all, it is the migrants who have been present in the host country for a long time who are main source of remittances, and not the more recent waves of migrants who face difficulties integrating the labor market. Secondly, the study notes that while crises provoke relatively few return movements, those migrants who do return tend to bring all of their savings with them. Finally, it also shows that migrants generally absorb the shock of the decrease in income and maintain the value of their transfers at previously established levels (Mohapatra & Ratha, 2012). The World Bank has collected data on a large number of developing countries that have suffered very serious natural disasters affecting at least 10% of the population. Remittances, it appears, increase moderately in the years following these disasters. For all these developing countries, the increase is 2% of GNP in the first year rising to 5% in the third year (World Bank, 2016). The effects of political unrest are deeper and more lasting than changes in economic conditions. This is because in many cases they lead to the expulsion of foreign workers or to sudden and massive departures. This has been the case mainly in sub-Saharan Africa, Libya and several Middle Eastern countries. For example, the expulsion of Egyptian migrant workers led to a drastic and long-term reduction in the incomes of a considerable proportion of the households of these migrants and their relatives.

The Covid-19 Pandemic and Remittances Has the Covid-19 pandemic engendered counter-cyclical effects similar to those observed after natural disaster? Or compensatory effects of the kind observed during natural disasters? In both cases the answer is negative because the Covid-19 context is exceptional in several respects. Firstly, the magnitude of the shock: during previous epidemics, which have been well documented since SARS-2002, a small number of countries were affected and the fall in GNP was not very significant. Covid-19, however, has affected nearly 200 countries and territories at the same time, and among the most affected countries the fall in GNP will probably be between 8.5% and 10% (World Bank & Knomad, 2020).

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Secondly, when a host country recovers economically from a crisis, the migrants who had lost their jobs are able to find employment again fairly quickly; and are this able to start saving for remittances again. Similarly, when a sending country suffers a natural or health disaster, migrants from that country increase the volume of their remittances to their families. In the case of covid-19, however, sending countries, together with the vast majority of receiving countries, have experienced a drastic reduction in the level of activity; and they have experienced these difficulties at the same time. This dissemination of negative effects throughout the migration chain reduces the possibility that remittances will have a counter-cyclical influence. Thirdly, in developed host countries it is not simply a question of an insufficient demand (except for health demand) or supply of goods, but, due to containment measures, of the almost total shutdown of economic activity (production but also transport and distribution). Under these circumstances, the underemployment of migrants will increase. As a result, the numbers of well-established migrants will not decrease, but inflows will certainly be reduced and returns will be delayed. Fourthly, despite the fall in remittances in 2020, this source of external revenue will nevertheless outstrip other inflows to developing countries such as international direct investment and other capital movements, which are much harder hit by the anti-covid-19 measures. Finally, it remains to be seen how the combination of shifts in migration flows, a decline in production and hence in the demand for foreign labor will affect levels of remittances over the long term. Will levels continue to fall, or will there be a rebound? After a loss of 100 billion US$ for the developing countries (from 554 billion to 445 billion) in the course of one year, the World Bank forecasts a growth of +5.6% from 2021 onwards (World Bank & Knomad, 2020). The economic upheavals brought about by the pandemic have prompted consideration of a transition to short supply chains and the relocation of certain production sectors. According to international trade theory, this redeployment of the production base will require an influx of unskilled migrants and HQ migrants. Similarly, the shortage of healthcare personnel will further stimulate the medical “brain drain” discussed in Chap. 4.

 ivergent Opinions – The Negative Consequences D of Remittances Moral Hazard and Labor Supply Running contrary to the long-established consensus, several studies have identified a number of important negative consequences of remittances for the economies of recipient countries. Among these, the phenomenon of moral hazard is frequently evoked.

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The Decrease of Labor Supply When Chami and his IMF colleagues first sought to challenge the near-unanimous belief that remittances have only positive effects on all concerned, they drew on the theory of moral hazard (Chami et  al., 2005). A corollary of the assumption that remittances are fundamentally driven by altruistic motivations is the idea that recipient families can maintain or even increase their consumption levels while allowing themselves to reduce their productive efforts. Thus, on the one hand, remittances provide credit and liquidity opportunities for investment projects and, in this way, promote job creation; but on the other hand, they also reduce the rate at which members of recipient families participate in the labor market. These claims run contrary to those of the NELM theory, which asserts that the “employment multiplier” effect of remittances is of particular benefit to the migrants’ home communities. If the hypothesis of moral hazard is confirmed, it will materialize in the form of an increase in the reservation wage at which members of some migrant households agree to participate in the labor market of the host country. This will result in a decrease in the overall labor supply. According to this hypothesis, beneficiaries behave differently depending on whether their income comes solely from their work or whether it is obtained, in part, from another source. In the latter case, there is a very strong substitution effect between additional income and participation in the labor market. This phenomenon will be even more pronounced if the income differential between sending and receiving countries is very high, and therefore if the level of remittances is close to the level of wages in the sending country. It is certainly not possible to accurately measure the impact of these two opposing movements on the overall volume of labor supply in the emigration country. It is therefore important to make a clear distinction between the reduction in the rate of participation in the labor market and the reduction in the number of hours worked per week, as each situation will have very different consequences. The phenomenon of substitution is largely confirmed by numerous surveys conducted in the majority of Latin American countries, which are characterized by both high emigration rates and high remittance-to-GNP ratios. Funkhouser’s (2006) longitudinal survey comparing the labor force participation rate of remittance-receiving households with that of non-migrant households provides interesting data.10 It concludes that members of remittance-receiving households are significantly less likely to offer their services in the market. This research is corroborated by numerous studies that also highlight very significant gender differences. For example, household surveys in El Salvador show that remittances are estimated to reduce the labor force participation rate of urban recipient households by 5.7% for men and 10.7% for women. In addition, remittances are found to lead to a substantial reduction in the number of hours worked per week. This reduction is 4.5 hours per week for men and 8–12 hours per week for women, a difference of about 20% (Acosta, 2007). However, this could be  Not all studies confirm the inverse relationship between remittances and decreased participation in the labor market. Thus, for example, Cox-Edwards and Rodriguez-Oreggia (2009) consider that, for the majority of countries in this group, this phenomenon is quite insignificant.

10

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an overestimation as it is likely that some of this labor force will have shifted from the formal to the informal sector, which is by nature less quantifiable. In Mexico, a survey in rural and urban areas of changes in the labor supply participation of men and women in remittance-recipient households yields similar, though less striking, results. The decline in rural women’s participation is the most significant finding. The income effect of these external inflows is reflected in the tendency of these women to give up exhausting and underpaid work in the informal sector (Amuedo-Dorantes & Pozo, 2006). This phenomenon is confirmed in a study covering 10 Latin American countries, which found a reduction in the number of hours worked per week for beneficiary households (for both men and women, and in both the urban and rural sectors); though considerable differences between countries were also noted. Another of the study’s findings merits close attention and is of particular relevance for development policy. It shows that the higher the level of education of the beneficiaries, the lower the withdrawal from activity (Fajnzylber & Humberto Lopez, 2007). Work Less. A Positive Opportunity? The consequences of a decrease in labor supply within these households are not exclusively negative. First, the external resources facilitate investment and thus support labor productivity growth (Ozden & Schiff, 2006). Moreover, the extra time available is not necessarily devoted to leisure activities, but is probably also partly used to support the education of the youngest members of the household and to improve their living conditions. This time dividend also provides an opportunity to increase human capital and facilitate the educational and health care of children. If the unit of measurement is the household rather than the individual, the decrease in labor market participation may stem from the extension of adolescent schooling. Moreover, there is no research which can be used to assess the reality of the reverse phenomenon, i.e. the extent to which emigration initially leads to higher wages in the sending countries by reducing the total labor supply. For non-migrants, could this wage increase be a strong enough incentive for them to enter the labor market? These manifestations of moral hazard related to the reduction in labor supply as a result of remittances are not limited to Latin America. They are also confirmed by numerous analyzes which have analyzed the same phenomenon in the Caribbean and Pakistan, as well as in a large number of sub-Saharan African countries, including Mali (Azam & Gubert, 2002).

The Risk of Inflation Another adverse consequence often mentioned is the risk of fueling inflation. At a first level of analysis, the likelihood of inflation results from the imbalance between a highly rigid supply of goods and services and a demand from migrant households

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with a very high elasticity/income. Recent examples from Albania and Egypt are often cited. Demand-driven inflation results from both an income and a substitution effect. Faced with the increase in consumption stimulated by the exogenous growth in the disposable income of beneficiary households, the rigidity of the domestic supply of goods and services in the short and medium term leads to a general increase in prices, starting with the real estate sector and extending to basic necessities. Indeed, in many countries of emigration, and especially in urban areas, the real estate market is especially sensitive to levels of remittances, whether these are provided by migrants assisting their families or permanent members of diasporas seeking to invest in their home countries. Soaring house prices are creating tensions within the middle class between households that receive external assistance and households without migrants. Again, this phenomenon is largely absent from rural areas. In addition to this, beneficiary households are changing their purchasing habits, and showing a preference for certain ostentatious luxury goods from abroad. While this does not have a direct inflationary effect, it does stimulate demand for additional credit. At a second level of analysis, this inflationary trend is reinforced by a number of factors - the easier access to credit, the substantial increase in household liquidity and the growing laxity of central banks, which feel reassured by the guarantee of a stable external revenue. The relationship between remittances and inflation has been the subject of several panel-based analyzes. Among these, a recent study covering 54 countries that received remittances during the period 1995–2004 clearly shows a positive and significant relationship between remittances and inflation (Narayan et al., 2011).11 This finding needs to be qualified, however, as it highlights only a single (and possibly secondary) factor of inflation among all those present in less developed economies, which are characterized by numerous bottlenecks and the constraints of market imperfections. In the same vein, some research has confirmed that for a large number of countries, an increasing dependence on remittances (or other resources from abroad) generates a higher level of inflation. There is no evidence, however, that remittances induce more pronounced inflationary effects than these other capital flows. Here again, this negative outcome needs to be balanced against the opportunities remittances generate for expanding investment projects and thus stimulating economic growth (Gapen et al., 2008).

 This group includes 19 African countries, 17 Latin American countries, 8 European countries and 7 Asian countries.

11

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“Dutch Disease”, a Genuine Concern? Is there a risk that a migration policy driven by the desire to maximize transfers could lead to a “Dutch disease” phenomenon? This concept was originally used to explain the negative consequences for the Dutch economy of the massive exploitation of natural gas from the North Sea. This led to an appreciation of the Florin and a decline in competitivity. A resource that generates foreign currency and is disconnected from the rest of the productive fabric, whether it is of external origin (massive public aid) or internal (exploitation of the subsoil), risks tipping a country towards a rent-based economy. Historically, the best known case of this kind is the decline of Spain in the sixteenth century, which was largely caused by the influx of gold from the colonies. Other more contemporary examples concern countries benefiting from the exploitation of precious minerals, oil and natural gas, which account for a substantial part of their tax revenues but which do not generate enough positive externalities for the economy. With regard to remittances, it is generally accepted that they are not likely to cause an appreciation of the exchange rate of recipient countries to such an extent that it would reduce their competitiveness. One exception is the poorest developing countries, for which remittances represent a significant proportion of GNP (Tajikistan 48%, Kyrgyzstan 31%, Nepal 24%, Lesotho 24%, 27%, see Table 5.1) In this regard, an analysis of 13 Latin American countries for the period 1990 to 2003 indicates that, among other negative effects, a 1% increase in the remittances/ GNP ratio induces an exchange rate increase of 2.5%. A doubling of the remittance-­ to-­GNP ratio leads to a 5% increase in the exchange rate of these countries’ currencies (Humberto Lopez, 2008). Other studies also note the impact of remittances on currency appreciation (Acosta et  al., 2009). One analysis, covering 13 Latin American and Caribbean countries, indicates that if remittances were to double in value this would lead to a 22% increase in their currency exchange rates (Amuedo-­ Dorantes & Pozo, 2004). Can it be assumed that this phenomenon is confined to Latin America? A World Bank survey on the impact of remittances on development in Africa, for instance, does not confirm any correlation with changes in currency rates among sub-Saharan African countries (World Bank, 2011). Similarly, according to the UNCTAD report on the poorest countries, the six countries that are most dependent on remittances (as a percentage of their GNP) have not experienced any appreciation of their currency. Several other analyzes have highlighted other negative consequences of remittances. They are said to cause a contraction of the most dynamic production sectors (manufacturing and exports) in favor of less productive non-tradable goods (Barajas et al., 2009). In line with these results, a recent analysis covering a panel of 109 developing countries and countries with economies in transition for the period 1990–2003 shows that when remittances are increased at a constant rate this induces additional spending by economic agents, which can indeed lead to an appreciation of real exchange rates. The main argument is that consumer demand for

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non-tradable goods (e.g. domestic services) on the international market increases at the expense of tradable goods and services. This results in sub-optimal sectoral reallocations of labor (Lartey, 2012). This phenomenon is likely to raise dependence on the inflow of resources from workers abroad and, as a result, increase the temptation for governments to encourage a process of permanent emigration. An Attempt to Conclude?  Any conclusion on the impact of remittances at the macroeconomic level should be nuanced and conditional. First, the diversity of national situations precludes any generalization. Secondly, it would be presumptuous to make any precise assertions regarding the impact of the positive and negative effects on the growth rate and on the main macroeconomic variables of the countries of origin. In recent years, a large body of research has pointed out that “naïve” or “optimistic” statements are not based on any reliable empirical verification. Beyond reducing poverty among recipient households and improving their level of consumption, the effects at the macroeconomic level leave many experts unconvinced. Analyzes which attempt to reappraise the effectiveness of ODA are plagued with a similar uncertainty. According to a range of studies, the impact of this type of external capital inflow on growth is overestimated. There are clearly differences between public channels and private flows; and these need to be taken into account. It is generally accepted, for instance, that intra-family movements are much less threatened by waste and corruption than publicly-administered aid. Among the research that contests the positive contribution of remittances, and which remains a minority voice in the literature, it is worth highlighting the work carried out within the World Bank and the IMF; work which often runs counter to the consensus to which these institutions have otherwise substantially subscribed. Thus, according to estimates by Fajnzylber and Humberto Lopez, the impact of remittances on the growth of developing countries has been extremely small, amounting to only 0.14% for all the countries concerned. The maximum is 0.25% for Latin American countries and the minimum −0.03% for sub-Saharan African countries (Fajnzylber & Humberto Lopez, 2007: 48). A recent IMF report presents even more pessimistic findings; though the authors nevertheless recognize that remittances can make a significant contribution to growth if two important conditions are met: first, the effective presence of institutions and infrastructure that are able to channel these funds into productive activities and, secondly, an explicit political determination to invest and support profitable projects. It should be recalled, however, that governments have only limited scope for direct or even indirect guidance in the allocation of the income generated by remittances. Chap. 9 therefore discusses in more detail the range of economic incentives, mechanisms, policies and institutions that should be mobilized to effectively link remittances and development policies.

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References Abdih Y., Chami R., Gapen M., & Mati A. (2009). Fiscal sustainability in remittance-dependent economies, IMF Working Papers, WP/09/190. Acosta, P. (2007). Entrepreneurship, labor markets and international remittances: Evidence from El Salvador. In M.  Schiff (Ed.), International migration policy and economic development: Studies across the globe (pp. 141–160). World Bank. Acosta, P., Lartey, E., & Mandelman, F. (2009). Remittances and the Dutch disease. Journal of International Economics, 79(1), 102–116. Amuedo-Dorantes, C., & Pozo, S. (2004). Workers remittances and the real exchange rate: A paradox of gifts. World Development, 38(8), 1407–1417. Amuedo-Dorantes, C., & Pozo, S. (2006). Remittances as insurance: Evidence from Mexican immigrants. Journal of Political Economics, 19(4), 227–254. Azam, J.-P., & Gubert, F. (2002). Ceux de Kayes: L’effet des transferts des immigrés maliens sur leur famille d’origine, In Heran F. (Ed.), Immigration, marché du travail, intégration, Commissariat Général du Plan, La documentation française, 203–230. Barajas, A., Chami, R., Fullenkamp, C., Gapen, M., Montiel, P. (2009). Do Workers’ remittances promote economic growth? Washington, IMF Working Paper, WP/09/153. Central Intelligence Agency. (2017). World factbook, January 2017. Chami, R., Fullenkamp, C., & Jahjah, S. (2005). Are immigrant remittance flows a source of capital for development? International Monetary Fund, Staff Papers, vol. 52, n°1. Clemens, M., & McKenzie, D. (2014). Why don’t remittances appear to affect growth? Policy Research Working Paper, n°6856, World Bank, Development Research Group. Cox, E. A., & Rodriguez-Oreggia, E. (2009). Remittances and labor force participation in Mexico: An analysis using propensity score matching. World Development, 37(5), 1004–1014. Faini, R. (2007a). Migrations et transferts de fonds, Impact sur les pays d’origine. Revue d’économie du développement, 2–3, 153–182. Faini R., 2007b, Remittances and the brain drain: Do more skilled migrants remit more? The World Bank Economic Review, 21(2), 177–191. Fajnzylber, P., & Humberto, L. J. (2007). Close to home. The development impact of remittances in Latin America. Washington. Feld, S. (1982). Les conséquences économiques de l’émigration de main-d’œuvre qualifiée des pays sous-développés, Liège, Presses de l’Université de Liège. Frankel, G. (2011). Are Bilateral Remittances Countercyclical? Open Economies Review, 22, 1–16. Funkhouser, E. (2006). The effect of emigration on the labor market outcomes of the sender household: A longitudinal approach using data from Nicaragua. Well-Being and Social Policy, 2(2), 2–25. Gapen, M., Barajas, A., Chami, R., Montiel, P., Fullenkamp, C., & Cosimano, T. (2008). Macroeconomic consequences of remittances, IMF Occasional Paper, n° 259. Giuliano, P., & Ruiz-Arranz, M. (2009). Remittances, financial development and growth. Journal of Development Economics, 90(1), 144–152. Grubel, H. G., & Scott, A. D. (1966). The international flow of human capital. American Economic Review: Papers and Proceedings, 56(2), 268–275. Humberto, L. J., Molina, L., & Bussolo, M. (2008). Remittances, the real exchange rate and the Dutch disease phenomenon. In P. Fajnzylber & J. Humberto Lopez (Eds.), Remittances and development lessons from Latin America (pp. 216–252). The World Bank. Johnson, H. G. (1968). Le point de vue “Cosmopolite”. In W. Adams & H. Rieben (Eds.), L’exode des cerveaux (pp. 79–103). Lausanne. Lartey, E., Mandelman, F., & Acosta, P. (2012). Remittances, exchange rate regime and the Dutch disease: A panel data analysis. Review of International Economics, 20(2), 377–395. Mohapatra, S., & Ratha, D. (2011). Migration, remittances in Africa. An Overview, World Bank, Remittances Markets in Africa, DID Finance.

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Mohapatra, S., & Ratha, D. (ed.) (2012). Forecasting migrant remittances during the global financial crisis, Sirkedi I, Cohen J., Ratha D., Migration and remittances during the global financial crisis and beyond Washington, DC, The World Bank: 23–34. Mohapatra, S., Joseph, G., & Ratha, D. (2012). Remittances and natural disasters: Ex Post response and contribution to Ex Ante preparedness. Environment, Development and Sustainability, 14(3), 365–387. https://doi.org/10.1007/S10668_011-­9330-­8 Narayan, P. K., Narayan, S., & Mishra, S. (2011). Do remittances induces inflation? Fresh evidence from developing countries. Southern Economic Journal, 77(4), 914–933. Özden, C., & Schiff, M. (Eds.). (2006). International migration, remittances and the brain drain. Washington. Patinkin, D. (1968). Le point de vue “nationaliste”. In W. Adams & H. Rieben (Eds.), L’exode des cerveaux (pp. 105–121). CRE. Ratha, D. (2007). Leveraging remittances for development. Migration Policy Institute, Policy Brief. Spatafora, N. (2005). Worker remittances and economic development. In IMF, World Economic Outlook, Washington, DC: 69–84. Stark, O., & Katz, E. (1986). Labor migration and risk aversion in less developed countries. Journal of Labor Economics, 4(1), 134–149. Taylor, J., Mora, J., & Adams, R. (2005). Remittances, inequality and poverty: Evidence from rural Mexico. In Research program on international migration and development (pp.  103–130). World Bank. United Nations Conference on Trade and Development. (2012). The least developed countries report 2012, harnessing remittances and diaspora knowledge to build reductive capacities. UNCTAD/LDC/2012. World Bank. (2011). Migration and remittances – Migration and development Brief 16, Migration and Remittances Unit. May 2011. World Bank. (2013). Migration and development. Brief, 20. 19 April 2013. World Bank. (2016). Remittances Prices Worldwide. http://remittanceprices.worldbank.org World Bank (2017). Migration and remittances – Migration and development brief 27, Migration and Remittances Unit. April 2017. World Bank & KNOMAD. (2018). Migration and remittances recent development and outlook (Vol. 29). Migration and Development, Brief. World Bank & KNOMAD. (2020). Migration and remittances recent development and outlook (Vol. 29). Migration and Development, Brief. Ziesemer, T. H. W. (2012). Worker remittances, migration, accumulation and growth in poor countries: Survey and analysis of direct and indirect effects. Economic Modelling, 29(2), 103–118.

Chapter 9

Remittances, an Instrument of Development Policy

In recent years, there has been a significant shift in the approach of analysts and in the content of discussions concerning the economic effects of remittances. Until recently, the dominant trend in the theoretical and empirical literature has been to focus on assessing the causes and especially the positive as well as negative consequences of remittances on the economic development of beneficiary countries. At present, a much more political approach is broadly favored, to the detriment of scientific analysis. The issue of migration is increasingly treated as one of the major components in the wide range of instruments available to development actors. At the international level, this new approach was given concrete form by the decision of the UN General Assembly in September 2006 to set up the Global Migration Group (GMG), which quickly led to the institutionalization of the Global Forum of Migration and Development (GFMD). This Forum meets annually to deal with the whole issue of migratory movements. Development plays an important role, as do political, legal, cultural and ethical issues such as the rights of migrants, human trafficking, integration of migrants, etc. In this context, the issue of remittances is a bone of contention within the global approach aimed at integrating the causes and consequences of migratory movements into the range of development policies. In this approach, the main objective is to refine the implementation of mechanisms and practices to ensure the most effective use of this specific category of foreign capital inflows. To this end, two courses of action are generally proposed. The first is to minimize the costs of international transfers of migrants’ savings to recipient households. Indeed, with each transaction, a substantial proportion of remittance flows is claimed by various financial intermediaries at the expense of the recipients. The second strategy involves trying to mobilize a maximum amount of savings from migrants and then to ensure that these are used in an optimal way for the development of recipient countries. From this perspective, migration is no

© The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_9

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longer seen simply as one of the major consequences of poverty in sending countries, but much more as a strategic determinant of development.

Reducing the Costs of Transferring Remittances In recent years, many international organizations have put on the agenda a number of issues regarding remittances: how best to reduce their transaction costs, how to assess the various encumbrances associated with transfers, and which policies are best suited to reducing these burdens. Countries of emigration have, over time, dramatically changed the policies they implement in order to maximize the benefits obtained from remittances. As a first step, these countries sought to take advantage of these resources to increase their tax revenues and foreign exchange reserves by introducing strict controls on the foreign exchange market, imposing taxes on remittances, and by levying additional taxes on the sums received by recipient families. Subsequently, almost all recipient countries put an end to these practices and constraints and instead proposed a series of measures designed to make remittances more attractive through tax exemptions and subsidized interest rates, thus giving migrants greater freedom to manage their foreign currency accounts. As a result, governments have had to work together at the international level to better organize the economic mechanisms and legal arrangements needed to reduce the costs of transfers.

Minimizing Transaction Costs This cost-cutting objective is all the more important as the loss of resources is proportionally higher for the poorest of the beneficiary developing countries. The nature of these transfers, fueled by the savings of a large number of low-income migrants who regularly send small amounts home, is not in line with the usual practices of international banking institutions. These charges are regressive in relation to income level, as they tend to penalize small remittances much more heavily. At the global level, the transaction costs of remittances amount to about US$40 billion per year. This total amount covers very large disparities between recipient countries. Remittances from other regions to Africa have by far the highest average costs. They amount to about 12% of the total amounts; but the costs of transfers within the framework of inter-African movements are even higher, amounting to nearly 25% of these amounts (World Bank, AIR, 2014a). These amounts obviously represent “leaks” that escape the resource channels between donors and beneficiaries. In this regard, several studies have found a very high positive elasticity between increased remittances and lower costs, mainly for movements between Latin America and the United States (Aycineta et al., 2009).

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The particular characteristics of the international market for migrant savings transfers largely determine the level of these costs, the most salient features being – the lack of real competition between operators, the choice of payment instruments,1 the number of potential users of remittance services, the relatively low average amount of each transaction, the distances involved, the very low density of the banking network, and also the exchange costs inherent in the process of converting these sums into the local currency. Another side effect of cost reduction is that it encourages the substitution of formal flows for the generally cheaper informal flows. However, as mentioned earlier, the advantages of formal channels, such as their capacity to direct resources available in the banking system towards public development projects, need to be qualified.

The General Trend Towards Lower Remittance Transfer Costs At the global level, the average cost of remittances is 10.2% of total transaction value. This average obviously varies according to the countries of origin and arrival of the flows, according to the major regions involved, and also according to the main bilateral corridors, where disparities in 2010 ranged between a minimum of 2.5% (Saudi Arabia-Pakistan) and a maximum of 25% (Germany-Croatia). It also largely depends on the type of operators available. A single beneficiary country may incur widely varying costs depending on the country from which the flows are sent, and vice versa. Thus, from the same country which transfers part of the migrants’ savings, there are considerable cost differences between recipient countries (Beck & Martinez Peral, 2011).2 The total costs of remittances from G20 countries are slowly decreasing, dropping from 9.23% in 2008 (the first year in which complete and reliable data were collected at the world level) to 7.45% in 2017. Transactions between certain countries of the South are often very complex to implement and are subject in many cases to particular risks. As a consequence, certain banks are no longer offering their services in this area.3 As a result, we can see overall that the costs of remittances are substantially higher for South-South flows than for both North-South and South-North flows.

1  The charges vary according to whether the migrant actually has the choice between bank transfers, postal services, cash transfers, checks, electronic payments, credit cards, transfer agencies such as Western Union or Forex; or whether the migrant prefers to use informal circuits such as traditional compensation systems, for example of the “halawa” (Pakistan) and “hundi” (India) type; or even to deliver the liquidity in person when returning to the country of origin. 2  For example, from the United States, the cost of transfers to Ecuador is 3.7% and to Thailand 14.7%. In the other direction, the costs to India from Saudi Arabia are 3.1%, while from Germany they are 13.3%. 3  Of all the instruments available, bank transfers are the most expensive and prepaid credit cards the most economical.

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At the regional level, although there is a clear downward trend in costs over the period 2008–2015, differences are still very significant, as shown in Table 9.1. This table shows the level of average costs with the assumption that all remittances are calculated using a standardized figure of US$200. Sub-Saharan Africa remains the most expensive region for remittances (US$9.52) as shown in Table 9.1, about 30% above the world average, while the downward trend is still the lowest compared to other regions. In East Asia as well as in Latin America, the decrease over the last 8 years is very clear. But it is clearly in South Asia, with an average cost of US$5.52, that transfer costs remained the lowest over a long period (World Bank, 2015a, b). The maximum difference between countries indicates that the cost of transfers is highest in South Africa (US$16.95), and this serves to illustrate the great diversity of situations. Russia has the lowest cost (US$1.75). This presentation by region provides valuable indications of the costs which are grafted onto the transfers of the migrants. However, it masks the great diversity of situations within these major geographical areas, where the economic weight of certain countries, the scale of migratory movements and the intensity of commercial and financial networks play a decisive role. The dominant positions and abusive practices of a few large operators who are very active on certain savings transfer markets (e.g. Western Union) have a significant impact on the amount of fees charged (Freund & Sparafora, 2008). To better assess the complexity of national situations, it is preferable to examine bilateral movements and the characteristics of the main transfer “corridors”. Many factors can explain cost differences that range from 20% (for some particularly expensive transfers) to as little as 1% in others. A study covering 119 bilateral corridors disaggregated cost levels for each pair of countries and highlighted the major determinants structuring these markets (Beck & Martinez Peria, 2011). Three main trends can be identified. First, the high number of migrants already established in host countries and the scale of current migration flows are factors that favor cost reductions. On the other hand, when the level of migration flows between two countries is low, remittances are much more expensive. This is because the volume of flows and the larger size of the agents involved favor economies of scale. The Table 9.1  Average total costs of remittance services by major regions – for us$200 – 2008–2016* Regions North Africa and Middle East Sub-Saharan Africa Latin America and the Caribbean East Asia and the Pacific South Asia Europe and Central Asia (− Russia) Europe + Russia Total *World Bank (2016)

2008 11.10 14.01 8.37 11.05 7.80 5.96 11.00 9.81

2011 Q3 8.15 12.41 7.68 9.80 6.15 6.86 8.68 9.30

2016 Q2 7.02 9.52 6.02 8.24 5.56 7.49 6.36 7.42

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seniority of the channels for transferring savings is also a factor in reducing costs. Secondly, the structure of markets and particularly the level of competition, the number of operators and the degree of freedom of capital movements also play an important role. Though in market structures where banks manage most of the flows, transfer costs are higher. Finally, a number of socio-economic and political factors specific to certain host and home countries also have a considerable influence. For example, facilitating remittances through government-managed programs has had an overall cost-saving effect. Where a very large proportion of recipients reside in rural areas, however, the costs are generally higher. In recent years, thanks to the “World Bank’s Remittances and Prices Worldwide Program” information on the level and evolution of remittance costs has been considerably enhanced and is now very regularly updated. The database covers 226 bilateral “corridors” linking 32 remittance-originating countries to 89 recipient countries (World Bank, 2014c).4 Table 9.2 presents, on the one hand, the 5 most expensive “corridors” and, on the other hand, the 5 least expensive “corridors” for average levels of US$ 200 per remittance for a migrant.5 The difference in costs is considerable (a ratio of 1 to 20) between these extremes. The costs remain particularly high between the countries of Southern Africa, where the migrants come from countries with very low per capita income; on the other hand, they have fallen sharply for transfers between the countries of South and South-East Asia, which have for many years implemented effective procedures for facilitating transfers. Up to the year 2020, average transfer costs have continued to fall slightly in all regions.

Table 9.2  Average cost in us$ for remittances of us$ 200*

The five most expensive “corridors” Saudi Arabia – Pakistan Singapore - Bangladesh Singapore – Thailand South Africa - Angola South Africa - Botswana South Africa - Malawi South Africa - Mozambique South Africa - Zimbabwe Spain - Dominican Republic UAE - Pakistan

Average cost 2.85 1.94 1.20 9.77 20.19 21.13 19.18 17.08 3.09 2.23

*World Bank (2015a)

4  Only those for which complete data are available are included in the lists of “corridors”. It can reasonably be assumed that for the other “corridors” for which the data is inaccessible or insufficiently reliable, the costs are higher. 5  Data refer to the cost of transfers for the month of December 2014. The total cost of transactions includes transfer fees as well as the cost of currency conversion.

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Cost Minimization Programs Despite the downward trend in costs, the income “losses” remain too high when compared to the level of savings mobilized by poor migrants, or when comparing the amounts of individual transfers to the very low standard of living of households in recipient countries which are still a long way from having an adequate financial infrastructure for managing this particular type of international resource flow. The G20 member countries committed themselves at the 2011 Summit to implement a “Plan of Action for the Development of Remittances” entitled “5x5 Goals”. This plan is designed to reduce the total cost of remittances by 5 percentage points. If it were implemented by all partners, this program would result in annual savings of around US$16 billion for developing countries. To achieve these objectives, the action plan mobilizes the available resources in two main priority areas: firstly, maximizing the use of the most recent technological advances in the management of international payments; and secondly, correcting market imperfections and regulatory rigidities that hamper the flow of remittances. With regard to international financial transactions, technological advances have generated both new agents and new payment modalities. On the user side, payment instruments have multiplied, such as, for example, international bank card clearing systems between home and host countries shared by migrants and their families. There has also been progress in the implementation of instruments that directly connect (via e-money) transfers from the host country to domestic transactions. New actors are overcoming the shortcomings of traditional banking infrastructures. For example, more and more companies located in developing countries are offering their customers and staff access to their own computerized payment services, which they make available to them for their international transfers. Most of the measures intended to modify the structure of the markets are carried out under the aegis of the Remittances Agenda of the G20, which has entrusted a Global Remittances Working Group (GRWG) with the task of bringing together and coordinating the many spontaneous initiatives taken by a number of host countries, such as the creation of foundations, bilateral cooperation agreements, etc. The GRWG is also responsible for the development of the G20’s remittance system. These initiatives augment and complement all the other guidelines developed at various G20 summits in recent years. According to the GRWG, since the implementation of its recommendations aimed at reducing transfer costs, approximately US$ 30 billion have been saved for the benefit of recipient countries. Taking into account only remittances from G20 countries, which account for about 77% of the total volume of remittances, it can be seen that between 2009 and 2014 the “5x5 Goals” program generally resulted in substantial cost reductions, mainly from countries that previously had the highest levels, such as Australia, Brazil, and Germany (World Bank, 2014c). (Fig. 9.1) The main thrust of the actions planned by the G20 essentially takes up the recommendations made by the World Bank:

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Fig. 9.1  Change in average cost of remittance services from g20 countries from 2009 to 2014. (Worldbank, 2014c)

–– first, adopt measures to facilitate widespread access to bank accounts and, in this way, strengthen competition; –– second, ensure the dissemination of an updated mechanism for comparing the costs levied by financial agents and online service providers, in order to increase market transparency. In addition, market access will be improved by reducing restrictions on entry and abuses committed by those in dominant positions; –– third, encourage all innovations that facilitate payment procedures and infrastructure development. Finally, the program recommends improving the capacity for autonomous management of remittances by migrant women and those remaining in the countries of origin. In terms of legislation and regulations, the Agenda proposed by the G20 aims to strengthen coordination between government agencies in emigration and host countries and to encourage cooperation between the public and private sectors, migrant associations and civil society. It also aims to improve the impact of remittances on economic and social development (World Bank, 2014c).

Remittances as a Factor of Development? Since 1990, at the global level, the total volume of remittances has grown considerably. This growth over a very short period of time has naturally stimulated a wide range of initiatives to increase the mobilization and the direction of these international resources, which now outstrip ODA and foreign direct investment. This growth of previously marginal external resources has led to the emergence of a very large number of agents and institutions that have set themselves the objective of

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integrating the question of remittances into the heart of development policies. These initiatives are very diverse in nature and cover a wide range of interventions and actors including governments, financial intermediaries, NGOs, and bilateral and multilateral public development agencies mainly from within the ambit of the UN. They also include other regional and specific institutions, migrant associations, local authorities and movements with political, social and humanitarian goals (ICMD-Manual, 2011).6 We have identified above the principle analyses and data provided by the literature emanating from the World Bank and the IMF, which focuses on measuring flows, the cost of remittances, their origin, destination and impact on the economies of recipient countries. With regard to the status of migration as an important factor in economic development, the most enthusiastic advocacy is to be found in the United Nations Development Program’s report “Overcoming barriers: Human mobility and development” (UNDP, 2009). The policies advocated in this important report focus on maximizing the positive impact of international migration on human development. This aim is stated quite explicitly: “While not a substitute for broader development efforts, migration can be a vital strategy for households seeking to increase their income levels” (UNDP, 2009: 10). Nevertheless, despite the implementation of many programs specifically focusing on the economic aspects of international migration, remittances are only ranked 11th on the list of developing countries’ priorities (United Nations, 2014).7 In fact, this ranking reflects the great diversity of national situations, with remittances representing an essential income resource for certain developing countries, while for others it is clearly negligible. This situation is confirmed by the tables presented above.

 obilizing Remittances for Development Projects – M Securitization Programs A large majority of migrants send a significant part of their savings to their families and relatives for essentially altruistic reasons or out of family obligation. But for migrants with other motivations, considerable resources must be mobilized in order to increase the attractiveness of transfers. For them, the main objective is to secure an additional source of income, either immediate or future.

6  As part of a joint initiative of the European Commission and the UN, we can cite, by way of example of specifically European initiatives, the programs launched or directed by COMPAS (Center on Migration, Policy and Society), EUROMAD (European Network on Migration and Development), GFMD (Global Forum on Migration and Development), GMG (Global Group on Migration), JCI (Joint Initiative for Migration and Development), IMI (International Migration Institute), MPI (Migration Policy Institute). To this list we should also add the large traditional institutional actors such as the UNDP, the IOM, the ILO, and the UNFPA. 7  United Nations (2014), General Assembly A / 69/62. Report of the Secretary General. Blueprint for the post-2014 follow-up to the ICPD Program of Action: p241.

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To encourage these flows, many developing countries have put in place a range of practices and regulations, some with the aim of reducing obstacles to a greater liberalization of capital movements, others tending to strengthen positive investment incentives such as support for co-operation programs between migrants and local entrepreneurs encouraged by financial or administrative participation by the public authorities. Many of these measures have already been implemented for several years, with varying degrees of success, by countries such as Mexico and the Philippines, which have historically experienced high emigration and which were the first to organize specific procedures designed to optimize the conditions in which migrants’ savings are collected. Thus, the creation of “migrant bonds” was one of the first and most innovative initiatives to meet the needs of migrants and address their concerns. It consisted in creating specific bond funds reserved for migrants, and complements other initiatives such as foreign currency financial investments for non-residents with guaranteed returns, or preferential savings accounts which are offered by countries of origin to secure stable external sources of finance for their nationals abroad. Many countries have developed this bond market as a channel for remittances in recent years, principally China, Bangladesh, India, Israel, Lebanon, Pakistan and the Philippines (Page &Plaza, 2006). However, it would be erroneous to equate “migrant bonds”, which are primarily financial investments, with remittances in the usual sense, which are the subject of direct and personalized transactions to beneficiaries in developing countries. One of the intentions behind the creation of these specific products is that, when they mature, these bonds will ultimately be converted by migrants into productive investments in the countries of origin. The volume of capital in question has obviously aroused the interest of certain financial intermediaries who have set up engineering systems intended to develop various mechanisms for securitizing these transfers. During the financial crisis of 2008, demand for this type of investment fell sharply, but since 2011 the trend has again been clearly upwards, with a marked increase in the number of countries making use of this type of investment. The very favorable characteristics of these mechanisms are broadly similar for most beneficiary countries: migrant investors agree to the application of interest rates which are slightly below market rates for the sovereign debt of their country of origin, and they invest for maturities that far exceed those of speculative placements. Their motivations may be of a patriotic nature, or perhaps they are interested in improving conditions in the home country with a view to their eventual return. The risk of political instability or the hostility of migrants towards the governments of their countries of origin impede the extension of these programs. Despite these many uncertainties, this is a funding opportunity that major development actors seem keen to exploit. For example, according to a recent IMF study, if only 10% of the savings of migrants from Africa were invested in bonds programs, this would add more than US$3 billion in external resources to Africa each year (Ratha & Plaza, 2011). A first rough estimate put the global level of bank deposits of migrants in 2013 at US$497 billion (Word Bank, 2015a, b). Several initiatives are currently being put in place to mobilize 1/10 of these savings, which would represent

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additional resources of nearly US$50 billion per year for all developing countries. In addition to these programs, there are also other specifically targeted incentives designed to promote investments by migrants or their descendants, independently of any plans they may have to return to the country of origin. Remittances may also reflect other specific concerns of migrants who choose, out of solidarity, to participate in forms of collective investment for community projects in their regions of origin, in coordination with local civil society associations. Such transfers can contribute to the official objectives of economic development programs, but they can also be based on humanitarian concerns or, as we have seen, respond rapidly to climate or environmental crisis situations. It is widely recognized that anything that reduces the vulnerability of beneficiary households helps to create a climate conducive to consumption growth and investment.

Directing Flows Towards Productive Projects These flows only bring together private donors and beneficiaries (usually within a family) and as a result they are based on individual and bilateral approaches, unlike resources that flow through Official Development Assistance. These specificities are all the more significant given that, very often, the flows in question circulate through informal channels based on customary practices or personal contacts based on trust. All of these characteristics greatly increase the likelihood that these flows will be directed more frequently to marginalized rural areas, in contrast to many large-scale ODA programs which are channeled through government agencies.8 These are, by nature, very modest amounts since they are limited by the low savings capacities of individual migrants or even groups of migrants. Largely oriented towards less developed rural areas, these flows help to render the banking system accessible to a section of the population which, until now, has been neglected by financial institutions which, lacking the guarantee of short-term returns, have been reluctant to extend the geographical coverage of their services. Enabling more low-income households with specific needs to benefit from access to credit and the facilities offered by banking networks through the opening of personal accounts reduces the rigidities of insufficiently monetized economies. To attract these flows, banks and other financial institutions have been encouraged to implement practices that are better suited to this clientele, and to create new services which meet the specific motivations of migrants and the needs of their families (Orosco, 2006a, b). Another objective of these innovations is, through the implementation of financial instruments that better respond to the terms and conditions of transfers taking place within migrant families, to integrate the flows

8  While acknowledging that remittances are more effective than ODA, analysts are unanimous in reiterating that they should not be considered as a substitute for official aid transfers, but rather as complementary to them.

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that circulate primarily within informal networks into small-scale investment projects in the formal economy.

Remittances and Microcredit Given that they mostly involve very small amounts and are based on trust and the absence of immediate profit motives, these transfers can easily be incorporated into initiatives generated by microfinance programs. This new mechanism for collecting savings and providing access to credit has developed rapidly over the last 10 years. It is widely practiced in various modalities in nearly 90 countries, and more than 100 million people among the poorest populations in the world are enlisted in these loan networks and the communities they create (Bylander, 2013). Naturally, the modalities of how microfinance works (essentially the involvement of low-income households, the sense of solidarity and a recognition of the importance of interpersonal relationships) represent a particularly favorable opportunity for effective activation of remittances. In rural areas microfinance initiatives are, in a large number of cases, fueled by regular remittances from migrants, which are facilitated by the quality of personal, family or community relationships. They provide access to credit for family members who have stayed behind and who otherwise would probably have had very little access to the traditional commercial banking network. In general, remittances also contribute to the development of alternative financing networks. The channeling of these flows into projects that have become feasible through the solidarity mechanisms of microcredit has helped to create new financial products and encourage the adaptation of traditional financial institutions. These reorganized institutions are better suited to the particularities of the beneficiary families, who are sometimes unfamiliar with the practices of the monetarized economy. However, the failure rates of microcredit projects are generally very high, and remittance-based projects are also characterized by high fragility and low long-­ term sustainability. A consensus is currently emerging among parties implicated in the “migration and development” problematic that it is necessary to put in place a professional and institutional framework to ensure the sustainability of these one-­ off initiatives. Building on these specific arrangements for collecting savings from migrant communities, microcredit programs often exceed their initial remit by developing savings plans and insurance programs for migrants or their families which, since they reduce the risks of insolvency, make it easier for them to access the credit needed for further investments. On another level, an examination of the interactions between microcredit and migration sometimes reveals contradictory trends. In many cases, families use microcredit to meet the expenses they incur when preparing for the emigration of one of their members; at the same time, remittances facilitate access to credit from microfinance organizations and can thus guarantee permanent

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resources which can be used to repay the debts of small farmers and artisans. In this latter scenario, they act as a brake on rural exodus and emigration. More generally, there is currently a considerable number of national, regional and international development programs aimed at maximizing the benefits of remittances. These programs are based on policies developed within the “migration-­ remittances-­foreign trade” nexus; or on policies derived from the “remittances-­ expansion of financial institutions» axis, which has set itself the objective of reducing regulatory and market barriers. This approach was synthesized in the “Guidance Report for the Implementation of the General Principles for International Remittances Services” (World Bank, 2012). This working document was prepared by the World Bank in the light of a review of the many initiatives it had promoted over the previous five years in more than 30 countries. The World Bank’s discussion paper set out the main principles for a more efficient remittance service, which can be summarized as follows. First, the market for remittance services must be transparent and must ensure the protection of consumers (donors and recipients). Secondly, the report recommends improving the infrastructure of all payment systems and states that remittances should take place within a clear, stable and non-discriminatory legislative framework. It is also necessary to ensure that credit services operate in a competitive market and to ensure free access to local infrastructures, which will reduce the costs of transfers. Finally, it is important that these services are supported by good governance and balanced risk management.

The Contributions of Diasporas Beyond the analysis of how individual migrants behave, the examination of the specific contributions that diasporas are likely to make to the well-being of families and the economic development of countries of origin calls for a more multidisciplinary approach. The aim is to assess the extent to which solidarity mechanisms generated by a group, community or diaspora bring added value to individual initiatives. The scale of the contributions which these communities can make depends on many factors. A first set of determinants concerns the cohort of migrants themselves  – their number, seniority, economic and social status – and the economic situation of the host country. Secondly, the nature of the political ties that migrants have with the governments of their countries of origin is important. Thus, emigration that has been well managed and promoted over a long period of time by public bodies working in close cooperation with migrant associations and host structures in the countries of immigration is capable of generating beneficial effects. However, no such benefits can accrue in cases of expulsion of ethnic minorities or the departure of refugees for political reasons. The particular nature of the links between sending and receiving countries is also a determining factor to be taken into consideration: population movements between former colonizing and colonized countries take place in a context where economic

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and trade relations have been well established over a long period. By contrast, migration flows that are directed towards a range of new host countries generate far fewer opportunities than those based on historical relationships. The greatest potential for positive spillovers from a migrant community is most often found when the countries enjoy stable and sustainable bilateral relations. The motivations behind remittance decisions within the diasporas, of course, also depend on their socio-demographic composition, the emotional attachment to the country of origin, and the permanent, temporary or circular nature of emigration (as discussed in Chap. 6). The capacity to mobilize within a diaspora, the presence of institutions created to maintain links with the country of origin, and the solidarity networks that have been built up over time, these too are undoubtedly factors that can stimulate transfers. It is also important to ascertain whether the majority of migrants established in the host country are highly qualified personnel (HQ) or unskilled labor. In the second case, the spin-offs will be exclusively financial; whereas in the first case they can be both financial and technological. The positive spin-offs of a diaspora in terms of the acquisition of scientific knowledge and technological transfers are best analyzed in the context of the “brain drain”; here we are principally interested in the financial aspects of the question.

The Financial Potential of the Diaspora From a financial point of view, in addition to individual remittances to families and communities, it is important to take into account the favorable climate for international investment and the improvement of business relations initiated by diasporas, which are in a position to play a strategic role as intermediaries between host and home countries. The literature of economic sociology contains numerous studies which have highlighted the intermediary role played by certain minorities in the development of international trade between sending and receiving countries. These minorities have generally immigrated because they lacked social mobility in the country of origin. Studies focusing on expatriate minorities, ethnic businesses, religious or community-based mutual aid and solidarity groups based on families and relatives have brought to light many economic success stories, especially in East and South Asia (Granovetter, 1995).9 Issues related to the financing of the objectives of the “Post 2015 Development Agenda” were at the origin of many projects presented at the “Financing for Development” Summit organized by the UN in Addis Ababa in July 2015. Some of these proposals were geared towards enhancing the value of international migration; more specifically, they addressed the question of how best to mobilize the “potential

9  These analyzes extend and reinforce Bonacich’s (1973) pioneering approach to “ethnic group advantage” and “middleman minorities” theory in the area of migrant remittances.

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Table 9.3  Estimated diaspora income and savings in developing regions – 2013*

East Asia – Pacific Central and Eastern Europe Latin America and the Caribbean South Asia Sub-Saharan Africa All developing countries

Number of diaspora migrants (millions) 31 32

Total diaspora income Total diaspora savings (US$ billion) (US$ billion) 579 116 402 80

24

275

55

38 23 182

402 181 2484

80 36 497

*World Bank (2015b)

of the diaspora” (United Nations, 2015). The likelihood of greater financial participation by diasporas was assessed, and, although it was based on some questionable assumptions about migrants’ incomes and savings rates, the orders of magnitude arrived at were quite impressive. Table 9.3 provides indications regarding the numbers of migrants from developing countries, their total income and the overall amount of savings of all diasporas for the year 2013. The question remains as to which mechanisms and institutions should be used to funnel 10% of this US$500 billion into the development budgets of developing countries. Even if the hypotheses adopted seem particularly optimistic, the fact remains that the amounts involved are considerable, especially for the East Asian and Latin American regions. Among the middle-income countries, Mexico is in a position to draw on savings of US$53 billion held by its diaspora, China could claim a share of US$46 billion in diaspora savings, while India, in principle, has US$4 billion at its disposal. For poorer countries, the savings of the Bangladeshi diaspora amount to US$9.5 billion and those of Haiti to US$5.4 billion. For the most economically fragile countries, the savings accumulated by the diaspora can represent a high proportion of GNP: 81% for Somalia, 53% for Haiti and 29% for Liberia (World Bank, 2015a, b). The very high levels of these latent resources underline the need for long-term governance at the international level in order to coordinate the various private and public actors involved. While initiatives of a philanthropic nature can make a contribution in specific situations, in general they remain relatively marginal. The HTAs (Home Town Associations) have, for example, been successful in Mexico. Essentially, this is a mechanism where local authorities and the government make a financial contribution equal to that provided by migrant associations. These formulas are difficult to evaluate. Their effectiveness and sustainability are far from guaranteed, and the adequacy of the projects chosen is often questionable. Social and Political Aspects  Beyond the strictly economic factors, the social, cultural and political dimensions of diaspora action have indirect financial implications. For example, diasporas are often in a position to influence the policies of host

References

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countries by promoting trade and political relations with their countries of origin. Thanks to the presence and solidarity of large contingents of ex-nationals, countries of emigration have a capacity to influence the foreign policy of departure countries, mainly in areas such as development aid, human rights campaigns, support in international institutions and, more generally, the strengthening of privileged links between the countries of origin and host countries. However, any influence that migrant communities may be able to bring to bear on their home countries is likely to be shaped by the circumstances that prompted their emigration in the first place. These circumstances continue to carry political and economic weight among migrants in host countries (Vertovec, 2005). If a diaspora, for example, is predominantly hostile to the government of the country of origin, if it is in a conflict situation, it is often able to mobilize public opinion and organize political opposition back home. There are more and more examples of diaspora influence working in this way.

References Aycinena, D., Martinez, L., & Yang, D. (2009). The impact of remittance fees on remittance flows: Evidence from a field experiment among Salvadoran migrants, Department of Economics, University of Michigan Press. Beck, T., & Martinez Peria, M. S. (2011). What explains the price of remittances? An examination across 119 country corridors. The World Bank Economic Review, 25(1), 105–131. Bylander, M. (2013). The growing linkages between migration and microfinance, Migration Policy Institute, http://www.migrationpolicy.org Freund, C., & Spatafora, N. (2008). Remittances, transaction costs and informality. Journal of Development Economics, 86(2), 356–366. Granovetter, M. (1995). The economic sociology of firms and entrepreneurs. In A. Portes (Ed.), The economic sociology of immigration: Essays on networks, ethnicity and entrepreneurship (pp. 128–165). Russel Sage Foundation. ICMD. (2011). Cette référence n’existe pas dans la Bibliographie. Orozco, M. (2006a). International finance flows and workers remittances. Best Practices, UNDP, www.thedialogue.org/publicationsfiles Orozco, M. (2006b). Migration, money and markets: The new realities for Central America. In D.  Terry & S.  Wilson (Eds.), Beyond small change: Making migrant remittances work for development (pp. 193–218). Inter-American Development Bank. Page, J., & Plaza, S. (2006). Migration remittances and development. A review of global evidence. Journal of African Economics, 15(2), 245–336. Ratha, D., & Plaza, S. (2011). Harnessing diasporas. IMF Finance and Development, 48(3), 48–51. United Nations. (2014). Framework of actions for the follow-up to the program of action of the international conference on population and development beyond 2014 (Report of the SecretaryGeneral, A/69/62). United Nations. (2015). Trends in International migrant stock: The 2015 revision (Department of Economic and Social Affairs, Population Division, United Nations Database, P ­ OP/DB/MIG/ Stock/Rev.2015. United Nations Development Program. (2009). Human development report 2009; Overcoming Barriers: Human Mobility and Development.

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Vertovec, S. (2005). The political importance of diasporas. Oxford, Centre on Migration, Policy and Society, Working paper n°13. World Bank. (2012). Guidance report for the implication of the CPSS- World Bank General Principles for International Remittances Services. Financial infrastructure Series. World Bank. (2014a). Send money Africa, African Institute for Remittances (AIR). http://www. sendmoneyafrica.worldbank.org World Bank. (2014c). Report on the remittances agenda of the G20, financial inclusion and infrastructure global practice. World Bank. World Bank. (2015a). Remittances price, worldwide. http://remittanceprices.worldbank.org World Bank. (2015b). World bank staff, calculation, bilateral migration matrix, data on skill level from the database OCDE (DIOC) and World Development Database. World Bank. (2016). Remittances prices worldwide. http://remittanceprices.worldbank.org

Chapter 10

Conclusion

Throughout this book it has been emphasized that the international mobility of individuals is an indisputable constant in human history. The movement of individuals has shaped the society and economy of host regions, which have benefited greatly from such movements in the course of their historical development. The individual situations of migrants has also improved considerably in most cases, as their way of life and aspirations have been able to flourish thanks to the opportunities offered by their migration. However, it cannot be denied that for a long time there was a tendency to neglect certain other aspects of their situation. The drudgery and squalor with which, in the end, they must struggle throughout their working lives in order to provide assistance to their families and loved ones left behind in the countries of emigration have been chronically underestimated. For the families in the country of origin, these external contributions are seen as a permanent and legitimate asset. Some of them even depend on this aid for their very survival. This book has not dwelt on the gains and losses that migration generates for receiving countries; nor even with how actions and decisions taken by individual migrants can affect the dynamics of the process. It has focused instead on the analysis of the main economic consequences of international migration for the populations of the countries of emigration. It cannot be said that this theme has enjoyed a long and noble tradition in the economic literature. Rather, it belongs to the domain of what it was once customary to call “political economy”, as governments, as a means of calibrating their power, focused primarily on the number of men and the volume of capital movements they were able to absorb. In the economic literature, the first rigorous analysis appeared in Adams Smith’s “Inquiry into the Nature and Causes of the Wealth of Nations” (1776). Smith showed that, from an economic point of view, migration was first and foremost a phenomenon of redistribution of labor, underpinning classical economic theory: migration was simply the result of differences between the supply and demand for labor in different places. The classical school was strongly in favor of removing all barriers that © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 S. Feld, International Migration, Remittances and Brain Drain, Demographic Transformation and Socio-Economic Development 13, https://doi.org/10.1007/978-3-030-75513-3_10

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would prevent the movement of workers from a low-wage region to a high-wage region. Smith argued for complete freedom of international movement of capital, labor and goods. This would allow market forces to ensure maximum economic development. This approach lost favor with later authors, whose ideas about migration were conditioned by their insistence on the immobility of the labor factor. Other classical economists followed this lead and neglected the issue of population movements. One exception was John Stuart Mill (1848) and, later on and to a lesser extent, James Meade (1951). It was only much later, in response to the dramatic expansion of migratory movements that a profusion of empirical studies took up this theme. Indeed, two phenomena of a completely unprecedented magnitude have emerged very recently: first, the increase in international migration and, more specifically, the “brain drain”, the scale of which has more than doubled since 1995; and secondly, the increase in remittances by almost 800% from 1995 to the present. In presenting this twofold phenomenon, unprecedented in contemporary history, this book has sought to present a range of divergent arguments together with the most recent data for developing countries, while constantly sidestepping theoretical and ideological a priori. A fundamental, though rather too general question, presented itself at the outset. Is it possible to identify the winners and losers of the “brain drain” and to assess the advantages and disadvantages for each? This work clearly highlights the extent to which situations can vary according to the level of development of countries, the level of education of their populations, the performance of their education systems and the degree to which their economies are open to the outside world. An open and dynamic economy does not have to worry excessively about the departure of a small proportion of its HQs, as is the case for China and India. On the other hand, for a large number of less developed countries with fragile economies and tight labor markets, the losses are very substantial. This is just one illustration, in one specific area, of the balance of power that has developed between emerging and poorer countries through the process of globalization. This certainly calls into question the doxa that migration, in all circumstances, has favorable effects on the populations of departure. This judgment has its origin in a kind of “New York consensus” that prevailed until recently. Operating within the organizations of the “United Nations family” and related bodies, this consensus brought together humanitarian concerns, concern for individual rights, and the political practice of securing “automatic votes” from countries in favor of the principle of unfettered emigration to Western countries. The concerns of organizations such as the WHO or UNCTAD have helped to nuance these policies, thanks increasingly to the latest economic research, which has highlighted certain deliberately underestimated negative aspects. These include the moral hazard of labor supply, which has long been suppressed in certain traditional societies, and the phenomena associated with “Dutch disease”, which are likely to become increasingly widespread and to lead to a situation whereby dependency becomes established as a quasi-permanent feature in the growth models of some developing countries.

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Surveying the arguments for and against the “brain drain”, it is difficult to arrive at any firm conclusion as to precisely which policies are most favorable to the well-­ being of the populations of the countries of origin. There remains one area which, without a shadow of a doubt, tips the balance onto the negative side. This is the emigration of medical manpower from developing countries, which has had an impact at a number of different levels, including health costs, the training of doctors, the medical coverage of the population, public finances and the efficiency of public medical infrastructures. Chapter 4 presented our estimates of the expatriation rates of physicians who were trained in developing countries. It provides the rates of “real” (i.e. observed in a given year) and “virtual” medical density (the purely hypothetical rate that would exist in that country if no HQ doctors had emigrated). There are huge differences (especially in Africa) between the two rates, and this allows us to understand the extent and severity of the phenomenon. In Liberia, the observed medical density rate is 4 doctors per 100,000 inhabitants compared to a virtual medical density rate of 7.8 per 100,000 inhabitants; in Niger, the observed density is 1.9 compared to a virtual density of 4.0 doctors per 100,000 inhabitants; in Burundi, the observed and virtual densities are 2.8 and 6.3 doctors per 100,000 inhabitants respectively. These situations are certainly extreme. However, it should be remembered that in developed countries the medical density rate is 4000 per 100,000 inhabitants. The “critical shortage rates” of doctors calculated by the WHO are also very high and need to be taken into account. Responding to this situation, the strongest advocates of an unrestricted “brain drain” have argued that the free movement of future doctors creates an “incentive effect”, which necessarily leads to much greater investment in medical education in order to take advantage of the demand opportunities of the health market in developed countries and the shortages of doctors. The medical “brain drain” also raises serious questions in the context of the current Covid-19 pandemic. It is true that in some countries there is an incentive effect that increases the number of physician candidates and promotes investment in health. The fact remains that this effect is largely insufficient to compensate for the expatriation of doctors in many developing countries. It is not unrealistic to claim that individual expectations based on the demand for physicians in richer parts of the world will stimulate these solvent incentives in a number of countries. But to claim that the elasticity in relation to demand will be so high that it will not only compensate for, but even increase the number of doctors in most developing countries, reveals a rather too dogmatic adherence to neoclassical theory. It is now widely accepted in the theoretical literature and in empirical research that economic factors alone are not sufficient to arrive at an accurate assessment of the impact of remittances on the development of emigration countries. Overall, the positive effects outweigh the negative ones in a large number of situations, especially with regard to poverty and technology transfer. But, as has been pointed out, the negative effects have too often been overlooked. The political, social and institutional contexts in the countries of emigration, also undeniably play a fundamental role in ensuring positive benefits for the entire population in the best possible conditions. Socio-political factors have a decisive impact in both directions.

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Nevertheless, it is important to qualify a vision that has become overly optimistic in the course of the many controversies and initiatives which have arisen within international organizations, regarding the relationship between remittances and development. A large number of negative factors, which are prevalent in many emigration countries, can dilute or deflect the incentive effect, blocking in turn the benefits that may accrue from remittances. Corruption, for example, can neutralize any positive effects if it goes unchecked, as can excessive bureaucracy, customs barriers, and insufficient and ineffective public policies in education and health. An attempt should also be made to assess the impact of political instability, an unreliable or incoherent legal system, and a lack of confidence on the part of the population of the countries of origin in public institutions and governments. These same factors play a significant role primarily in the exodus of a proportion of the highly qualified workforce. In summary, it could certainly be argued that brain drain and remittances are not a panacea for development. Conversely, they should not be made a scapegoat for the causes and consequences of ill-conceived development processes.

References Meade, J. (1951). The theory of international economic policy, the theory of international economic policy. Vol.2: Trade and welfare. Oxford University Press. Smith, A. (1776). Inquiry into the nature and causes of the wealth of nations (G. Stigler, A. Smith, & E. Cannan). University of Chicago Press 1977, 1152. Stuart Mill, J. (1848). Principles of political economy with some of their applications to social philosophy (6th ed.). Longmans, Green, Reader & Dyer. Retrieved 5 June 2014.