International Migration, Remittances and Economic Resilience of SIDs: A Cross-Country Analysis
Publication Type:Conference Paper
Source:54th Annual Conference of North American Regional Science International, USA (2007)
While the relationships between international migration, remittances and economic development have been a standard subject of economic enquiry, no systematic attempt has been made to investigate their linkages with respect to economic resilience of small, island developing states (SIDs). This study is an attempt to address this gap. The first part of the paper develops a theoretical framework linking international migration and migrant remittances with economic resilience. An empirical model is formulated in part two. The following issues have been analysed using panel data for a sample of small, island states. 1. International migration having impact on economic resilience through labour market developments including migrants’ remittance behaviour. Whereas adverse implications are found for the labour market in the sense of lack of domestic labour supply, on the balance, international migration has strengthened economic resilience through positive impacts of remittances in some samples. The impact of expatriate labour is also assessed on local labour productivity and wages. The empirical results show that foreign and domestic labour wage and productivity linkages are not well aligned. This would give support to the presence of political economy factors. 2. The contribution of remittances to economic resilience in the presence of asymmetric information. Remittances have been found to finance consumption with no significant impact on investment decisions. Thus the capital market effects appear to diminish economic resilience. 3. Do remittances reduce aid flows and thereby increase resilience of a country? The objective here is to test for substitute and complementary relationship between remittances and foreign aid. It is shown that remittances and foreign aid are complementary. This would imply that small states are more open and have a tendency to increase recourse to foreign capital flows. Since more foreign aid is available to SIDs, the sensitivity analysis of these results has been performed, using high, medium and low aid regimes to support the above finding. 4. Linking remittances to economic resilience in the presence of altruistic motives. An interesting hypothesis is tested to ascertain whether there is any systematic association between remittances and strong and weak economic resilience. A negative relationship would establish the presence of altruistic motive underlying international remittances by migrant population. In other words, migrants help the weak motherland (low economic resilience) by higher remittances. In the case of a positive relationship, economic motives are discovered. This econometric investigation would involve developing an instrumental variable framework. 2SLS estimates are analysed. Our findings do not support the contention that altruistic motives are significant. These results are common to different groups of SIDs. 5. What is the impact of migrants’ remittances on public infrastructure development? It is found that despite leakages, these funds provide budgetary support to capital expenditures when foreign aid is taken into account. This would work through effective use of foreign aid and higher domestic resource mobilization in the presence of migrant remittances. This is an interesting finding because international financial flows (here foreign aid migrants’ remittances) may have a tendency to reinforce each other. This could be simply because both are routed through the government and central banking channels. 6. In the final part of the paper, policy issues are discussed. International remittances are important source of capital in all countries. It is however difficult to model the behaviour of migrant labour for the benefit of policymaking. Countries which gain from these transfers can consolidate on these benefits. In particular small, island states, and developing countries have initiated aggressive campaigns to influence international migrants. This is perhaps a good strategy for designing policies having positive impacts on economic resilience of financially weak countries.
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