Labour market performance and migration flows - European ...

Chapter IIThe impact of migration on labour markets in Arab Mediterranean countries3.4 Social remittancesConsumption patterns can be influenced directly by the transfer of norms and ideas from destinationcountries. Non migrants are often receptive to the consumption patterns and the behaviours that themigrants bring back home. The demand for particular kinds of goods and the ensuing development ofparticular sectors of the economy can be influenced by these inflows of ideas from abroad. Socialremittance are particularly important “when migrants return to live or visit their communities oforigin; when non-migrants visit those in the receiving country; or through exchanges of letters, videos,cassettes, e-mails, and telephone calls” (Levitt, 1998). Again, this effect is relevant in those countries(or regions) where the expatriate rate is high.4. Investments and entrepreneurial modelsThe demand side of the labour market is not only exposed to effects that arise through changes inprivate consumption, but also to the influence that migration exerts on the choice of entrepreneurialmodels, and on the ability to finance ensuing investments. Remittances, the most apparent counterpartof labour migration, clearly represent the source of these funds, which have an outreach that goes farbeyond recipient households. There are also high expectations for the migrants themselves, who aresupposed to acquire additional skills in the countries of destination, and hence to have a higherlikelihood for setting up a new enterprise upon their return. Once more, return migrants can be thevehicle for the introduction of entrepreneurial models from the countries of destination to the countriesof origin, but social remittances can also be transferred through broader and less concrete channels.4.1 RemittancesRemittances can stimulate productive investments (Orozco, 2000; Woodruff and Zenteno, 2007), easethe provision of credit and the development of financial and equity markets (Giuliano and Ruiz-Arranz, 2009; Billmeier and Massa, 2009), although these positive developmental contributions arenot independent of the economic and institutional frameworks of recipient countries. 78Remittances also exert an important insurance role for recipient households; the risk-differentiationbrought about by migration at the micro level can offer the chance to undertake productiveinvestments that are profitable but that would have otherwise been deemed as too risky (Rapoportand Docquier, 2006). Adams (1991) analyzes the expenditure patterns of returned migranthouseholds, finding that they devote a large share of their remittance incomes to investment ratherthan to consumption, as they perceive remittances as being a temporary rather than a permanentsource of income. Similar findings are reported in Adams (2006a), where the author shows thathouseholds receiving remittances spend less on consumption and more on investments, educationand housing than non-receiving households. He also stresses the importance of the effects ofremittances on wages and employment in areas where they are spent productively.Giuliano and Ruiz-Arranz (2009) use data from approximately one hundred developing countriesover the period 1975-2002 and they show that remittances provide an alternative way to financeinvestment in countries with poor financial systems. Remittances can help to overcome liquidityconstraints in countries where credit markets are inefficient or non-existent. Aggarwal et al. (2006)use a sample of 99 countries and they argue that remittances promote stock market development, andGupta et al. (2007) reach the same conclusion for Sub-Saharan Africa. Needless to say, these effectscan give rise to a significant indirect impact on the labour market through the ensuing job-creationeffect.78 Remittances also reduce the likelihood of a Balance of Payment crisis (Bugamelli and Paternó, 2006), which induces amajor fluctuation in the business cycle, and hence in the level of investments and labour demand.121