1 Beyond Remittances in The Mediterranean: the financing of local development Alessandro Romagnoli Luisa Mengoni University of Bologna University of Bologna

2 Aim of the paper The aim of the paper is to highlight the relationship between remittances and local development in the Mediterranean, connecting the migrant flows features to the local conditions of original economies. The aim of the paper is to highlight the relationship between remittances and local development in the Mediterranean, connecting the migrant flows features to the local conditions of original economies.

3 The Economics of Migrant Remittances Reasons why migrants send their savings to the original family Reasons why migrants send their savings to the original family - altruism, strategic motives, social security, intergenerational exchange - altruism, strategic motives, social security, intergenerational exchange Impact of remittances on the development process of the native country Impact of remittances on the development process of the native country - inequality and threshold income in the migrant original community affect the amount of remittance (more is the income inequality, less is the amount of remittances) - inequality and threshold income in the migrant original community affect the amount of remittance (more is the income inequality, less is the amount of remittances) - remittances can stimulate new investments in village production processes or allow the adoption of new technologies and skills acquired in self-employment by return migrants - remittances can stimulate new investments in village production processes or allow the adoption of new technologies and skills acquired in self-employment by return migrants

4 The Local Economic Development LED is a process taking into account the conditions and the potentialities of a territorial community. So it aims to: Improve quality of lives through jobs Improve quality of lives through jobs Push local institution towards transparency and actual support of economic activities Push local institution towards transparency and actual support of economic activities Empower local societies through active participation to economic processes Empower local societies through active participation to economic processes Connect the economic activities to the resources and to the comparative advantages of the territory Connect the economic activities to the resources and to the comparative advantages of the territory

5 Local conditions in the Mediterranean area The local economic conditions that determined migration flows are slightly different from those that should stimulate the productive use of remittances Official financial channels are generally not interested in LED initiatives Official financial channels are generally not interested in LED initiatives Low profile of educational background Low profile of educational background The economic business is considered as an individual or familial matter The economic business is considered as an individual or familial matter Experience is the main source of knowledge Experience is the main source of knowledge Innovation and management are unknown Innovation and management are unknown

6 Why remittances to promote LED?  They are less dependent on economic fluctuations and less volatile to external shocks than other foreign capital, so many LDCs nowadays rely more on them, than on official external flows (IMF 2005, Gammeltofl 2002)  In the institutional vacuum, remittances emerge as the main form of private financing of LED  They constitute a less polarized and a more flexible form of financing (with respect to FDI, AID)  They are more suitable to finance small scale ongoing activities

7 As there is an inverse relation (U shaped) between migration flows and economic growth …. income Migration flow migrants there is an economic threshold, in terms of GDP, after which migrant remittances are a feasible source to finance development y0y0

8 1. Remittances as additional income a) Speed up the process of changing the structure of jobs for those that remain behind If the agriculture is dumped, no income effect is created and a dependency condition is originated If there is a substitution of the family labor with hired labor in agriculture new jobs are created The overall effect is positive as remittances can result in the creation of new jobs (Funkhouser 1992; de-Haas 2005) The overall effect is positive as remittances can result in the creation of new jobs (Funkhouser 1992; de-Haas 2005) The impact of remittances on development (beyond the common view on private consumption)

9 b) break financial constraint of recipient and increase the probability of investments in key areas for development enabling: -The change in the structure of the capital and/or the adoption of new technologies -The increase of the starting up of a new business after return (private enterprises and commercial activities) There is a relation between migration structure and remittances use: temporary migration is a strategy for accumulating savings for productive uses

10 - Remittances relax household credit constraint increasing the probability of investments as more as: Household perceive remittances as transitory rather than permanent Household perceive remittances as transitory rather than permanent The migration is temporary rather than permanent The migration is temporary rather than permanent The migrants have particular purposes The migrants have particular purposes There is a relation between migration reasons and remittances use: in addition to the altruistic motive migrants can be pushed to send their savings for personal motivation, that is for future investments upon return There is a relation between migration reasons and remittances use: in addition to the altruistic motive migrants can be pushed to send their savings for personal motivation, that is for future investments upon return

11 2. Remittances, achievement of skills and economic initiatives upon return (evidence) Remittances and Human capital (Skills, overseas work experiences) acquired can promote LED: Level of schooling increasing the probability of self-employment Level of schooling increasing the probability of self-employment Migrants that acquired medium and high-skills abroad have higher probability of choosing entrepreneurial activities upon return Migrants that acquired medium and high-skills abroad have higher probability of choosing entrepreneurial activities upon return Overseas work experience in high wage countries encourage economic initiatives upon return Overseas work experience in high wage countries encourage economic initiatives upon return Return migrants exhibit a higher tendency for self-employment over wage employment Return migrants exhibit a higher tendency for self-employment over wage employment But Labor market condition and regional contest are crucial in determining occupational choice of return migrants

12 “Horizontal” vs “Vertical” migration flows to finance LED ? Migration flows in the Mediterranean System South-North (MENA-UE) Permanent Unskilled (Coppel,Dumond (Coppel, Dumond, Visco 2001) Visco 2001) Networks, Starting from the Family reunification 60’migrants respond Mechanism to demand for Unskilled labour Unskilled labour South-South (MENA-GCC) Temporary Skilled (Martin Baldwin (Martin Baldwin Edwards 2005) Edwards 2005) Policies:Prevent Labour market Naturalization segmentation Foster employment of of GCC natives

13 Country of Origin Pre-primary education and Primary education or first stage of basic education Lower secondary or second stage of basic education, (Upper) secondary education and Post-secondary non-tertiary education First stage of tertiary education and Second stage of tertiary education Total Percentages Algeria ,00 Egypt ,00 Palestinian T ,00 Israel ,00 Jordan ,00 Lebanon ,00 Morocco ,00 Syria ,00 Tunisia ,00 Turkey ,00 Migrant population aged 15 and over originating from Med-MENA, according to country of origin and level of education, all countries of residence together countries of residence together* *Only countries of residence providing the distribution by occupation of Med-MENA are included. Sources: Statistical Institute of Germany (2001), Canada (2001), Spain (2001), USA (2000), France (1999), UK (2002), Jordan (2003) and Tunisia (2004).

14 Implication for LED in MENA Main achievement: Horizontal migration is both temporary and high skilled a) The use of remittances for productive investments is higher if migration is temporary (World Bank 2006) b) In the case of return migrants remittances and human capital acquired promote economic initiatives and entrepreneurship (Ilahi 1999, McCormick Wahba 2001, Dustmann Kirchkamp 2002) South-south migration has specific implication for the LED of MENA!

15 Future applied research…  To put in relation skill endowment of return migrants along different patterns of migration in the MENA region  To test the specific implication of Horizontal flows for labour exporting countries in MENA