Return Migration and Local Economic Development (LED): A

Bottom up Approach for the Middle East & North Africa Region.

Luisa Mengoni

University of Bologna Strada Maggiore 45, 40125 Bologna (Italy)

Tel: ++39.051.20.92.657 mengoni@spbo.unibo.it

Migration Working Group, 30th January, 2008

Abstract: In the last decades there has been an increasing interest among scholars on the link between international migration and economic development in migrants' origin countries. In particular the return migration phenomenon, as a mean of resource mobilization and capital transferring into sending communities, emerges as a potential engine of economic change. The interesting and controversial results put forward by both theoretical and empirical studies on the topic emphasise how the probability that return migration affects the development path of migrants' origin countries, is conditioned both by individual factors (as the returnee socio-economic background and its migration experience), and by environmental factors (namely the economic structure of the origin countries and territorial conditions). Despite the common recognition that the local socio-economic and institutional dimensions are crucial in creating opportunities for the returnees and in fostering the productive implementation of capital (both physical and human) acquired abroad, further knowledge is needed to know if migration contributes to local economic development (LED) (LED stands for a process of changing and diversifying the existing structure). Furthermore, we also need to understand how the aforementioned individual and environmental factors are reciprocally linked with each other and how they interact. This paper sets out to build an analytical framework of the LED dynamics in migrants' sending countries and to revise the economic impact of return migration in the light of some peculiar features of local economic development. Specific attention will be given to the Mediterranean Middle East and North Africa region. Key words: Return migration, local economic development, MENA region.

1. Introduction

The linkage between migration and local economic development (LED) is attracting increasing

interest among economists and policymakers from two main perspectives: from the host countries

side, the attention is on the effects that migration flows have on the local labour market and on the

level of welfare of workers abroad. From the origin countries, especially for low-middle income

developing countries where migration flows are consistent, the focus is instead on the potential role

that migration, in particular return migration, has in the promotion of local economic development

(LED). In particular, returnees1 are considered to be potential actors of change of the existing

structure since they mobilize different kinds of resources (remittances, knowledge and know how

acquired abroad) that can be used, once back in origin countries, to implement entrepreneurial

projects and to finance expenditure in key areas for development (in particular investment in

education).

Starting from the 80’s, the economic literature on the issue has reviewed mainly on the role that

remittances, as the most tangible resources of migration, has for origin countries both at macro level

(on output, exchange rates, trade and relative prices) and at micro level (on households consumption

and investment decisions) (Rapoport H., Docquier 2005). Recent empirical and theoretical

contributions have also focused on more complex dynamics, such as the use of remittances, in

connection with acquired skills, in the promotion of self employment upon return (McCormick B.,

Wahba J. 2001; Taylor E.J. 2006). However, the results put forwards by these studies put no

attention to the local development features (LED) in origin countries, nor provide a description of

the mechanisms that influence the implementation of resources acquired by migrants and the

potential economic and institutional changes induced by returnees. The linkage between migration

and local development, in fact, differs from context to context as it is shaped not only by patterns

1 Return migrants (returnees) include, using UN definition, “persons returning to stay in their country of citizenship after having been international migrants in another country and who plan to stay in their own country for a year or more”.

2

and composition of migration flows, but also by the general conditions of the markets, the

incentives given by local institutions and by the profitability of investments in origin countries.

Given that the MENA (Middle East & North Africa) region cannot be considered an

homogeneous one in terms of economic structure and stage of development achieved by local

economies, due to the coexistence of different subsystems (Maghreb, Mashreq and GCC), this study

aims at building an analytical framework of the LED dynamics in migrants’ sending countries, and

at revising the economic impact of return migration in the light of peculiar features of regional

economies.

The first step of analysis will be devoted to provide a definition of LED and of the general

variables and specific conditions that are of particular concerns for returnees to MENA origin

economies (Paragraph 2). Than a stylized description of the LED features in the Arab region will be

given, with particular attention to factors that influence the success of returnees, such as the labour

market conditions (Paragraph 3.1), the educational system and human capital formation (Paragraph

3.2), and the business environment (Paragraph 3.3). The second part of the study will move from

this general framework to the combined analysis of migration and LED from the sending countries’

perspective. Adopting a definition of LED as a process of changing and diversifying the existing

economic structure through the implementation of the potentiality of the territory (in terms of

economic, human and institutional resources), the contribution of returnees to MENA countries will

be considered. Return migrants emerge as bottom up contributors to the LED process in origin

countries, as they induce different economic changes: they modify consumption expenditure at

household level increasing expenditure in strategic areas for development (education), they promote

occupational and sector diversification (through the combination of remittances and human capital

acquired abroad) and contribute to institutional changes (through fostering persistence of informal

channels).

3

2. Local Economic Development: A definition

In the past 50 years, the term development has become among the most debated by economists

since, from one side, the definition is not universal but depends on the context and on the

perspective adopted and, from the other side, there are not uniform approaches that can entirely

satisfy the objectives related to it (Todaro, M.P. 1994; Ranis G., 2004). Although different

disciplines (sociology, law and politics), that have interest in the field, have tried to explain, using

different interpretation schemes, the mechanisms and the pre-conditions laying behind the

development process of a territory, there is not a coherent theory on this topic.

Starting from the 80’s, the analysis of the development process has moved from an old

paradigm, in which development was mainly a synonymous of rapid economic growth measured in

aggregate terms, to a new one in which development was seen as an endogenous change, depending

on the evolution of internal factors linked to the structure of the territory and to the local

community. The analysis of the development process has thus evolved, including not only the

quantitative increasing of employment and production, but also non-monetary variables such as the

quality of the transformation and the level of social welfare attained at community level. In the new

approach the term local becomes of central importance since the territory is seen as the place where

the production is organized, knowledge is accumulated and economic, political and social agents

interact.

In this framework LED can be defined as a process (rather than an economic model stricto

sensu) of changing and diversifying the existing economic structure through the implementation of

the potentiality of the territory (in terms of economic, human and institutional resources). It is the

community that search for and implement local strategies basing on the expertise, the knowledge

and the experiences available and converting resources into specific products (Long A., van der

Ploeg J.D.,1994).

As a process of comprehensive changing that involve the society as a whole, resulting in

different paths and models that reveals the potentiality and the weaknesses of the local contest, LED

4

has to take into account different variables: the population structure (demographic growth and

composition of the labour force), the economic structure (growth areas vs. weak sectors, patterns

and trends of the local economy, economic diversification opportunities and requirements), and

other locality conditions (infrastructures and administrative environment). The economic policy

wisdom about LED in fact aims at (Bellini, Giuliani, Pietrobelli, Rabellotti, 2004):

• Empower local societies through their active participation to economic processes;

• Connect the economic activities to the resources and to the comparative advantages

of the territory;

• Improve the quality of lives through jobs;

• Push local institutions towards the transparency and toward an actual support of

economic activities.

In this perspective local economic development takes place if some conditions occur

(Barquero, A.V., 2002):

• Knowledge and Innovation spread at firm and territorial level, increasing

productivity and competition;

• The organization of the production system becomes more flexible, fostering the

emerging of individual and community networks that facilitate the exchange of goods,

services and information among economic agents. Interpersonal mechanisms based on

mutual trust become of crucial importance in presence of market imperfections;

• Institutions evolve into a system characterized by a certain degree of flexibility and

complexity, reducing economic costs (production and information) and thus resulting in

a better allocation of existing resources.

Among the local disposable resources, human capital endowment has a primary role since

insufficient level of it can hinder, in the long run, the economic growth process. This is particularly

true for developing countries, where investments in human capital result not only in direct effects

(such as an increase of productivity of the labour force and a shift towards production of more

5

sophisticated goods), but also in positive externalities (emerging for example through the

interaction between skilled and low skilled workers) (Romer P.M., 1990). If we look at the link

between human capital and growth in relation to different levels of economic development,

empirical studies have demonstrated that, in the case of low and middle income countries (like the

MENA region) the return of human capital investments, due to the scarcity of this factor and to the

financial constraints for these initiatives, can be much higher than investments in physical capital

(Psacharopoulos G., 1991). Investments in human capital also results in social externalities,

influencing for example fertility decisions, labour market participation, consumption patterns and

welfare at household level. There are also a strong complementarities between human and social

capital as, from one side, networks help the acquisition of workers expertises, and from the other

side, an improvement in the level of human capital strengthens participation to economic activities

and mechanism based on cooperation and trust (Coleman J., 1988).

3. LED in the MENA region.

The economies of the Middle East and North Africa region can be hardly compared in terms

of growth, since they present a high diversification within the region and between sub-groups

(namely Maghreb - Morocco, Tunisia, Libya, Algeria-, Mashreq- Egypt, Jordan, Palestine,

Lebanon, Syria, Yemen- and GCC-Gulf cooperation countries). The diversity of growth among

MENA groups of economies reflects not only the split in endowment of resources (oil rich countries

vs. labour abundant and resource poor ones), but also differences in the economic systems (labour

market features, human capital and productivity level, demographic growth, institutional factors)

and in the economic policies carried out by local governments. As for reforms, the region can be

divided into early reformers (Egypt, Jordan, Morocco and Tunisia) that have first implemented

macroeconomic programs towards liberalization of trade and privatization of state-owned

enterprises, and late reformers (Syria, Lebanon, Algeria and Yemen) that still have to borrow from

6

local markets to finance the recovery process. Oil rich countries have generally achieved

macroeconomic stability, but still lack structural reforms. A number of countries have also

committed themselves to institutional reforms, including financial and banking system, educational

structure, administrative procedures and bureaucracy. Decentralization and privatization schemes,

though, have not resulted in distributing the decision making power so that benefit have been

limited to strong sectors and specific social groups.

Although many countries in the region have approached the stage of industrialization, with a

certain degree of diversification of economic activities, and with the service sector as the main

source of employment, agriculture still plays an important role in creating jobs, especially for the

high-job growth countries.

Table 1. Job creation by sectors (2000-2005)

Source: Word Bank, 2007.Based on national sources.

Anyway, the persistence of a centralized dominated management of economies and, in some

areas, pre-capitalist form of economic relations, still reflect the attitude to consider land and

properties as important assets. Since they represent an immediate capital acquisition available to the

7

entire family, are valued to be more profitable than investments into productive enterprises. Most

business, directed to rent rather than to profit, are small scale family owned and run and rely on

internal sources of finance (fostered by parental networks) rather than on external borrowing

(Wilson R., 1995). Apart from some exceptions (mainly oil and resource rich countries -GCC,

Libya and Algeria- that rely on heavy industries), the comparative advantage of the most populated

economies of the region is linked to traditional labour intensive activities (manufacturing), where

the quality is related to the tradition and the labour force unique skills and abilities.

Instead, in the international agenda the local economic development course of the MENA

region is mainly identified as a transition towards an economic structure that is able to create

employment opportunities through three interrelated processes (World Bank, 2005):

• A move from closed to open economies: the aim is to improve firm competitiveness, benefit

from international best practice and foreign technology;

• A shift from public sector to private led economies: the aim is to improve employment

opportunities and efficiency;

• A transition from resource dependent to more diversified economies: the aim is to reduce

dependency from volatile source of growth, to preserve social expenditure and fiscal

stability.

The priorities stressed by this approach, although undeniably valid, put emphasis on LED as mainly

a process of modernization of regional economies. Anyway, the structural reforms put into force by

MENA economies have not reached yet a “desirable” level in terms of renewing of existing

structures, thus highlighting some limits of the top-down approach to LED.

In an attempt to build a theoretical framework of the LED process in the MENA region,

based on a peculiar bottom-up strategy supported by returnees, it is necessary to stress that, despite

heterogeneity in terms of growth, the region as a whole presents some common characteristics, such

as labour market conditions, educational system and human capital acquirement, all affecting the

peculiar path of internal growth.

8

3.1. The Labour Market.

The demographic changes that have occurred in the Arab region in the past decades have

resulted in an increase of the economically active population close to 3% and a raise of the

dependent population (the quantity of the population that does not work and relies on effective

labour force) of about 2%, showing the highest percentage in the world (UNFPA, 2003). Despite

the decrease in fertility rates across the region and birth control policies, the population momentum

(Bloom, 1998) keeps birth rates high with an overall increase of the workforce to total population.

Creating employment opportunities thus remain among the main concerns for the entire region and

in particular way the creation of additional jobs to employ future entrants into the labour market.

It is important to stress that different forms of unemployment coexist in MENA labour

markets, such as invisible underemployment (in which the labour force underutilize personal skills

and receive minimum wage), and also “moonlighting” phenomena. In the last case, the worker

performs different types of employments during the 24 hours: in the case of Egypt an “official” job

during the day and other “informal” jobs (taxi drivers, small retail activities especially in local suq)

during non-working hours.

In addition to the mentioned features, the Arab labour markets present some common trends:

• Mismatch between low productivity and rising job creation: The relative growth in the

absorptive capacity of the regional economies (as Egypt, Algeria and Iran) still goes together

with a negative relationship between productivity growth and employment creation (due to

lack of investments). What is more, in some countries, such as Algeria, Tunisia and Iran,

real wages in non-agricultural activities have increased much faster than labour productivity,

suggesting the rising of unit labour cost and the decreasing of competitiveness.

• Market segmentation: Instead of a segmentation between capital intensive and labour

intensive sectors, MENA labour markets present a division between the public sector and

governmental jobs (with more guarantees in terms of insurance and wage) and the private

sector. The dominant role of the state in economic affairs and the inefficiency of the

9

bureaucratic system has slowed down the growth process of the private sector, that is

constituted by few big firms, that benefit from state incentives, and many small firms that

have limited access to official credit and governmental programs. The public sector still has

a dominant role in terms of employment creation in most countries (from 10% in Morocco

to 93% in Kuwait and 70% in the GCC) offering wages higher than the private (World Bank

2005). The slow growth of the private sector, the reduced absorption capacity of the public

sector together with the mismatch between demand and supply in the labour markets, have

exacerbate unemployment problems, particularly for the youth labour force. One of the main

outcomes has been an increase in informal activities.

• A shift from the formal to the informal sectors: The informal labour market, mainly

composed by small family owned activities and firms that require little investments and

have no official insurance system, has been so dynamic in the past decades that nowadays

represents one of the main sources of occupation for the Arab labour force. Despite lack of

data that can underestimate the phenomenon, the informal sector provides around 43% of

jobs in Egypt, 37% in Morocco, 33% in Jordan and 23% in Tunisia (CAPMAS, 2003). More

important is the fact that informal activities, both in rural and in urban areas, are becoming a

persistent labour market suggesting that, in presence of high unemployment rates or

inaccessibility to formal business, it is not a transitory solution but rather a proper

occupation (World Bank 2004).

Due to the aforementioned causes and to the inability of local institutions to adapt to economic

changes, the Arab labour markets present structural imbalances between demand and supply of

skills, with surplus of high educated people, waiting for a job, and lack of skilled labour force.

3.2. Education and Human Capital.

Economic theory recognizes education and human capital (including skills, abilities and

10

competences) as pre-conditions for the take-off of the economy as they enable countries to break

out from external dependency into self-sustaining growth (Rostow, W., 1960). The relevance of a

reasonable standard of education is of main concern for the MENA region, since local economies

suffer from the lack of “knowledge” and the inability of the labour force to meet the skills

demanded in the local labour markets.

In terms of stock of human capital, the Arab countries present different trends, showing

significant annual growth rates in Tunisia (5.2%9, Algeria (4.7%), Egypt (4.1%), and Bahrain

(4.1%), and lower rates in Kuwait (2.3%), Iraq (2.6%), Jordan (2.8%) and Syria (3.8%) (Abdel

Gadir Ali A., 2002). Anyway, the general increase in enrolment rates has not been followed by an

increase in terms of quality of education provided and outcomes in the labour market (productivity

and employment opportunities). The educational and human capital acquisition in the region,

conditioned by the socio-cultural and institutional context, presents some common features:

• Imbalance patterns of education expenditure: In most MENA countries the

inefficient public expenditure in human capital formation is biased in favour of tertiary

education at the expense of secondary and primary education. The increasing demand in

education is not balanced by investment in physical capital and teachers formation,

which results in reducing quality of the educational system.

• Quantity vs. quality: Starting from the 50’s, MENA government have followed a

policy of “universalization of education” which has resulted in a positive increase of

enrolment rates, at least for basic education. Primary education has not resulted in an

increase of secondary enrolment rates and, in particular way, it has resulted in a decline

of quality and bias between private and public educational system (especially at

university level).

The decline in quality standard and the incapability of the educational system to form a well skilled

labour force that suits market demand, depends on different factors as the rapid expansion in

university enrolment rates, not balanced by investment in resources and quality of the system, and a

11

traditional approach to education, with little attention toward the accumulation of knowledge,

analytical capabilities and formation of “ideas” (Fergany N., 2001).

Therefore in most Arab countries the educational system, developed mainly in primary

schools and a secondary education mainly concentrated in humanistic formation, is incapable of

foreseeing, in the medium-long run, the evolution of the professional figures and the competences

demanded by local labour markets. At personal level, the preference for university formation and

the absence of training programs can be attributed to lack of information and socio-cultural factors,

as the important role of the family in planning vocational choice of children (Wilson R., 1995), thus

resulting in a mismatch between personal return of investment in human capital and social benefit.

This is particularly marked when governments subsidize education at higher level, thus influencing

the investments choice at household level.

3.3. Entrepreneurship and Business Environment.

With few exceptions, namely big firms linked to resources, the business environment in

MENA countries is mainly constituted by small and medium enterprises (SMEs) dominating

manufacturing and polarizing in traditional activities. The contribution of small business to local

development, in terms of production and job creation is significant, passing from 65% of GDP in

Jordan to 70% in Morocco and 80% in Lebanon (Table 2.).

Table 2. Private sector contribution (in % of GDP) to growth, early 2000s.

Source: Assaf and Benhassine2003; Country sources.

12

Although micro enterprises and private small scale activities account for much of regional

employment, they have little access to markets, government support programs and formal financing

and move in an environment which is characterized by common and peculiar features (Charif H.,

2004):

• Lack of internal demand: High level of unemployment and unequal income distribution

polarize consumption in small social groups. The internal market is also limited by

restrictive commercial policies that reduce trade flows.

• Lack of competition: In most of the countries investments are directed towards strong and

strategic sectors devoting little resources to small scale activities and favouring the creation

of monopolies. The existence of barriers to enter in the private sector reduce competition at

the expense of variety of production.

• Lack of information: Market information, both technical and financial, are not easily

available. The main reasons are the low profile of entrepreneurs, in terms of human capital,

and the inefficiency of institutions to create information flows among economic agents. The

result is the prevalence of informal channels and person to person exchanges.

• Bureaucracy and procedures: Complex and expensive administrative procedure to start a

business and lack of transparency and internal accountability make the implementation of

entrepreneurial activities more difficult. To avoid high transaction and information costs,

licensing and register procedures rely upon informal channels, so that rising economic

activities loose the possibility to have access to credit and services incentives offered by

local governments.

Lack of cooperation is a common attitude among economic agents that mistrust local institutions,

especially financial ones. The result is the persistence of personal mechanisms of financing

economic activities such are family support, personal savings or informal loans asked to local

community.

13

4. Migration and LED in the MENA Region.

The results put forward by both theoretical and applied economic research in the field

suggest the existence of a twofold link between local economic development and migration since,

from one side, the level of development shape migration flows (Martin P., Taylor E., 1996) and, on

the other side, different patterns of migration flows (permanent vs. temporary, skilled vs. unskilled)

affect the development path of origin countries. The controversial results put forward by the

economic literature is sometimes conditioned by a dual vision (positive vs. negative) of possible

outcomes of migration in sending countries, that put little or no attention to the LED structure and

characteristic of origin communities. The shared idea is that if remittances, as the most tangible

benefit of migration, if spent in productive investments rather than consumed, they should have

positive effects in origin communities (Stark O., Bloom D., 1985). The use of remittances for

private consumption, including purchase of land, repayment of debts, education and human capital

investments, are seldom considered to be unproductive since they have no direct effect at national

level (Durand and Massey, 1992). The relevant question, as argued by Lucas, in investigating the

linkage between development and migration should be not if, but how migration affects changes in

origin countries in terms of what to produce, how to produce (Lucas R., 2005) and what to

consume. In other words, further considerations of what kind of changes are induced by the

migration process on the development path of regional economies have to be taken into account.

The initial conditions that push migration flows can be, in fact, different from the ones that

stimulate productive uses of resources (physical, capital and social) acquired through the migration

experience since the local context in which the (return) migrants reintegrate cannot always be

identified as “well behaving” economies. In the case of MENA countries, a huge fragmentation of

economic activities, the inefficient level of coordination among economic agents, the predominance

of familiar business directed to rent rather than to profits (together with the path-dependency nature

of LED), influence and shape the potential economic and institutional changes induced by return

migrants.

14

Starting from the 70’s, intra and inter regional migration flows have represented, for the

Arab countries, one of the main strategies of local development from both a national and

supranational perspective. Concerning the last point, it is worth noting that, despite the insufficient

performance of MENA economies in foreign trade markets (due to concentrate export structure,

logistics and restrictive policies), labour migration plays a unique role in promoting regional

development through market integration, since migration flows have been, and still are, the most

dynamic feature of regional integration. The most tangible network, linking development and

migration, is the huge amount or remittances in the region.

Turning to national perspective, it is return migration to have the most pervasive role in

promoting local economic development since returnees, by mobilizing resources acquired abroad

(physical, capital and social), can be actors of a bottom up approach to LED in origin countries.

They in fact can act as a breaking element towards the traditional economic and institutional system

and be actor of changing and diversifying of existing structure. The role of return migrants in

influencing the development path of origin countries depends, from one side, on the returnees’ level

of preparedness (willingness and preparedness to return), on pre-return conditions (motivation,

status, length of stay and resource mobilization), and post return conditions (reintegration process)

(Cassarino J.P., 2004) and, as already stressed, by the economic and institutional factors that shape

the development path in origin communities.

4.1. Return Migration and Human Capital Formation.

Despite different performance in terms of educational achievement of MENA countries, and

despite differences of economic agents in terms of skills and personal abilities, the economies of the

region present some general features :

• Low educational background: Although entrepreneurs have achieved high

level of education, their technical learning or professional training is almost absent.

• Experience is the main source of knowledge: Specific know how is achieved

15

in the labour market, by working in family business or as salaried workers in high

income countries.

• Innovation is an unknown activity: New firms are repetition of existing

models, with little or no innovation in production process and managerial ideas.

The majority of (return) migrants workers have little chance of acquiring any professional

preparation before leaving the country and after return. As shown previously, this is due to the

imbalance in the local educational system that favours tertiary education at the expense of technical

formation and professional schools.

What is more, only few of them engage in training during migration experience, as MIREM

data on returnees to the Maghreb countries (Algeria, Morocco and Tunisia) show. (Table 3).

Table 3. Professional training acquired in the main country of immigration* by the returnees to the Maghreb

Migrants whose return was... Did you follow any professional training courses in the

main country of immigration? Decided (%)

Undecided (%)

Total (%)

Yes 18,7 13,9 17,5 No 78,1 85,3 79,7 No reply 3,3 0,9 2,7 Total (N) 761 231 992

(*) The main country of immigration is the last country of immigration where the respondent lived before returning. Source: MIREM, EUI, 2007.

The previous considerations suggest that working abroad is the main training for return

migrants: entrepreneurial ideas and specific know how, that represent scarce resources in origin

countries, are mainly acquired in the host labour market by learning by doing. Migration is thus a

strategy for achieving some form of specific human capital, demanded by local markets that, as we

will see in the next paragraph, improve the possibility of implementation of economic projects upon

16

return.

Even if migrants return to similar patterns of employment, there are noticeable changes in

the nature of employment (private vs. public) and in the share of migrants engaged in technical,

scientific and managements occupation. As the case of Egyptian returnees from the Gulf Countries

at the beginning of the 90’s shows, return migrants are more likely to invest in partnership and joint

ventures and to provide good jobs (e.g. jobs that offer paid leave), which suggest that human capital

acquired in more advanced commercial environments increase cooperation among economic agents

and increase the quality of the business environment (J. Wahba, 2003).

4.2. Return Migration and Investment Projects.

The economic literature suggests that the allocation of remittances in investment or in

consumption is conditioned by several factors (World Bank 2006):

• Households perceive remittances as transitory rather than permanent flows;

• Migration is temporary rather than permanent;

• Migrants have particular purposes

Return migration has thus a more pervasive role in promoting LED since returnees tend to

transfer their savings to origin communities rather than invest or consume in destination countries.

In the MENA region, as we have seen, due to limited access to formal credit and minimum wages in

many sectors, remittances constitute an additional form of liquidity that can have positive effects at

household level, both if consumed or invested. In presence of liquidity constraints, return migration

becomes a strategy of accumulating savings which in turn increase the probability of self-

employment once back in origin countries. As a matter of fact, in national perspective, the amount

of economic projects financed by entrepreneurial returnees in MENA countries through savings

accumulated abroad, can reach highest percentages to the total, as was the 87% of Tunisian

returnees in the 80’s (Mesnard A., 2004)

Concerning the use of remittances for consumption purposes, it is generally believed that

17

migrants’ savings can result in a dependency effect if they induce changes in labour supply

discouraging participation, especially in agricultural activities. Anyway, empirical studies have

found that in some MENA countries, such as rural areas in Morocco (De Haas H., 2005),

dependency effect have resulted in a substitution effect, because thanks to remittances, migrants

households do not perform agricultural works anymore but hire external labour at the scope. The

overall effect is the creation of new jobs in economic activities. If spent in investment goods, such

as building material, light machinery and fertilizer, they promote LED through increasing

productivity and through making the agricultural sector more capital intensive. In the latter cases,

migration represents an important tool for local development of origin communities, since it speeds

up the process of labour substitution in specific sectors, and change consumption behaviour of

recipients, increasing the probability of expenditure in key areas for development (intermediate

goods, import of capital).

In the case of return migrants, who tend to invest saving towards productive uses more than

non-migrants, the combination of remittances and human capital acquired can have a positive

impact in promoting occupational change and in increasing the probability of self employment upon

return (McCormick, Wahba 2001, Ilahi 1999). The main constraints to the implementation of some

form of economic activities are the LED features in origin countries.

In the MENA region these limits are represented mainly by institutional factors and in

particular by the difficulties of having access to credit, formal banking system, state incentives and

market information for small entrepreneurs. Apart from financial constraint, lack of experience and

market condition, the institutional and administrative constraints are the main causes of failure or

return (Table 4).

18

Table 4. Reasons why some returnees to the Maghreb did not carry out any investment in the

country of origin after return (a).

Migrants whose return was...

Main reasons (multiple reply) Decided (%) Undecided (%)

(a) Rates are not cumulative

Total (%)

Insufficient financial means 54,0 75,6 59,8

Lack of experience 29,4 28,8 29,2

Institutional and administrative hindrances 23,7 31,3 25,7

Small market opportunities 5,3 11,3 6,9

Health or family problems 13,3 8,1 11,9

I did not feel like it 24,6 18,8 23,0

I did not think about it 21,4 20,0 21,0

Other 9,9 7,5 9,2

Source: MIREM, EUI, 2007.

These constraints can be partly overcome thanks to the migration experience. As in the case

of returnees to the Maghreb countries (Algeria, Morocco and Tunisia), self financing represents the

main capital for undertaking some economic activities once back in origin countries (Table 5.) The

survey also shows that parental networks are another form of support of investment projects,

representing about 57% of help for migrants that decided to go back.

19

Table 5. Financial resources used to support the investments carried out by the returnees to the

Maghreb (a)

Migrants whose return was...

Types of financial support (multiple replies)Decided (%)

(a) Rates are not

cumulative

Undecided (%)

(a) Rates are not

cumulative

Total (%)

Self-financing 94,6 71,4 91,1

Bank loans 16,9 17,0 16,9

Borrowed money from a parent 8,6 22,4 10,8

Other 8,7 10,6 9,0

Source:MIREM, EUI, 2007.

Finally, if it worth stressing how returnees not only have a positive impact on origin

communities, by creating economic diversification through implementing small activities, but, in

the long run, they have a pervasive role on the growth process, since remittances are utilized to

finance another form of productive investment: human capital. As shown by the following table,

investment in children school education is considered to be among the main priorities to be

achieved by returnees, second only to acquisition of some form of assets (Table 6.).

Investments in education in turn result in a virtuous circle for the LED process, since human

capital has both economic and non economic outcomes (social externalities) leading to

improvements in well being and status of individuals. What is more, investment in housing, one of

the main achievement of return migrants in MENA (Adams, 1991), although considered to be

unproductive (since they might result in a negative effect for the whole economy if they lead to an

increase of prices in the real estate sector), have undeniable positive welfare effect at household

level, increasing health and living condition.

20

Table 6: Utilisation of remittances sent from abroad by the returnees to the Maghreb (a)

Migrants whose return was... For which purposes did you send remittances?

(multiple replies) Decided (%) Undecided (%)

(a) Rates are not cumulative

Total (%)

Provide for the family needs 85,7 91,7 87,1

Children school education 31,5 19,9 28,8

Build/buy a house 41,4 23,1 37,1

Invest in a business project 15,5 5,1 13,1

Land 8,7 8,3 8,6

Buy new agricultural equipment 2,4 3,8 2,7

Building sector for public monuments(mosquees,

hospitals) 1,8 1,9 1,8

Other 2,6 6,8 3,6

Source: MIREM, EUI (2007).

6. Concluding remarks

The combined analysis of return migration and local economic development process in the

Middle East and North Africa region, although limited by lack of data and mixed evidence, suggests

that returnees represent an alternative strategy to LED with respect to external form and to top down

approaches of financing growth. Returnees are incubators of additional resources (remittances and

know how and entrepreneurial ideas acquired abroad) that usually lack or are difficult to acquire in

the local labour markets. Concerning financial capital brought back by returnees in the form of

21

remittances, in most MENA countries it has shown to be less dependent on economic fluctuations

and external shocks, thus representing a development tool both at national level and for recipient

households. Whether its contribution to accelerate economic growth is still matter of dispute, return

migration, through remittances and human capital acquired, results in positive outcomes, such as

multiplier effects (expenditure in education and creation of job opportunities, induced by

substitution effect and diversification of economic activities) and social externalities (welfare and

status of returnees and relative households).

As we have pointed out, the structural features of origin economies influence the successful

implementation of resources brought back by returnees, and in particular it is the institutional

setting “as system of established and embedded social rules that structure social interaction”

(Hodgson 2004), to have a crucial role in shaping (and being transformed by) the migration process.

Although the institutional arrangement (in terms of law, regulation and procedures) is well

established in the local contest, returnees, having developed some skills and learnt new forms of

possibilities, can facilitate the evolution of existing institutions into a system characterized by a

certain degree of flexibility and effectiveness. The result is a reduction of economic costs (of

production and of information), a simpler acquisition of capital and a better allocation of disposable

resources.

In the case of MENA countries, where the main institutional constraints seems to be, among

the others, the impossibility of access to credit and to official economic incentives given by local

governments and the costly administrative procedures, returnees turn and rely upon proper

institutions that, although informal, have been in some way “formalized” by migrants (since they

have evolved into stable and persistent mechanisms).

As for the transferring and repatriating of capital from abroad, migrants tend in fact to utilize

and trust the informal money transfer system (Hawala in the MENA region) rather than the banking

system. Even if they do not involve traditional transactions such as deposit taking or lending, these

informal systems cannot be considered as alterative to official channels since, as in the case of

22

Middle East and North Africa, they have been around before the first bank came into existence

(Buencamino L., Gorbunov S., 2002). The main reasons for their persistence and evolution as a

substitutive market, are due to more attractive exchange rates, speed and low transaction costs, but

also to the internal flexibility that results from the interpersonal exchanges and mutual trust among

the different parts involved into the exchange.

In presence of credit market imperfections, the relevance of individual and community

networks that facilitate exchange of information, services and goods, is crucial. For the returnees to

MENA countries, in addition to channelling remittances, these mechanisms facilitate the overcome

of economic constraints, evolving in well structured financial institutions, such as the Egyptian

gama’eya, that is the local definition of rotating savings and credit associations (Roscas) (which can

be present in other regional economies too). Based in practice on random allocations of a “pot” of

money collected by members, knowing well each-other and contributing with a fixed sum of

money, every Rosca continues until each member has received the pot once (Besley T., Coate S.,

Loury G., 1993). This system has a key role in transferring resources to meet life-cycle needs, but it

is also a mean of acquiring capital that can be implemented in investment projects, when migrants

are not able to borrow from conventional markets, as they cannot be presumed to repay loans.

These considerations suggest that for MENA countries migration has achieved a

considerable dimension in spurring the LED process, through changes induced by the returnees on

the existing environment. The challenge still faced by regional economies concerns the

reconsideration and adjustment of existing institutions, also taking into account the weaknesses and

the potential alternatives suggested by the returnees experiences. Anyway, the relevance of the

institutional setting for the local economic development process of returnees countries, is another

aspect that needs further investigation.

23

BIBLIOGRAPHY

Abdel Gadir Ali A., (2002) «Building human capital for economic development in the Arab

countries», ECES WP No.76, December.

Adams R., (1991) «The effects of international remittances on poverty, inequality and development

in rural Egypt», International Policy Food Research Institute: 1-83.

Assaf N., Benhassine N., (2003) «Private Sector, Employment and the Investment Climate in the

MENA Region», World Bank Working Paper 2003.

Barquero A.V., (1992) «Local development and flexibility in accumulation and regulation of

capital», in Entrepreneurship and Regional Development, 4: 381-395.

Bellini M., Giuliani E., Pietrobelli C., Rabellotti R., ed. (2004) The theory and practice of local

development, IRPET, Florence.

Besley T., Coate S., Loury G., (1993) The economics of rotating savings and credit associations,

The American Economic Review, Vol.83, No.4, Sep.1993, pp.792-810.

Bloom David E., Jeffrey G. Williamson (1998) «Demographic transition an economic miracles in

emerging Asia», World Bank Economic Review, 12(3): 419-56.

Buencamino L., Gorbunov S., (2002) Informal money transfer systems: opportunities and

challenges for development finance, UN Discussion Paper Series, November 2002.

CAPMAS (2003) Labour force Sample Survey.

Cassarino, J.P. (2004) Theorising Return Migration: The Conceptual Approach to Return Migrants

Revisited. International Journal on Multicultural Societies (IJMS).

Charif H. (2004) Small and medium enterprises and economic development: entrepreneurial

profiles and support policies in selected Mediterranean countries in Bellini M., Giuliani E.,

Pietrobelli C., Rabellotti R., ed. (2004) The theory and practice of local development,

IRPET, Florence, 111-133.

24

Coleman J. (1988), «Social capital in the creation of human capital», American Journal of

Sociology, Vol. 94, pp. 95-120.

De Haas H., (2005) «Migration, remittances and regional development: the case of Todgha Oasis,

Southern Morocco», Paper presented at Ceres Summer School 2005, “Governance for

social transformation” Institute for Social Science, The Netherlands.

Durand J., D.S. Massey (1992) «Mexican migration to the United States: A Critical Review», Latin

America Research Review, 27(2):3-42.

Fergany N., (2001) «Higher Education in Arab countries: Human development and labour Market

requirement», Almishkat Centre for Research.

Hodgson G.M., (2004) What are Institutions? From Order to Organizations, mimeo.

Ilahi, N., (1999) «Return migration and Occupational Change», Review of Development Economics,

No. 3 (2): 170-186.

Lucas E.B. Robert (2005) International migration and economic development: lessons from low-

income countries, Almqvist & Wiksell International, Stockholm, Sweden.

Long A., van der Ploeg J.D. (1994) Born from Within, Practice and Perspectives of Endogenous

Rural Development, Uitgeverij Van Gorcum.

Massey D.S. and E.A. Parrado, (1998) «International migration and business creation in Mexico»,

Social Science Quarterly, 79 (1):1-20.

Martin P., Taylor E. (1996) «The anatomy of migration hump» in Development strategy,

Employment and migration: Insights and models, ed. Edward Taylor, 43-62.

Paris:OECD,1996.

Mesnard A. (2004) «Temporary migration and capital market imperfections», Oxford Economic

Papers, 56: 242-63.

MIREM (2007) Survey on Maghrebi Returnees, RSCAS, European University Institute (EUI),

Florence, Italy.

25

McCormick B., Wahba J. (2001) «Overseas Employment and Remittances to a Dual Economy»,

World Development Report 2005.

Psacharopoulos G., (1991) The Economic impact of education: Lessons for policymakers, San

Francisco, ICS Press, pp.8-15.

Ranis, G. (2004). The evolution of development thinking: Theory and policy. Center Discussion

Paper 886, Economic Growth Center, Yale University.

Rapoport H. and F. Docquier (2005) «The economics of migrant remittances», IZA Discussion

Paper, 1513: 1-81.

Rodney W., (1995) Economic Development in the Middle East, Routledge, New York.

Romer, P.M. (1990) Endogenous technological change, Journal of Political Economy, 98.

Rostow W.W (1960) The Stages of Economic Growth: A Non-Communist Manifesto, London:

Cambridge University Press.

Stark O., Bloom D., (1985) «The new economics of labour migration», American Economic

Review, 75:173-178.

Taylor E.J. (2006) «International Migration and Economic Development», International

Symposium on International Migration and Development, UN Population Division, Turin,

Italy, 28-30 June 2006.

Todaro, M. P. (1994). Economic Development. Longman Publishing, New York.

UN (1998), Recommendations on Statistics of International Migration, Revision 1. Statistical Paper

Series M., No.58, Rev.1, Department of Economic and Social Affairs, Statistical Division,

United Nations, New York.

UNFPA (2003) State of World Population 2003.

Wahba J. (2003) «Does international migration matter? A study of Egyptian return migrants», Paper

prepared for the conference on “Arab migration in a globalised world”, UK, February

2003.

26

World Bank, (2005) Economic developments and prospects, Middle East and North Africa Region,

Washington DC, World Bank.

World Bank, (2006) Global Economic Prospect 2006: Economic Implication of Remittances and

Migration, Washington DC, World Bank.

World Bank, (2007), Economic Developments and Prospects, Middle East and North Africa

Region, Washington DC, World Bank.

27