Labour market performance and migration flows - European ...

Chapter IIThe impact of migration on labour markets in Arab Mediterranean countriesaccording to Gallina (2006b) – be traced back to the lack of economic incentives for productivelyemploying these earnings, which are mostly devoted to financing basic consumption needs, thusincreasing recipient households’ welfare. The limited evidence of a direct productive use ofremittances goes against the fact that remittances can be just a temporary source of income, whicheconomic theory predicts should not have a large effect on current consumption levels. Thetemporary character of remittance income is also compounded by its possible volatility, asmigrants’ ability to transfer resources back home is influenced by the ups and downs of thebusiness cycle in the destination countries, which tend to be more pronounced for migrants to theGulf, which are exposed to the major fluctuations in the world price of oil (Glytsos, 2001), and to alesser extent for Western Europe. Still, as seen in section 8.3, households react to the temporaryand possible volatile character of remittances by using them to buy up stores of valuables, ratherthan ensuring a longer lasting source of income through risky productive investments.This rather pessimistic view of the impact of remittances on investments based on the microevidence on the behavior of recipient households has been recently challenged in a paper byBillmeier and Massa (2009), who focus, instead, on the indirect effects of remittances oninvestments. Billmeier and Massa (2009) analyzes a panel of 17 countries in the Middle East andCentral Asia, which includes Egypt, Jordan, Lebanon, Morocco and Tunisia, to test whetherremittances contribute to the deepening of capital markets in these countries. The authors find thatmigrants’ remittances have a strong impact on the level of capitalization of the stock markets innon-oil exporting countries, as they represent a source of private savings and they increase theliquidity that circulates in the economic system 114 . Such a conclusion suggests that the macro ratherthan the micro impact of remittances on investments can be relevant, and it also entails that thelabour market effects of migration due to remittance-financed investments are not confined tomigrant-areas.The above argument is also corroborated by de Haas (2006), who shows that the use of remittancesfor investments in Southern Morocco has contributed to the diversification of the economic system,and the urbanization of the population. This specific example suggests that a country – not tomention the whole AMCs area – probably represents a unit of analysis that is unfit to gauge theactual impact of remittances on the labour market via productive investments, as there is alsorelevant heterogeneity within countries in the factors that mediate how the demand stimulusbrought about by migrant transfers is matched by a supply side response.Saad (2005) emphasizes the investments by Egyptian migrants based in France in the agriculturesector in the area of Beheira, and in the real estate sector in the Northern Coast or in Cairo. Fletcher(1999) also finds an increase in the concentration of land tenure in the hands of few householdsconnected to migration, which has in turn led to an increase in unemployment in rural areas, afinding that is in line with what Saad (2005) observes in the Mid Bad Halawa village in Egypt.Schramm (2009) observes that remittances to Maghreb countries give only a limited contribution tothe development of entrepreneurial activities, which are mostly concentrated in the non-tradedservice sector, or in agriculture. Poor recipient households undertake small productive investmentsin cattle, in setting up a small retail shop, or in buying a car to be used as a taxi, while better offhouseholds opt for a restaurant or for a hotel. Provided that these activities are on a small scale,then the direct job-creation effects that they induce are mostly exhausted within the recipienthousehold itself, which is likely to provide most of the required labour supply: still, Schramm(2009) argues that remittance-induced investments contributed as much as 2 percent of the totalnumber of new jobs created in Tunisia over the 1997-2001 period. The bias of remittance-financedinvestments towards the non-traded sector was also found by Labaki (2006) for Lebanon, where thepart of remittances which was not directed to the real-estate sector was used to invest in the retailtrade or in a transportation activity.114 Kachani (2005) argues that migrants show an increasing interest in investing in the Moroccan stock market, a findingthat is in line with the more general conclusion reached by Billmeier and Massa (2009).143