International Migration and Development: Proposed Work Program Development Economics World Bank January 2004
International Migration and Development: Proposed Work Program International migration has profound economic, social and political implications. It raises fundamental issues for developing countries related to poverty, education, the financial sector, macroeconomic management, and more. Some of these issues were raised by Mamphela Ramphele at the recent International Conference on Migrant Remittances in London (October 2003). Migration has also recently attracted increased interest in developed and developing countries as well as in the development community. This is partly due to the concern in developed countries with perceived negative effects of unskilled labor migration at a time of slow economic growth, and in developing countries because of the recent increase in skilled labor migration (brain drain). The World Bank is considering initiating a research program on the development impact of migration. The objective of the research is to identify policies, regulations and institutional reforms that will lead to improved outcomes for developing countries. Migration is more likely to be beneficial for developing countries in the long run if developed countries perceive it to be beneficial as well and are therefore willing to cooperate in designing and implementing sustainable reforms on their side. In other words, one might expect that the reforms most likely to succeed are those that will benefit both sets of countries. Consequently, the research will also examine the impact of migration on developed countries, as well as on migrants because the effect on both sets of countries will also depend on the degree of success of the migrants themselves. In short, a main objective is to identify win-win-win policies for the three groups: developing countries, developed countries and the migrants. Six topics have been identified that are both important from a development viewpoint and that need additional research. These are: remittances; the brain drain; temporary movement of persons (Mode IV of the GATS); the link between trade, FDI and migration; labor market and social protection issues; and governance. Research questions and data requirements are discussed below. 1. Remittances Remittances are now significantly larger than foreign aid. Research will focus on ways to reduce the cost of remitting funds and on raising their social impact. There are at least six issues that have been identified as important for development and on which our knowledge is limited: i) the actual level of remittances, ii) the precise channels by which remittances are transferred and the fees charged, iii) the use to which these funds are put and their impact on recipient families and communities, iv) the incentives used by developing countries to attract remittances, v) how the level and use of these remittances are affected by the recipient country s macroeconomic policies and conditions, and vi) which is related to the previous ones the impact on the recipient country. Level of remittances. Official remittances (as reported to the IMF) amount to some $90 billion. Data are available by recipient country, but these suffer from estimation problems because of definitional issues, informal remittances and remittances
in kind. The first requirement is to obtain an accurate estimate of the level of remittances. Moreover, what is needed is bilateral rather than aggregate remittance data. Ideally, one would like to obtain a matrix of bilateral flows from remittance-sending to remittancereceiving countries. Financial channels and fees. Official channels are known. However, remittances are often transferred through other intermediaries, with an average fee of about 13% and frequently as high as 20%. Development of more efficient channels would be beneficial for the migrants, developing countries and for the financial sector in both sets of countries. This would require undertaking a survey of the financial infrastructure supporting remittances, including tracking the flow of funds from sender to receiver and identifying the intermediaries and systems used. It would also involve examining the performance of the regulatory framework (e.g., to see whether it might be made more competitive). Recent developments such as the Automated Clearing House arrangement between the US and Mexico could provide important lessons about harmonizing payment systems between sending and receiving countries. Use of Remittances and Impact on Recipient Individuals and Communities. Remittances affect individual families (in terms of investment--including schooling, consumption, work effort) and communities (in terms of wages, employment, poverty, income distribution). Understanding the impact of remittances on recipient families and communities will require detailed household surveys. Such surveys would help answer many questions, including whether there are only winners from remittances or whether there are losers as well (who they are, what can be done to alleviate negative effects), whether remittances perform differently than other sources of finance (e.g., with respect to poverty alleviation, to the share being invested, and more). These detailed household surveys will be carried out in the recipient communities in the developing countries and possibly also with the migrants in the developed countries. The surveys are likely to entail the most data-intensive effort of the research program and require the most time. Incentives to Attract Remittances. Many developing countries use tax incentives to attract remittances. How effective are these incentives (or do they just provide another channel for tax evasion)? What is their fiscal cost? And even if effective, is the policy an efficient one? Similar questions relate to other types of incentives, including matching funds (as in Mexico s 3-for-1 program). Effect of Macroeconomic Policies and Conditions. Macro- and exchange rate policies may affect the level and use of remittances. For instance, expansive monetary policies together with repressed inflation, through price and/or exchange rate controls, are likely to lead to expectations of future devaluation and inflation. This may delay the transfer of remittances and may direct them to investments that serve as an inflation hedge (e.g., housing and construction) but are unproductive from a social viewpoint. Another issue is whether remittances respond pro- or anti-cyclically to exogenous shocks. This matters because in the former case, investment of remittances will yield higher returns, while in the latter, remittances will help stabilizing consumption of recipient families and communities. The idea is to estimate the link between recipient country
macro policies and conditions, on the one hand, and the level and impact of remittances on the other. Impact on Recipient Country. There are likely to be various countrywide and macroeconomic effects, not all necessarily positive, including Dutch disease effects in the many countries where remittances amount to a significant share of total foreign exchange revenues. 2. Brain Drain This issue is at the forefront of developing countries concern, and raises many more questions than available data enables us to answer with any degree of confidence. The main ones from a development viewpoint are: How important is the brain drain? This obviously varies by country. For each developing country, we would need to identify the number of people (stock) who emigrated by skill category, to what countries, and the number of corresponding people who remained in their country. This would enable us to identify the share of people who migrated, by skill category. Carrington and Detragiache provide an estimate of the brain drain, based on US census data. One weakness is their assumption that the pattern of migration to the US also applies to other developed countries. To remedy that and obtain a broader data base, their effort should be extended to other developed countries (EU, Canada, Australia) and to more years, including the 2000 census and past ones. What are the costs and benefits for developing countries? Depriving developing countries of brains, one of their most scarce resource, is likely to have a negative impact on their real income and growth. On the other hand, there are likely to be several benefits, including remittances, potential return migration after additional skills have been acquired abroad (related to the next issue of temporary migration), and potential knowledge/technology transfers through return migration, the creation of business networks and increased trade. Another possible effect is on education. Skilled migration prospects raise the expected return to education and may foster enrollment in schools (brain gain). Questions to examine include: How are costs and benefits affected by policies, institutions and labor market characteristics in developed and developing countries? (For instance, the cost to a developing country of the brain drain will be smaller if skilled people are unemployed). How is the brain drain affected by the North s policies (on rotation and duration of migration, e.g., guest worker programs)? Does the brain drain result in North-South technology transfer to the South through return migration, the establishment of networks, or other? How important is the brain gain, and how costly? What is the impact of the brain drain on those left behind (externalities)? What policies in the North and South will maximize the net benefits of the brain drain? Some of these questions will require data from the household surveys.
3. Mode IV and the Temporary Movement of Persons The temporary movement of persons for the delivery of services (Mode IV) was negotiated at the Uruguay Round as part of the GATS. It served primarily to facilitate exploratory business visits and the movement of high-level personnel within multinational corporations. Developing countries are now pushing for greater openness. Though Mode IV negotiations in the GATS might succeed for the highly skilled, negotiations are likely to be bilateral for the less skilled, or regional at best (as between the EU and Eastern European accession countries, between the EU and Morocco--though with fewer commitments than with Eastern European countries, and as suggested in a forthcoming paper from the SSA Region on EPA negotiations between the EU and the ACP countries). Mode IV is just one component of the temporary movement of persons and part of the broader question of temporary versus permanent migration. Permanent migration has led to tensions in various destination countries (cultural, labor market and fiscal-public services aspects) and the temporary movement of persons might help relax some of these. Developing countries would benefit from increased exports of services. Temporary migrants would come under contract from a domestic firm who would be (partly) responsible for their compliance with the contract, including their return to the home country. - Questions to be examined include: 1. What are the actual flows of temporary migrants (by skills and source). Data in various developed countries is by source country and by skills separately. Work would involve putting together a matrix of flows classified by both country and skills, for a selected number of countries. It would also try to identify the main destination sectors. 2. Policies with respect to temporary versus permanent migration differ across countries. Work would involve a survey of the main aspects of the policies for the main destination countries, their differences, and their degree of success (in terms of objectives of both developed and developing countries). 4. Trade, FDI and Migration Trade theory (the Heckscher-Ohlin model) tells us that trade and migration are substitutes: a reduction in trade barriers increases trade, lowers the wage differential, and reduces migration flows. This probably holds for migration from Eastern to Western Europe where migration costs are negligible and increased trade and FDI are likely to reduce migration flows. Where migration costs are important and credit constraints are binding for poorer migrants, trade and migration may be complements for low-skilled migrants and substitutes for high-skilled ones, in which case trade liberalization and FDI can affect the skill composition of migrants (more unskilled and fewer skilled). Also, complementarity is likely if migration results in networks (between the diaspora and families and communities in the home country) that lower trade costs, especially in the case of heterogeneous goods. Such networks may also promote FDI, tourism and other activities beneficial to the home country.
Questions include: What is the evidence? How important are the effects of migration costs and credit constraints on migration? How important is the impact of networks on trade, FDI, etc? How important are the migration effects of trade policies and those related to FDI when compared with the push factor associated with the large North-South wage differences? And one should not forget the effect of the pull factor of people in developed countries using migrants to do jobs they are unwilling to do? (Trade and migration often appear to be complements because they are both affected by other forces e.g., a boom in the US is likely to raise trade and migration from Mexico). Which of trade, FDI and migration result in (more) knowledge diffusion/technology transfers to the South? Is there any reference to migration in any of the regional agreements? 5. Demographic Disequilibria and Skill Gaps Major win-win situations for sending and receiving countries could be obtained with respect to the permanent movement to help adjust demographic disequilibria and temporary movements to help adjust temporary skill gaps. Some highly developed economies or regions have had below-reproduction-level fertility rates for a number of decades which translates into a falling labor force and population unless compensated by increased migration. This phenomenon is particularly pronounced in the European Union. On the other hand, in many low and middle income countries labor force continues to expand at a rapid pace with little likelihood that sufficient number of jobs can be created in the medium term. A particular example with geographical proximity to the EU is the MNA region. While migration into the EU still remains a politically sensitive issue, there is an increasing understanding that ignoring the issue leads to sub-optimal results and no migration is not an option. This requires approaches and knowledge on how best to accommodate enhanced or managed migration for the benefit of sending and receiving country. - Questions to be examined include: i) What are the consequences of insufficient adjustment to the demographic disequilibria for sending and receiving countries/regions? On the receiving country side, the consequences are likely to include lower economic growth and the increased burden for dealing with population aging in pension and health programs. On the sending country side, the consequences are likely to include rising unemployment, in particular among the young population segment. Work would involve an issue paper and first estimates of magnitude of under-adjustment under different scenarios ii) What are the skills requirements for labor market balancing? What skill levels are required in the North and which can also be provided in the South while keeping distortions in both regions low? Questions to be investigated included analyzing the needed skills, their availability, and the effects of skill formation in both sending and receiving countries. A special need and challenge will be to get data about the occupation/skills/education of current migrants as this is normally not captured in the statistics. iii) What are the budgetary effects of migration for the receiving (and sending) countries? A major political obstacle for inward migration is often the claim that migrants net
contribution to the budget is negative. The empirical results across OECD countries differ, also as a result of different methodologies, data and assumptions applied. Work would involve the development of a consistent methodological framework with pilot implementation in selected countries and comparison with existing estimates. 6. Governance It [Migration] is not only an economic issue. It is a human rights issue too. (statement by Kofi Annan at the December 9, 2003 launch of the Global Commission on International Migration, Financial Times, 12/10/2003, p.6). Certain ways of designing migration build in abuse, including the use of labor brokers who exploit their greater power (associated with their superior information) and restrict migrants freedom of choice in terms of employment and mobility, for instance by keeping workers passports. Undocumented migration is obviously fraught with more abuse, including coyotes abandoning migrants in the Southwest desert of the US, Chinese immigrants to the US treated as indentured labor in illegal working conditions until they ve paid back the migration cost they are charged, and more. More generally, surveys in most developed countries show that natives have a negative view of migrants and favor reductions in migration. The natives general attitude has negative consequences for migrants. Questions include: - What policies can be implemented to reduce the negative feelings of the natives toward migrants or even turn them into positive ones? - What policies can lead to a reduction in undocumented (illegal) migration where much of the abuses seem to occur and which contribute to the negative feelings of the natives? Answers to these questions are likely to be partly related to the issue above of temporary versus permanent migration. - Should one consider a (new or existing) international organization that would set general rules for the treatment of migrants? (Kofi Annan in November 2003 called for a better institutional framework to handle migration at a global level. Financial Times, op. cit.) 6.1. Social Protection for Migrants The access of migrants to social programs such as education, health, minimum income support as well as the application of national and international labor standards is an issue world-wide. Facilitating the access is a humanitarian issue as well as having long-term consequences for human development in both receiving and sending countries. Lack of access may also be counterproductive because it is likely to reduce return migration, something that might be in everyone s interest. - Questions to be examined include: i) What are the programs and what is the coverage for immigrants/transmigrates and season workers/commuters in receiving countries? Work would involve putting together a stocktaking of practices in high-migration countries and regions and the identification of good practices. ii) What are the programs and what is the coverage for re-migrants and seasonal workers/commuters in the sending countries? Work would involve putting together a
stocktaking of practices of continued access to programs in former receiving countries (such a health and pension insurance) and access in return country, and the identification of good practices. iii) How can the transferability of benefits in the areas of health insurance, pension insurance, disability insurance and care provisions for (re- and trans-)migrants be improved? Work would involve a think piece about the design and financing of these social programs to be better adjusted to a more mobile international labor force. MSCHIFF N:\Maurice\MIGRATE\PROJECT-2004\Proposal-Migration and Development.doc February 24, 2004 2:39 PM