THE EFFECT OF REMITTANCES UPON SKILLED EMIGRATION: AN EMPIRICAL STUDY

Abstract

1.INTRODUCTIONIn addition to increasing flows of trade and capital across countries, cross-border migration has also become more prevalent over the last 30 years. According to the United Nations (2013), 232 million migrants live across the world, and the pace of new migrants has increased. During the 1990's, the number of migrants increased on average by 2 million whereas this annual flow more than doubled to 4.6 million between 2000 and 2010. Emigration rates from low income to OECD countries are even higher for those individuals with a tertiary education. In fact, for countries like Haiti and Trinidad and Tobago, more highly educated citizens of these countries were living beyond their borders than within them.Income flows such as remittances have also greatly increased. Despite a fall in 2009 due to the Great Recession, the annual flow of remittances has almost tripled since 2000, was over $500 billion in 2014, and is estimated to have been $601 billion in 2016 (World Bank, 2015). Remittances account for 8% of GDP in low-income countries and around 2% in middle-income nations according to World Bank data. The World Bank also states that total remittances to low- and middle-income countries are nearly three times the amount of foreign aid to those countries (Mohapatra et al., 2010).Explaining links from migration to remittances is not difficult as a greater number of migrant workers increases their aggregate income and so increases the income that they can then remit to their home countries. In examining the determinants of remittances, studies such as Faini (2007) and Niimi et al. (2010) consider to what extent migration impacts remittances and how impacts could differ across different skill levels. But does causality go in the other direction as well? Do remittances affect the level of emigration? Remittances could lower emigration as the potential to receive income from abroad might lower the emigration of entire households as only some members of the household need to emigrate so as to increase household income. To the extent that inflows of remittances spur (curb) economic growth, emigration might also be curtailed (raised) since there is less (more) impetus to move (Buckley and Hofmann, 2012; Czaika and Spray, 2013; Feeney at al., 2014; Uprety, 2017a, b). On the other hand, remittances might also increase emigration. The increase in income that remittances provide could help make migrating easier as families could now afford transportation costs as in Beyene (2014). The example of others remitting income back home could induce further immigration as other families follow in their footsteps. If remittances allow for more education, especially for the credit constrained, and if higher educated individuals are more likely to move out of poor countries then remittances could also influence migration by augmenting human capital within the household (Acharya and Leon-Gonzalez, 2014).Lahiri and Uprety (2016) consider another possibility and build a two-country model where remittances transfer income from a developed country to a developing country. These changes in income then influence the demand for differentiated goods relative to a homogenous good, the former using higher skilled labor than the latter. This induces high-skilled individuals to migrate to the developed country. The reason is that the loss of income in the developed country lowers the demand for the traditional good less than that for the modern good, thereby causing a relative increase in the production of the traditional good. Since the production of the traditional good now requires more labor and that lower skilled workers produce the traditional good, the marginal worker in the skill distribution moves rightward along the continuum in the developed country. Therefore, the wage for the marginal worker in the modern sector increases, inducing more migration from the developing to the developed country. Not only does this model predict that remittances lead to more emigration from the developing to the developed county but that it is the more highly skilled individuals who migrate. …