Beyond Remittances in The Mediterranean: the financing of local development

1
Beyond Remittances in The Mediterranean the
financing of local development

• Alessandro Romagnoli
  Luisa Mengoni
• University of Bologna
  University of
  Bologna

2
Aim 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.

3
The 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

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The 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

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Local 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

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Why 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

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As 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
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The 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)

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b) 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
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• - 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

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2. 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

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Horizontal 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

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Migrant 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).
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Implication 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!

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Future 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