Title: Beyond Remittances in The Mediterranean: the financing of local development
1Beyond Remittances in The Mediterranean the
financing of local development
- Alessandro Romagnoli
Luisa Mengoni - University of Bologna
University of
Bologna
2Aim of the paper
- The aim of the paper is to highlight the
relationship between remittances and local
development in the Mediterranean, connecting the
migrant flows features to the local conditions of
original economies.
3The Economics of Migrant Remittances
- Reasons why migrants send their savings to the
original family - - altruism, strategic motives, social
security, intergenerational exchange - Impact of remittances on the development process
of the native country - - inequality and threshold income in the
migrant original community affect the amount of
remittance (more is the income inequality, less
is the amount of remittances) - - remittances can stimulate new investments in
village production processes or allow the
adoption of new technologies and skills acquired
in self-employment by return migrants
4The Local Economic Development
- LED is a process taking into account the
conditions and the potentialities of a
territorial community. So it aims to - Improve quality of lives through jobs
- Push local institution towards transparency and
actual support of economic activities - Empower local societies through active
participation to economic processes - Connect the economic activities to the resources
and to the comparative advantages of the
territory
5Local conditions in the Mediterranean area
- The local economic conditions that determined
migration flows are slightly different from those
that should stimulate the productive use of
remittances - Official financial channels are generally not
interested in LED initiatives - Low profile of educational background
- The economic business is considered as an
individual or familial matter - Experience is the main source of knowledge
- Innovation and management are unknown
6Why remittances to promote LED?
- They are less dependent on economic fluctuations
and less volatile to external shocks than other
foreign capital, so many LDCs nowadays rely more
on them, than on official external flows (IMF
2005, Gammeltofl 2002) - In the institutional vacuum, remittances emerge
as the main form of private financing of LED - They constitute a less polarized and a more
flexible form of financing (with respect to FDI,
AID) - They are more suitable to finance small scale
ongoing activities
7As there is an inverse relation (U shaped)
between migration flows and economic growth .
migrants
Migration flow
income
y0
there is an economic threshold, in terms of GDP,
after which migrant remittances are a feasible
source to finance development
8The impact of remittances on development(beyond
the common view on private consumption)
- 1. Remittances as additional income
- a) Speed up the process of changing the structure
of jobs for those that remain behind - If the agriculture is dumped, no income effect is
created and a dependency condition is originated - If there is a substitution of the family labor
with hired labor in agriculture new jobs are
created - The overall effect is positive as remittances
can result in the creation of new jobs
(Funkhouser 1992 de-Haas 2005)
9b) break financial constraint of recipient and
increase the probability of investments in key
areas for development enabling -The change in
the structure of the capital and/or the adoption
of new technologies -The increase of the
starting up of a new business after return
(private enterprises and commercial
activities) There is a relation between
migration structure and remittances use
temporary migration is a strategy for
accumulating savings for productive uses
10- - Remittances relax household credit constraint
increasing the probability of investments as more
as - Household perceive remittances as transitory
rather than permanent - The migration is temporary rather than permanent
- The migrants have particular purposes
- There is a relation between migration
reasons and remittances use in addition to the
altruistic motive migrants can be pushed to send
their savings for personal motivation, that is
for future investments upon return
112. Remittances, achievement of skills and
economic initiatives upon return (evidence)
- Remittances and Human capital (Skills, overseas
work experiences) acquired can promote LED - Level of schooling increasing the probability of
self-employment - Migrants that acquired medium and high-skills
abroad have higher probability of choosing
entrepreneurial activities upon return - Overseas work experience in high wage countries
encourage economic initiatives upon return - Return migrants exhibit a higher tendency for
self-employment over wage employment - But Labor market condition and
regional contest are crucial in determining
occupational choice of return migrants
12Horizontal vs Vertical migration flows to
finance LED ? Migration flows in the
Mediterranean System
- South-North (MENA-UE)
- Permanent Unskilled
- (Coppel,Dumond (Coppel, Dumond,
- Visco 2001) Visco 2001)
- Networks, Starting from the
- Family reunification 60migrants respond
- Mechanism to demand for
- Unskilled labour
- South-South (MENA-GCC)
- Temporary Skilled
- (Martin Baldwin (Martin Baldwin
- Edwards 2005) Edwards 2005)
- PoliciesPrevent Labour market
- Naturalization segmentation
- Foster employment of of GCC
- natives
13Migrant population aged 15 and over originating
from Med-MENA, according to country of origin and
level of education, all countries of residence
together countries of residence together
Country of Origin Pre-primary education and Primary education or first stage of basic education Lower secondary or second stage of basic education, (Upper) secondary education and Post-secondary non-tertiary education First stage of tertiary education and Second stage of tertiary education Total
Percentages Percentages Percentages Percentages Percentages
Algeria 44.14 36.17 19.68 100,00
Egypt 38.22 20.27 41.35 100,00
Palestinian T. 20.63 31.41 49.77 100,00
Israel 15.76 23.34 60.90 100,00
Jordan 19.33 28.06 52.59 100,00
Lebanon 24.04 24.16 51.81 100,00
Morocco 38.65 45.99 15.27 100,00
Syria 28.82 19.88 50.88 100,00
Tunisia 40.60 34.82 24.58 100,00
Turkey 27.80 59.11 5.84 100,00
Only countries of residence providing the
distribution by occupation of Med-MENA are
included. Sources Statistical Institute of
Germany (2001), Canada (2001), Spain (2001), USA
(2000), France (1999), UK (2002), Jordan (2003)
and Tunisia (2004).
14Implication for LED in MENA
- Main achievement
- Horizontal migration is both temporary and high
skilled - a) The use of remittances for productive
investments is higher if migration is temporary
(World Bank 2006) - b) In the case of return migrants remittances and
human capital acquired promote economic
initiatives and entrepreneurship (Ilahi 1999,
McCormick Wahba 2001, Dustmann Kirchkamp 2002) - South-south migration has specific implication
for the LED of MENA!
15Future applied research
- To put in relation skill endowment of return
migrants along different patterns of migration in
the MENA region - To test the specific implication of Horizontal
flows for labour exporting countries in MENA