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 [email protected]
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”.
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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).
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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
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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
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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
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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.
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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
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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.
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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.
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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.
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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
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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
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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).
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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.
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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.
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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
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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
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