1

The Impact of
International Migration
on Inclusive Growth

Kalindi College
(University Of Delhi)

BA Economics Honours (Sem 5)

Subject- Introductory Development Economics

Vanshika Choudhary (22510005)

Pari Aggarwal (22510015)
Jyoti Khetwal (22510016)

Submitted to: Dr. Richa Aggarwal

 2

Abstract
International migration plays a crucial role in improving the living standards of
individuals and their future generations. When people move, especially from
developing countries to more developed ones, it creates a wide range of effects.
First, migrants benefit from higher wages due to better job opportunities in the
host country, and this also helps increase the future income potential of their
children. Second, migration affects the destination country by impacting its
labour markets, productivity, innovation, population, economy, and crime rates.
Third, it has important effects on the countries migrants leave, which can lead to
a loss of skilled workers but also bring in remittances and strengthen
international relationships in trade, foreign investment, and technology
exchange. This paper explores how migration influences economic growth and
inequality, looking at its impact on migrants, as well as on both destination and
origin countries.
 3

Contents

Abstract..................................................................................................................... ....... 2

I. Introduction.............................................................................................................. ..... 4

II. Consequences of migration for migrants......................................................................... 6

III. Impact of migration on destination countries ................................................................. 8

A. Impact on the Labour Market ....................................................................................... 10

The substitution/complementarity effect.................................................................... 11

The productivity and demand effect .......................................................................... 12

B. Impact on Public Finance ......................................................................................... 14

C. Impact on the incidence of crime .............................................................................. 14

D. Adopting reasonable immigration policies and fostering integration .......................... 15

Maximizing Immigration Benefits.......................................................................... 16

Minimizing the impact on native workers.................................................................. 17

Paying special attention to refugees........................................................................... 18

IV. Impact of migration on origin countries ...................................................................... 20

A. Impact on the labour market in origin countries .......................................................... 20

B. The role of remittances ............................................................................................ 21

C. Impact through trade and investment ........................................................................ 22

D. Costs of emigration associated with the brain drain................................................... 23

E. Country Case: Kyrgyz Republic ............................................................................... 23

F. Country Case: Mexico.............................................................................................. 25

G. Policies that can help the origin countries to maximize the benefits and minimize the costs of
emigration ....................................................................................................... 26

V. Conclusion................................................................................................................ .. 27

References................................................................................................................... .. 28
 4

I. INTRODUCTION
International migration is a major route for individuals and their families to
improve their living conditions. Moving across borders, particularly from
poorer countries to wealthier ones, has far-reaching effects in various areas.
First, migration helps individuals earn more by being more productive in the
destination country, and it raises the potential income for their children. Second,
it impacts the destination country by influencing labour markets, productivity,
innovation, population changes, government finances, and crime rates. This is
partly because immigrants differ from native residents and from each other.
Third, migration can significantly affect the countries migrants leave. While it
can lead to a loss of skilled workers, it also encourages remittances and
strengthens international ties through trade, foreign investments, and technology
exchange.
The goal of this paper is to explore how migration affects inclusive growth by
examining its impact on economic growth and inequality, focusing on both
migrants and the countries they move to and from. While the paper mainly
discusses income inequality due to data limits, it will also touch on wealth
inequality where possible.
This distinction is important because migration can affect different types of
inequality in various ways and over different time frames. To begin, it is useful
to consider a few key facts about international migration trends over the past 30
years. Since 1990, the percentage of migrants in the global population has
stayed stable at around 3%. Although media and political attention in recent
years has often focused on migration from Africa and the Middle East to Europe
and North America, much of the world's migration is actually within regions.
Major migration hubs have developed in Africa (Côte d'Ivoire, South Africa),
Asia (Hong Kong, Singapore), and the Middle East (Gulf Cooperation Council
countries), with notable migration within the European Union as well. Latin
America is an exception, as intra-regional migration there is relatively low,
possibly because movements like those from Venezuela to Colombia and
Ecuador are not fully recorded.
That said, migration has affected population growth differently in various
countries. While migration among developing countries has grown more slowly
than their populations, migration from developing to advanced countries has
increased, particularly as a share of the population in advanced economies,
which has not grown much in recent decades. Over the last 30 years, the
percentage of migrants from developing to advanced economies has risen from
 5

4% to 9% of the population in advanced economies, sparking social and

political reactions in many of these countries.

Most of this increased migration from developing to advanced economies is

considered "economic migration," meaning people are seeking better job
opportunities. Although migration due to wars, natural disasters, and political
issues has increased, much of it occurs within or between neighbouring
developing countries. Therefore, this paper mainly discusses economic
migration, though the case of refugees and their potentially different effects will
be noted where relevant.

As in most studies, this paper defines “migrants” as people who are foreign-
born residents of a host country. It does not differentiate between permanent
migrants, who plan to stay long-term, and temporary migrants, who intend to
return to their home country. These categories are somewhat flexible, as
temporary migrants may end up staying longer, while permanent migrants
might return home. The paper will highlight when this distinction is important.
Measuring migration across countries has become easier in recent years thanks
to population censuses that track the number of people born in one country
living in another. These data often include undocumented migrants, as they
count residents rather than citizens. However, measuring gross migration flows,
which are based on arrival records, can underestimate migration due to
undocumented arrivals.
 6

With this background, the paper will review recent research on the economic
impacts of international migration and discuss policy tools that can be used to
manage migration in ways that benefit both the countries migrants leave and the
ones they move to.

II. CONSEQUENCES OF MIGRATION FOR MIGRANTS

The breakdown of global inequality into between-country and within-country
inequality can be influenced by data measurement challenges. However, it is
widely agreed that within-country inequality has been increasing globally over
the past few decades, while inequality between countries has decreased slightly.
Despite this, significant income gaps between countries remain. In fact, wages
for unskilled workers in rich and poor nations can differ by a factor of 10 to 1.
This large income disparity is a major factor driving economic migration. As a
result, many migrants see a significant rise in income when they move to
wealthier nations. Several studies estimated the wage gap between immigrants
in the U.S. and similar workers in 42 developing countries, finding the average
lower bound of this wage ratio to be 5.7, and as high as 16 for some developing
countries.

The potential financial benefits of migration are considerable. Younger migrants

tend to benefit the most since they have a longer period to earn the higher
wages, leading to larger lifetime gains. Other key factors include education and
skills in demand in the destination country. These factors influence who
migrates, with younger, more educated, and skilled individuals being more
likely to emigrate. The prospect of large financial gains has also led to an
industry surrounding migration, where recruitment agencies and brokers
sometimes engage in unethical practices. Better regulation of the migration
industry is needed to protect migrant workers from exploitation and financial
losses.
 7

Another important aspect is how well migrants integrate into the host country,
which greatly affects whether they can fully realize the financial benefits of
migration. Data from the OECD (2018) shows that in the EU and other OECD
countries, migrants have higher poverty rates compared to native populations.
They are also more likely to face unemployment, be overqualified for their jobs,
live in crowded housing, and have poorer health and education outcomes for
their children.
Successful integration depends on migrants' origin, skills, and other
characteristics. In many OECD countries, immigrants report high levels of
discrimination based on nationality, ethnicity, or race. This discrimination and
prejudice can hinder their full economic integration. Still, most migrants are
 8

willing to endure these challenges for the financial benefits of migration, as

suggested by their decision to move and stay. In contrast, refugees may have
different motivations, as their primary gains from migration often involve
escaping violence, persecution, or famine.

The decision to return to their home country is also common among migrants.
The rate of return varies depending on the destination country, with European
countries seeing higher return rates compared to places like Australia, Canada,
New Zealand, and the U.S. The length of time spent in the destination country is
another factor, with the highest return rates occurring within the first ten years
after arrival, and then stabilizing. Some migrants return because they did not
achieve the success they hoped for in terms of employment, wages, or quality of
life. For others, return migration is part of their original plan they migrate
temporarily to save money and gain skills, then return home to benefit from
these gains.

III. Impact of Migration on Destination Countries

International migration brings both challenges and opportunities for destination
countries. In the short term, migrants may create pressure in local job markets,
potentially affecting wages and displacing some native workers competing for
similar roles. Additionally, their presence may result in short-term fiscal costs
for the host country. However, in the medium to long term, migrants can
contribute positively by boosting economic output, creating opportunities for
local businesses, bringing in valuable skills necessary for growth, introducing
new ideas, encouraging international trade, and helping to balance the aging
population in advanced economies. This can support the long-term stability of
public finances.

Different segments of the population such as high or low-skilled workers,

business owners, property owners, and people of various age groups can
experience different impacts from immigration. How these benefits are
distributed often shapes public opinion and political responses to migration, as
 9

policies are influenced by the groups that gain or lose the most and their relative
political power.

This section explores the effects of immigration on labour markets, economic

growth, public finances, crime rates, and inequality in destination countries. It
also examines how both migrant characteristics and the features of the host
economy influence these outcomes. Two key factors in determining these
impacts are the type of migrants entering the country and how quickly they
integrate into the local economy and workforce. Highly skilled and working
immigrants tend to have the most positive effect on a country’s economy,
employment growth, and public finances.

To give context, migration tends to be concentrated in a few countries.

According to the World Bank (2019), most migrants are found in a small
number of destination countries, particularly in Europe, North America, and the
Persian Gulf, which host 60% of the world’s migrant population. Economic
opportunities and fast-growing urban areas are key factors behind this
concentration. For example, in the U.S., two-thirds of new immigrants settle in
just six states, usually within a few counties. Cities like New York, Los
Angeles, London, and Vancouver have become major migration hubs, with
foreign-born residents making up 40 to 50 percent of the population in these
areas.

A. Impact on the Labour Market

 10

The flow of migrants, especially from developing to advanced economies, often

sparks debates about whether they contribute to the success of the receiving
economy or whether their presence reduces job opportunities for native workers
and becomes a burden.

Several important factors, backed by evidence, indicate that immigration can

affect the host economy in ways that increase demand for labour and resources,
leading to neutral or even positive effects on local wages and employment. Here
are the key points:

1. Complementary roles: Immigrants often take up jobs that do not directly

compete with those of native workers, but rather complement them. For
example, immigrants might take on more manual or service-based jobs while
native workers focus on managerial or highly skilled roles. This division means
that immigrants and natives fill different needs in the labour market rather than
competing for the same jobs.

2. Increased demand: Immigrants contribute to the local economy by

consuming goods and services, which leads to greater demand for labour. As
they spend money on housing, food, and other necessities, the local economy
responds by creating more jobs to meet this increased demand.

3. Business expansion: Many businesses expand in regions with high

immigrant populations. Companies often follow the flow of immigrants,
recognizing the opportunities for growth in areas with a more diverse labour
force. This expansion leads to additional job creation, not just for immigrants
but also for native workers.

4. Entrepreneurship: Immigrants are often entrepreneurial, starting new

businesses that generate job opportunities for locals. Despite being a smaller
percentage of the population, immigrants make up a significant portion of
entrepreneurs. In the U.S., for example, they represent 13 percent of the
population but 27.5 percent of its entrepreneurs. These businesses not only
employ other immigrants but also create opportunities for native workers.
 11

5. Innovation and long-term growth: In the long term, the diverse skills,
knowledge, and perspectives that immigrants bring to a country are strongly
linked to innovation and overall economic growth. Studies have shown that
immigrants play a key role in technological advancements, contributing to
research, patents, and the growth of industries in various fields.

These combined factors underscore the importance of looking at immigration’s

broader economic impacts. While some natives might feel short-term
competition in specific sectors, the overall effect of immigration on wages tends
to be neutral, with positive effects balancing out any negative ones. A review of
27 different studies, covering a wide range of economies, found that the average
impact of immigrants on native wages is close to zero. The findings showed that
any wage changes are typically minor and fall within a narrow range, meaning
the potential negative effects of competition are often offset by the positive
effects of increased demand and productivity.

In summary, while immigration may pose challenges in certain sectors, its

overall impact on the economy is often neutral or positive. Immigrants bring
skills, ideas, and a fresh demand for goods and services, leading to increased job
creation, business expansion, and long-term economic growth for the receiving
country.

The substitution effect

The substitution effect focuses on how immigrants impact the local labour
market. George Borjas, in his studies (like the analysis of the Mariel Boatlift),
emphasizes the substitution effect, which means that immigrants might compete
with native workers, especially those with lower education levels. When
immigrants and natives are considered to offer the same type of labour, adding
more immigrants increases the supply of workers, which puts downward
pressure on wages for less-skilled native workers.

However, this assumes that immigrants and natives provide the same type of
labour, which isn't always the case. Many studies argue that immigrants and
natives often have different skills, specializations, and language abilities,
making them complementary rather than competitors. For example, even if both
 12

groups have similar education levels, their skillsets might differ, so immigrants
can increase the productivity of native workers rather than replacing them. This
would cause the demand for native labour to increase.
Additionally, businesses tend to adapt to the growing labour supply by investing
more, which can create new job opportunities and shift the demand for labour
upwards. In simple terms, instead of reducing wages or jobs, immigrants can
contribute to economic growth, helping to create more opportunities.

However, one group that may face more competition from new immigrants is
previous immigrants. Studies show that new immigrants may compete with
earlier immigrants for similar jobs, sometimes pushing them out of
employment, while native workers are less affected. This happens because new
and previous immigrants are more likely to have similar skills and settle in the
same areas, creating a higher degree of competition between them.
In summary, the impact of immigration on wages and jobs isn't straightforward.
While immigrants might compete with certain groups (like earlier immigrants or
less-skilled natives), they can also bring benefits to the local economy by
complementing the native workforce and driving demand for labour.

Productivity and Demand Effects

The productivity and demand effect explains how immigration can positively
impact a country’s economy, especially when immigrants are more skilled than
the native population. Unlike the Mariel Boatlift event, which involved mostly
uneducated migrants, today's immigrants in most OECD countries, including
the U.S., tend to be more skilled. Skilled immigrants complement the local
workforce, especially low-skilled workers, potentially raising their wages and
reducing inequality over time.

Immigrants also contribute to economic growth through innovation and

productivity, which can boost wages for everyone in the long run. Studies have
shown that highly skilled immigrants help increase productivity, leading to
wage growth across the economy.
Immigration can also help increase native employment. For example, lower-
skilled immigrants in service or health care jobs enable highly skilled natives,
especially women, to enter the workforce or work more hours. In Spain, for
 13

instance, the influx of immigrants in the 2000s helped grow the personal
services sector, which increased the labour force participation of women.
Immigrants also fill labour shortages in manual, labour-intensive jobs, allowing
high-skilled natives to focus on more specialized tasks, which raises their
productivity and wages. This process is known as "occupational upgrading."
Additionally, immigrants boost demand for goods and services, increasing
overall production. This demand effect leads to job creation for natives. Studies
have shown that in areas with high immigration, like Miami after the Mariel
Boatlift or Dawson County in Nebraska, local consumer demand and
employment rose.
Immigrants also help foster international trade and investment by building
networks between their home and destination countries. Their knowledge of
language, regulations, and market opportunities can lower barriers to trade,
benefiting both the countries they come from and the countries they move to.

In summary, immigration’s impact on native wages and employment comes

from a mix of substitution, complementarity, productivity, and demand effects.
While immigrants may compete with natives in some areas, these negative
effects are generally offset by the positive impacts they bring. Most studies find
that immigration has little to no effect on average wages, and it doesn’t
significantly increase wage inequality.
In summary, the overall impact of immigration on native workers’ wages and
employment is a result of the interplay between substitution, complementarity,
productivity, and demand effects. Most studies indicate that the net effect on
average wages is close to zero, suggesting that the negative substitution effect is
offset by positive effects on native wages. The impact on wages for low-skilled
and high-skilled workers, as well as wage inequality, depends on the skill
composition of immigrants and how the economy responds. Most research
shows little effect of immigration on native wage inequality, as other factors
tend to balance out the substitution effect.

B. Impact on Public Finance

A significant concern in public opinion regarding immigration is the effect on
public finances specifically whether immigrants are net contributors or net
recipients of welfare benefits. Studies highlight that this concern is more
 14

prominent in people’s minds than the potential impact of immigration on wages

and employment. The belief that immigrants may strain public finances might
explain why, in many developed countries, wealthier individuals tend to support
restricting migration, even though capital owners often benefit from the influx
of labour.

In the short term, immigrants may impose a fiscal cost on the destination
country, particularly in areas like social integration and assistance, as it may
take time for them to secure employment. These costs are typically higher for
refugees and lower for economic migrants. However, in healthcare, immigrants
tend to be less costly than natives for an extended period since they usually
migrate at a young age. Over time, immigrants can have a net positive impact
on government budgets if they successfully integrate into the labour market. In
aging societies, young immigrant workers can help alleviate the fiscal strain on
pension systems and contribute to covering retirees' healthcare costs.

C. Impact on Crime
Another major public concern regarding immigration is its potential connection
to crime. Statistically, cities with higher crime rates often have more
immigrants. However, once demographic factors are accounted for, immigration
shows little to no causal impact on crime rates. Studies have found no
significant effect of immigration on crime rates in the United States. In fact,
foreign-born youth are less likely to be involved in criminal activity or
incarcerated than their native-born counterparts. Similar conclusions were
reached using the immigration status of those arrested. In Italy, research found
that while immigration was associated with a rise in robberies, these make up a
small fraction of overall crime, so the effect on the total crime rate was
negligible.

The availability of labour market opportunities is a key factor in determining

criminal behaviour, including among immigrants. According to economic
models of crime, individuals rationally choose between legal work and criminal
activities based on the potential returns of each option.
The potential returns from engaging in criminal activities are weighed against
the likelihood of being caught and punished, compared to the earnings from
formal employment. If the former seems more profitable, individuals may opt
 15

for crime. In the context of migration, this model suggests that successful
integration into formal employment lowers the chances of migrants engaging in
criminal activities. Studies on two large waves of immigration in the UK, one
involving asylum seekers in the late 1990s/early 2000s and the post-2004 influx
from EU accession countries—found that only the former group, which had
limited access to the formal labour market, saw a modest increase in property
crime.

In both the United States and Europe, undocumented immigrants are typically
unable to work legally. However, in the US, undocumented immigrants have
high employment rates in the legal economy due to lax enforcement and a
labour market with low supply elasticity. When immigrants are confined to the
informal economy, their earnings potential is lower than that of their legal
counterparts. Consistent with the finding that migrants with formal jobs are less
likely to engage in crime, legal immigrants generally have much lower crime
rates than illegal immigrants. In Italy, the legalization of immigrants led to a
reduction in the crime rate among immigrants by 0.6 percentage points.

Effective Immigration Policies and Promoting Integration

Given the economic, labour market, and fiscal benefits of immigration—along
with some short-term costs for native populations—it is important to implement
policies that mitigate initial challenges and amplify the benefits of migration.
Immigration policies that are forward-looking, considering population
projections and labour force requirements, are more likely to succeed.

Maximizing Immigration Benefits

Countries with skill-based immigration policies, like Canada and Australia,
have successfully attracted immigrants whose skills align with national
economic needs. In contrast, family-based immigration policies, such as those
in the U.S., have sometimes led to inefficiencies, including the oversubscription
of certain visa programs and an increase in undocumented immigration. Public
 16

support for immigration tends to be higher in countries where skill-based

systems are prevalent.

Integrating migrants into the labour market is crucial for maximizing their
economic contributions and minimizing potential burdens on public finances.
This indicates that immigration systems focused on work visas and permits are
more likely to yield economic benefits for both migrants and host countries.
Conversely, restricting access to formal employment, as seen in some asylum-
seeker policies, can result in lost tax revenue, skills deterioration among
migrants, and higher long-term welfare costs.
While finding effective policies for integrating refugees and non-economic
migrants into the labour market can be challenging, providing essential services
like education, healthcare, and language training can significantly enhance their
long-term employment prospects. Education for the second generation is also
vital, as it can lead to full integration with the right opportunities. Research has
shown that stricter immigration policies do not necessarily improve integration
outcomes.

To boost labour market opportunities for migrants, governments should

streamline work permit processes and expedite the recognition of foreign
qualifications. The rate of overqualification among foreign-born workers in the
EU is significantly higher than for native-born workers, with many highly
educated migrants working in lower-skilled jobs. Employment rates among
migrants tend to be higher in countries with lower entry-level wages and less
employment protection. Encouraging migrant entrepreneurship can also
stimulate competitiveness, innovation, and positive economic impacts.
Expanding access to financial services, such as bank accounts, can further
enhance opportunities.

Once migrants secure employment, offering a clear path to residency and job
security is essential. Uncertainty can create inefficiencies and long-term costs
for both migrants and employers. This is particularly important for highly
skilled workers, as firms are more likely to invest in their positions.
Immigration systems that allow temporary visas to be transitioned into
permanent residency through employer sponsorship can provide the stability
and flexibility needed for long-term success.
 17

Minimizing the impact on native workers

A large body of research finds that natives will respond to immigration by
upgrading and adjusting their occupation and job. Policies to help native
workers during their adjustment and relocation may further help reduce the
costs and increase the benefits from immigration. Adjustment assistance
mechanisms target native workers who compete with migrants to provide them
with more relevant skills. Relocation assistance can include support for
changing occupations, cities, or sectors of employment, as well as transitory
welfare benefits or unemployment insurance payments. However, both
mechanisms require that authorities identify the impacted native population,
which is very difficult. It may be best to promote efficient and flexible labour
markets where the cost of changing jobs is small, allowing workers to transition
easily across occupations. By moving to more complex jobs, natives can protect
their wages from immigrant competition and take advantage of the creation of
jobs that complement the manual tasks provided by immigrants. Allowing this
mechanism to work may particularly benefit less-educated natives through
increased hiring in those occupations. Strong labour protections can hinder this
mechanism and reduce labour markets’ ability to absorb immigrants through the
occupational upgrading of natives. If there are concerns about competition
effects on vulnerable native workers, such as low-educated manual workers,
minimum income schemes, as in Denmark, or a minimum wage could be
alternatives, but more research is needed to fully understand their implications.

In this context, encouraging immigration fees rather than quotas can be a

sensible approach to the issue. To finance adjustment or relocation,
policymakers could impose a fee on employers hiring foreign workers, ensuring
those who benefit from such hires also share in covering the costs. Both
Singapore and Malaysia have implemented such schemes, though to our
knowledge, no compelling assessment of their efficiency has been conducted.
Immigration quotas, particularly when determined by bureaucratic assessments
rather than by market demand, can lead to misallocation, increase the risk of
rent-seeking and corruption among government officials, and do not generate
any revenue. Instead, a visa fee or a visa auction system allows firms to choose
their workers while providing extra revenue to the government that could be
used to alleviate transitional costs.

Paying special attention to refugees

 18

While most economic migration occurs gradually, allowing destination

economies to plan and adapt, the situation can differ significantly for refugees.
In some cases, a large influx of people may arrive in a short time frame,
overwhelming countries with limited resources. Policies related to hosting
refugees present unique challenges that require careful attention, as the
motivations for admitting them are primarily humanitarian rather than
economic. However, with the right policies in place, refugees can become
valuable economic assets for their host countries in the medium to long term.
Firstly, asylum seekers should be permitted to work early in their asylum
application process. Due to potential trauma and skill degradation stemming
from their circumstances, they may need targeted policies to enhance their skills
and language proficiency before entering the labour market. Facilitating
refugees' relocation to areas where there is demand for their skills can also aid
in their integration. Additionally, implementing temporary wage subsidies can
incentivize employers to hire refugees, further improving their integration into
the workforce.

Proactively monitoring countries experiencing instability and providing their

citizens with opportunities for orderly migration before crises develop can serve
as an important preventive measure. During an ongoing migration crisis, a
potential solution could involve distributing the responsibility of hosting
refugees among multiple countries. When compared to the population of
advanced nations or economic migrants, the number of refugees is relatively
small. Establishing a large-scale refugee settlement policy and coordinating
financial assistance, as suggested by the World Bank, can be effective strategies
for managing refugee inflows.

IV. IMPACT OF MIGRATION ON ORIGIN COUNTRIES

On a global scale, emigration is more dispersed between countries than
immigration. In most countries, the share of emigrants relative to the countries’
total population does not exceed 10 percent. Notable exceptions include some
fragile states and also clusters of countries with high emigration in Eastern
Europe, Central Asia, and Latin America.
 19

In some regions, in particular Europe, Central Asia, and Sub Saharan Africa, a
large part of emigration (70-80 percent of the migrants) goes to countries in the
same region (Above Figure). The share of emigrants moving intra-regionally is
much lower in Asia and the Americas.

A. Impact on the labour market in origin countries

The theoretical impact of labour emigration on the labour markets of origin

countries can be seen as the opposite of its effects on destination countries. A
labour outflow decreases the local workforce supply but may also reduce
demand, human capital, and entrepreneurial activity, leading to uncertain effects
on wages. In countries facing high unemployment or underemployment,
emigration can alleviate labour market pressures and enhance job availability,
provided that the decline in demand and human capital does not adversely affect
local employment prospects. Emigrants often possess higher skills, so their
departure may lead to decreased productivity, a reduced capacity for innovation,
and negative fiscal consequences. Similar to the dynamics in destination
countries, emigration can trigger declines in both demand and productivity.

Empirical evidence on this issue is somewhat mixed. For instance, large-scale

emigration increased employment and wages in Poland after it joined the
 20

European Union. However, other studies have indicated that the departure of
highly skilled workers can create negative externalities, reducing overall
productivity. These effects are closely linked to the concept of "brain drain,"
which will be discussed in greater detail later.

B. The Role of Remittances

Remittances are a significant benefit of emigration for home countries. In 2019,

global remittances reached about $548 billion, more than triple the amount of
official development aid, and often make up 15-20% of a country’s GDP.
Despite their importance, sending remittances can be costly, with fees often
exceeding 5%. However, advancements in mobile technology are expected to
lower these costs.

In many Asian and African nations, remittances have helped reduce poverty and
improve nutrition and education, especially by decreasing child labour. They
also help households manage economic challenges, providing stability during
tough times, and can improve access to loans for families.

Remittances can also play a crucial role during crises and conflicts, acting as a
vital financial resource when other support is unavailable.

Economically, remittances can improve a country’s fiscal balance by increasing

private demand and expanding the tax base, which can help fund social
programs. However, if remittances are saved instead of spent, they might not
enhance local investment.

On the downside, remittances can lead to issues like reduced motivation for
government reforms, as families may rely on this income instead of pushing for
change. They can also impact labour force participation, particularly among
women.
 21

The effects of remittances on inequality depend on the households receiving

them. If lower-income families receive remittances, they can help reduce
inequality. However, studies show mixed results; some find that remittances
increase inequality, while others suggest they lower it, depending on the region
and migration history.

Emigration also helps countries engage more effectively in global trade and
investment. Research indicates that areas with larger immigrant populations
often see increased trade, showing the lasting impact of migration on economic
connections.
C. Impact through trade and investment

The impact on trade and investment is influenced by the skill composition of

migrants and the cohesion and mindset of the emigrant community. A robust,
business-oriented emigrant network can enhance trade between destination and
origin countries, boosting investment flows by utilizing their newly acquired
information, business acumen, and understanding of the business and
investment landscape in their home countries. This effect is further magnified if
the country of origin has effective public policies, political stability, a
conducive business environment, and low levels of corruption. Trade and
investment can also facilitate easier and more cost-effective technology
transfers, potentially promoting convergence and growth in the countries of
origin.

The investment activities of emigrants can stimulate the development of capital

markets in their home countries. These investors can help diversify the investor
base and provide a reliable source of funding. Additionally, they are often able
to undertake riskier projects than foreign investors, as they can better assess the
risks and leverage their local contacts and knowledge, which are not readily
accessible to outsiders.
D. Costs of Emigration Related to Brain Drain

Brain Drain refers to the emigration of highly skilled and productive

individuals, which poses a significant challenge for their home countries. This
issue is concerning, especially in small, low-income nations where a large
 22

portion of skilled workers leave. Generally, those with higher education levels
are much more likely to migrate compared to individuals with lower educational
attainment.
The impact of brain drain on home countries is complex. Most notably, it
reduces the available human capital and creates a shortage of skilled labour,
leading to lower productivity. This labour shortage can push wages higher,
driven by both the scarcity of workers and increased reservation wages from
remittances. Together, these factors can significantly impede economic growth
and contribute to a slowdown in income convergence.
Additionally, brain drain affects public finances. Tax revenue shifts occur as
income taxes decline due to fewer high-skilled workers, while consumption
taxes tend to rise because of remittances. The departure of skilled labour can
also lead to reduced spending on education due to decreased demand, while
expenditures on social assistance may increase. However, some argue that the
prospect of migration can boost the demand for education, potentially resulting
in higher skill levels overall.
Moreover, brain drain can negatively impact the quality of institutions in the
home countries. High-skilled workers often play a crucial role in advocating for
improvements in the business environment and stronger anti-corruption
measures. Their departure raises the risk that the country may become overly
reliant on remittances, leading to a population that becomes indifferent to
changing the status quo

E. Country Case: Kyrgyz Republic

It's hard to get an exact count of migrants from Kyrgyzstan due to informal
migration and the temporary status of many emigrants. However, the country
has been a major source of migrants in the region for years. The importance of
migration is clear from remittances, which rose from almost nothing in 2000 to
10% of GDP by 2005 and 30% by 2011. In the past decade, remittances have
consistently accounted for around 30% of GDP.
A study by the IMF found little evidence that remittances positively impact
economic growth in Kyrgyzstan. Most remittances are used for basic needs
rather than investment. The study also noted that remittances contribute to an
appreciation of the local currency, suggesting potential economic issues similar
to the Dutch disease.
 23

Since the high emigration rates began around 2000, extreme poverty levels have
decreased, but overall poverty remains high compared to neighboring countries.
Income inequality in Kyrgyzstan has varied greatly due to civil conflicts,
political instability, and a banking crisis, which have offset earlier
improvements. However, since 2006, inequality has generally declined,
coinciding with increased emigration, as shown by a roughly 10-point drop in
the Gini coefficient.
Despite the outflow of workers, the labour market has not improved
significantly. Unemployment remains high, especially among youth and
women. The country also falls behind its neighbors in primary school
enrollment and youth literacy rates. The IMF stressed the need for a better
business environment, more formal jobs, and investment in human capital to
help reduce inequality.
 24

F. Country Case: Mexico

Mexico is one of the largest recipients of remittances in the world. Initially,

households receiving remittances were mostly in the middle-income range.
However, as the costs of migration have dropped and opportunities have spread,
more remittances are now going to poorer households. On average, these
households are poorer than those that don’t receive remittances, and remittances
make up a larger portion of their income.

This trend is reflected in Mexico's Gini coefficient, a measure of income

inequality. The Gini coefficient for households without migration income is
higher than that of actual income, indicating that inequality would be worse
without remittances. Even when remittance-receiving households change their
behavior, the inequality remains lower than if remittances were excluded. This
pattern is especially noticeable in rural areas, which tend to be poorer and have
more remittance-receiving households.
During economic crises, such as the peso crisis in 1994 and the Global Financial
Crisis from 2008 to 2009, remittances have become even more beneficial for
 25

poorer households. During these crises, wealthier households saw a drop in both
the likelihood of receiving remittances and the amount they received. However,
for lower-income households, the chances of receiving remittances and the
amounts received often increased during these tough times.

The increase during the Global Financial Crisis may be due to lower migration
costs, making it easier for poorer families to receive help. It could also be
because migrants in the U.S. were more integrated, enjoying better jobs and
stability, which helped them provide support during economic shocks. This
support is especially valuable when both sending and receiving countries are
experiencing similar challenges.

G. Policies to Help Origin Countries Maximize Benefits and

Minimize Costs of Emigration

There is a shortage of studies exploring potential policies for origin countries

affected by migration, especially regarding their implementation and impact.
The following policies stem from discussions about the benefits and challenges
of migration. Some focus on reducing the emigration of skilled workers and
brain drain, while others aim to maximize the benefits of migration and
minimize its downsides. The main strategy is to create better job opportunities
 26

in origin countries, which can help slow down emigration, encourage return
migration, and attract immigrants from other countries.

1. Improving the Business and Investment Environment: This involves

strengthening institutions, ensuring macroeconomic stability, creating
jobs, and enhancing education. These measures would boost the labour
market by generating more employment opportunities, helping to
counteract the negative effects of emigration.

2. Replenishing the Pool of Highly Skilled Workers: To address brain

drain, it’s important to encourage returning emigrants and attract skilled
immigrants from other countries. Creating a welcoming environment,
making reintegration easier, and recognizing foreign degrees can
facilitate this process.

3. Maximizing the Utilization of the Remaining Workforce: Increasing

labour force participation and improving the quality of labour through
education and training can help reduce the negative impacts of
emigration.

Additionally, policies should aim to enhance the benefits of remittances, which

play a significant role in poverty and inequality. This can include increasing
competition among remittance service providers, helping migrants compare
service costs, and promoting mobile technology to reduce transaction costs.
Although remittances may not change much with cost fluctuations, these
measures can lead to increased funds for households. At the same time, it’s
important to address the risks of relying too heavily on remittances by
improving investment opportunities, promoting financial inclusion, and
ensuring access to quality jobs in the home countries.
 27

V. Conclusion
Migration is a significant phenomenon largely influenced by powerful
economic and labour market forces. Large wage differentials and employment
opportunities, both between advanced and developing countries and within
developing regions, create strong incentives for individuals to migrate in pursuit
of higher income and better prospects for their offspring.

Migration presents both challenges and opportunities for receiving and origin
countries. Policymakers must navigate these challenges while capitalizing on
the opportunities. For destination countries, immigrants can pose challenges in
local labour markets, potentially depressing wages in the short term and
displacing some native workers who compete with them. They may also impose
short-term fiscal costs and, in some instances, increase crime rates. However,
immigrants generally enhance output, create new opportunities for native
workers, provide essential skills for growth, generate innovative ideas, stimulate
international trade, and positively contribute to long-term fiscal balances.
Integrating migrants into the labour market is crucial for unlocking their full
productive potential, limiting their possible burden on public finances, and
reducing their potential impact on crime rates.

For origin countries, emigration may result in a loss of critical human capital
(the so-called brain drain) and exert upward pressure on wages, which can
diminish competitiveness. Conversely, emigration also generates remittances,
an important income source for many low-income families (although their
overall macroeconomic impact can be ambiguous). Additionally, it can
strengthen international connections through trade, foreign direct investment,
and technology transfers. For policymakers in origin countries, the optimal
strategy involves enhancing business and employment opportunities, leveraging
financial and technological inflows, and minimizing the loss of highly skilled
labour.
 28

References
1. Acosta, P., Calderon, C., Fajnzylber, P., & Lopez, H. (2008).
What is the impact of international remittances on poverty and
inequality in Latin America? World Development, 36(1), 89–
114.
2. Adams, R. H. Jr. (2006). Remittances and poverty in Ghana.
World Bank Policy Research Working Paper 3838. Washington,
DC.
3. Ambrosius, C., & Cuecuecha, A. (2013). Are remittances a
substitute for credit? Carrying the financial burden of health
shocks in national and transnational households. World
Development, 46, 143–152.
4. Beine, M., Docquier, F., & Oden-Defoort, C. (2011). A panel
data analysis of the brain gain. World Development, 39(4), 523-
532.
5. Docquier, F., Özden, Ç., & Peri, G. (2014). The labour market
effects of immigration and emigration in OECD countries. The
Economic Journal, 124(579), 1106-1145.
6. Clemens, M. A., Montenegro, C. E., & Pritchett, L. (2019). The
place premium: Bounding the price equivalent of migration
barriers. Review of Economics and Statistics, 101(2), 201-213.
7. Brown, R. P. C., & Jimenez, E. (2007). Estimating the net
effects of migration and remittances on poverty and inequality:
Comparison of Fiji and Tonga. UNU-WIDER Research Paper
2007/23.
8. Arouri, M., Nguyen, C., & Youssef, A. B. (2015). Natural
disasters, household welfare, and resilience: Evidence from rural
Vietnam. World Development, 70, 59–77.