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Tuesday, January 23, 2007

Migration in Eastern Europe and the CIS - Picking on the World Bank

by Claus Vistesen: Copenhagen

The World Bank has just published a large report on migration in Europe and Central Asia (EAC: in fact Eastern Europe) as well as in the Commonwealth of Independant States. I have already posted a brief note on the topic over at Alpha.Sources but given the scope of the report and its conclusions I thought that I would go into the topic a little deeper for GEM readers. Clearly, this one is all about demographics since migration forms a major part of the discipline and consequently as the world population ages the flow of (and crucially nature of) migration becomes interesting to follow. This is particularly important in the case of Eastern Europe with its demographic profile and its migration relationship with Western Europe. Lastly, we have the more general question of how migration affects the economy of the receiving and sending country. I will return to these questions as I move through the major points of the report (from PDF overview).

Aspects of the Migration Flow

First of all the report highlights the rather substantial nature of migration in the EAC which (excluding movements between industrial countries) amount to one third of the world’s immigration. Looking at the direction of the flows the pattern reveals that a major part of all Eastern European migration (42%) goes to Western Europe where notably Germany and the UK are large recipients. In terms of migration from the CIS it primarily (80%) takes place in an intra-regional context with Russia receiving the lion's share.

Turning to the demographic impact of migration we are given an important initial insight into the general demographic realities in Eastern Europe. The report notes the fact that many countries in the area are experiencing a rather rapid population decline, a decline which is partly driven by net-emigration but also influenced by very low fertility rates which represent a significant trend throughout Eastern Europe. More specifically we are talking about the following countries: Bulgaria, Latvia, Lithuania, Moldova, Poland, Romania, and Ukraine. More interestingly the overview also briefly mentions the crucial point that many countries, despite net immigration, still experience population decline. This importantly also goes for Russia and here I have to say that I am bit disappointed by the report’s balance of points since it is perfectly allright to highlight Russia as a major recipient of immigration but this should be put into the perspective of the general demographic outlook for Russia which is, as has been reported on before on DM, pretty dire. A key issue is the fertility component of intra-regional immigration flows which, given the regional trend, can only add to an already rapid process of ageing. To be fair though the report does indeed note the immense displacement effects of migration internally in Russia and the former Soviet Republic where whole regions and cities are rapidly de-populating.

Another gripe I feel the need to express is the report’s analysis of the drivers of migration. It is not so much that I disagree with the report’s general analysis which notes that migration immediately after the collapse of communism was largely driven by ethnic partisanship as the borders were opened. I also agree that the drivers now to some extent have shifted so that migration today is driven by economic factors and most notably by expectations about future economic evolution as expressed for example in the substantial East-West wage gradient which is to be found. Clearly the substantial flow of east-west migration is also mirrored in the divergent economic outlook and realities of East and West. However, this evolution of migration drivers incites the authors of the report to indicate the emergence of yet another transition in which migration will be driven by demographic factors. What underpins this view is the idea that as Eastern Europe and old Soviet countries age these countries will be less capable of producing emigrants and as such will begin to need replacement immigration from elsewhere. As such they argue that we should expect to see a reversal/change in migration flows in a scenario wherein, for example, the EAC and CIS countries attempt to attract labour from Asia or Africa. In all modesty, I think the authors are dangerously behind the curve here since much as this might seem plausible from a theoretical point of view it is very far from being guaranteed as an automatic process. Where, for example, is all the immigration going to come from? Clearly, the ability to leverage intra-regional immigration will gradually fade, and indeed is already rapidly fading, as fertility continues to decline on a regional scale and if we accept that economic factors and expectations fundamentally drive migration how will many of these countries ever be able to leverage immigration from outside the region? Moreover, the inability of these developing economies to leverage immigration coupled with their internally unsustainable demographics raises important questions about the drivers of longer term economic growth and their ability to push up the value chain. As such, we should be weary of taking this analysis of ‘future trends’ at face value I think. Another related point where I feel the report is jumping to conclusions is in the comparison between the Irish/Southern Europe case and the case of Eastern Europe. What underscores this comparison is the fact that Ireland and Southern Europe have undergone a transition from net-emigration to net-immigration countries in a post-war perspective and as such might we not expect outward migration from Eastern Europe to the EU to decline and perhaps even reverse? It is difficult to gauge just how comparable this effect will be according to the report, and this is perhaps the point where I feel the need to most ardently disagree. It is in fact very unlikely that we can apply the same logic to the two situations and there are several reasons to this. First of all, there is the issue of EU membership and associated with this the flow of structural aid. Many of the sending Eastern European countries are not member states of the EU (although some are) and it is anything but certain that the EU can commit to aid from its structural funds to the same degree as was the case with the so-called cohesion countries (Ireland, Spain and Greece). Moreover the initial demographic and economic point of departure of, for example, Ireland and Spain was very different from that which now exists in the Eastern European countries.

Remittances and Their Economic Impact

Another key aspect of the report is its investigation of the scope and effect of remittances on the economy as departing emigrants send back money to their families in their native countries.

According to the report, the significant share of remittances in the GDP of many countries in Eastern Europe and the former Soviet Union means that outward migration contributes significantly to economic growth there. Furthermore, the flows are likely to be even greater than the official figure presented in the report of US $19 billion in 2004. Not surprisingly, the EU is a major source for these remittances. In a general macroeconomic perspective the report also notes that the importance of the remittances for the receiving countries can be very real in the longer term provided that issues such as institutional weakness and weak governance are addressed. Once again, I really do not disagree with the main thrust of the argument and actually I find it very interesting to see just how much remittances can affect the general macroeconomic environment. However, yet again I think that we are lacking a basic sensitivity to the real issue at hand. It seems to me to be decidedly odd that the human capital component of these remittance flows is not considered. What am I talking about here? Well, as we saw above, emigration from the EAC towards the EU is strong, and this of course is also what is behind these major flows of remittance payments. So what we need to think about here is the compositional effect on the sending countries’ demographics in sourcing emigration to EU which is then able to send back remittances. In short, the fact that remittances from EU to Eastern Europe are so great can essentially be seen as a proxy for the fact that the emigration from the sending countries is taken from a pool of human capital (relatively skilled labour) which these countries so desperately need in order to grow but sadly cannot accommodate relative to the job opportunities in domestic economies. This is for example something Edward has been busy following in the context of Hungary.

It is Easy to Cherrypick

Am I being unfair to the World Bank’s researchers here? I mean, it is after all pretty easy for me to write up an article like this pulling out all the weak spots and hammering down on them. However I do think there are some notable weaknesses in this report and they generally have to do with the lack of sensitivity towards demographic realities in Eastern Europe and also the assumptions on future trends in terms of the migration dynamics in the region. This is of course not to say that the report is useless because it clearly is not. It generally fields a very impressive range of data, especially given the notorious difficulties which the statistical material on migration in the salient countries presents, and in this sense I believe the report does a pretty good job. However, as I have articulated, there are in my opinion some things which need to be scrutinized in greater detail if you want to start to get a handle on the full picture.