Migrants are a value enhancement proposition to a nation

Bloomberg carried an article on 27^th March `15 which claims that if all the migrant [i] controls globally were removed then the global GDP can increase by 67% - 147%! Freer flow of people can add more value to an economy as compared to a free flow of goods and controls on movement of people is the “last frontier of globalization” which however has shown least progress, claims the article. I am slightly inclined to agree with this claim if I look at the top ten countries in terms of migrant population. Out of the top ten countries, seven countries are developed nations (viz. United States of America, Canada, United Kingdom, Germany, France, Spain and Australia). The highest ranked country is the world`s biggest economy – USA.  Right from the Mayflower pilgrims who set foot in the USA to immigrants fleeing oppressive regimes to skilled people looking for opportunities, the USA is the top preferred choice of migrants. USA has been able to leverage the skills and abilities of the migrant populace to enhance the nation`s development.

Migration – benefits and flow pattern

The United Nation`s department of economic and social affairs report of last year reports a global figure of international immigrants at around 231mn which is about 3.3% of the world population with the developed nations accounting for close to 60% of the immigrants stock. Females account for 48% of the migrants and interestingly the developed nations` immigrants stock comprises of 51% of women. Refugees account for close to 7% of the migrants and 87% of the refugees are accounted for in the developing countries.

The major benefits for a migrants receiving country are:

a)    Migrants add to the economic growth of the country with their work and savings.

b)   Migrants bring specific skill sets which help in the economic development

c)    In case of ageing populations, migrants help in maintaining the ratio of the working population.

The major benefits for a sending country are:

1.  Remittances that the migrants make back to their countries
2. Ease the employment pressures in their home country.

The key trends for migrants flow are:

1. Migrants flow follows economic development as majority of the migrants would move to places     mainly in search of work.
2. Apart from work the other critical factor for migrants` movement is preference to move to places which has a culture to integrate migrants and effective laws and systems (viz. social benefits) to protect them. Hence the western world, which is high on governance and law and order systems, is able to attract skilled migrants in good numbers on a sustainable basis.
3. Women migrants prefer to move to countries where they have working conditions conducive for  work as well as safe to live and work. Conservative Muslim country Saudi Arabia which is a top 10 migrant country has only 29% of women migrants.

Do migrants add economic value and productivity of a nation?

Boubtane and Dumont in their research paper noted that the main advantage of migrants flow is human capital formation and disadvantage is capital dilution. Their research on 22 Organization of Economic Co-operation and Development (OECD) countries showed that the advantageous human capital formation exceeds the disadvantageous capital dilution but by a small amount only. A 50% increase in net foreign born migrant stock increases the productivity of a nation by less than 0.1% but this increases with more selective migration policies. Countries generally follow immigration policies to address their specific needs and wouldn`t try a mass migration policy. Many countries, especially the western nations, have a focused immigration policy to build a sustainable work force with varied skill sets. Countries like UK, Denmark, Australia, etc. attract skilled migrants through a points based selection system.

The productivity potential of a country are nowadays indicated by the Competitiveness of a nation (hail Michael Porter) and the new buzzword in the last few years “Innovation”. To understand the effect of immigrants movement on the economic development of nations, two key rankings of a country`s progress viz. World Competitiveness and Innovation Rankings were analysed.  An analysis of the migrants’ flock of population of the top countries, as shown in table no. 1 &2 shows that the top 100 nations have a higher proportion of migrants as compared to world average, which is expected as the top countries would also have higher economic development. The top competitive countries show a significantly higher proportion of migrant population and also the top 20 nations also show a higher female migrants proportion. A similar trend is also observed in the top countries based on the innovation rankings also.

 

These trends are in sync with the reasons behind the migrant flow of economics, stature and societal acceptance of migrants. These trends show that there does exist some positive correlation between the migrants and the economic growth and growth potential of a nation. What could be the possible reasons? Migrants, based on their requirement of work and to survive, have to be competitive with the local population, if not more, and hence add a significant value to a nation`s development. Secondly, in case the migrants take the lower end jobs it frees up the existing local population to focus more in higher end jobs and thus contribute more to the country.

Are similar trends seen in top migrant nations?

A look at the migrant structure of the top 10 migrant nations (viz. USA, Russia, Germany, Saudi Arabia, United Arab Emirates (UAE), UK, France, Australia, Canada and Spain) shows some similar but interesting facts as shown in table no.3  All the countries have a higher proportion of migrants as compared to the global average of 3.2%. All nations also have a higher proportion of female migrants with the exception of Saudi Arabia and (UAE). These two countries are Muslim conservative countries where women`s right to work and freedom of movement and speech are highly restricted thus showing a very low proportion of female migrants.    

The analysis of key growth potential indicators i.e. GDP,Competitiveness and innovation rankings, Labor participation rate[ii] and tertiary education of the top 10 migrant nations, as in table no.4, throws the following facts:

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1. All the top migrant countries are ranked in the top 30 in terms of GDP and only UAE is marginally behind at 32^nd rank. 7 countries are ranked in the top 30 countries in terms of GDP per capita.  
2.  Eight countries are ranked in top 25 in Global competitiveness rankings and 6 countries in top 25 in innovation rankings.
3.  Interestingly, seven countries have a labor force participation rate lesser than the global average of 60% despite that fact that almost all countries have even a tertiary education rate[iii] well  above the global average (Again conservative Saudi is just above the global average and no data available for UAE).

These trends reinforce the following facts:

1. Countries with high migrant population are generally very well off economically and on growth potential. Migrants mainly move for jobs and hence do play a very important role in the economic development. If the migrants aren`t contributing then they would be out of work very soon. Migrants imbibe the same attitude in their children and hence this competitive urge is built up in the next generation as well.
2. If a nation is high on the competitive index, then certainly the labour force effectiveness would be on the higher side whether it is local or migrants. Again migrants would have to be on the higher side of competitiveness to survive and hence would be playing a major role in enhancing the    competitiveness of the work force.
3. The innovation rankings of the top countries are slightly lower as compared to competitiveness rankings. The lowest ranks go to the Muslim conservative countries Saudi Arabia and UAE which are highly dependent on oil and associated service businesses respectively and hence aren`t inclined to move much on the innovation curve. Secondly, these two countries are lower on the tertiary education also which is a key driver for innovation. On an average the top 10 countries on innovation rankings average about 60% in tertiary education.
4. Most of the developed nations like USA, UK, etc. are battling lower labor force participation due to various factors like ageing population, social benefits, etc. With declining and lower child birth rates, these countries have to follow a pro-active immigrants’ policy to drive their economy   as well as productivity. A few months back US president Barrack Obama announced a new immigration polic on the same lines.

The basic resistance to migrants flow comes from the domestic political compulsions in a nation. Free movement of people will be brutal to any labor force as it would necessitate constant upgradation of skill sets to survive and social implications also. Politics will dictate how much migrant flow will happen.

Practically, the basic things that a country can do to encourage movement of migrants are

1. Allow free movement of labor across industries. Restrictions of any sort will only impede growth.
2. Build up legal systems to protect rights of migrants.
3. Keep xenophobic tendencies under control.

Finally, to answer the question whether the world should allow free movement of people the answer theoretically is a big yes. Migration has a definite positive effect directly and indirectly on the GDP growth and the competitiveness of a nation. The top nations in terms of competitiveness and innovation have a higher proportion of migrants. Secondly, the top migrant recipient countries have very good indicators in terms of GDP, GDP growth, competitiveness and innovation indices. A higher ratio of female migrants also has a higher degree of correlation with the development indices.

Thomas Friedman in his famous book “The world is flat” encourages free movement of goods across the countries without barriers. The next wave is free movement of people. Tougher to implement but will lead to a better world!

References

1. Ekrame Boubtane and Jean-Christopher Dumont. Immigration and economic growth in OECD countries 1986-2006: A panel data analysis
2. Bloomberg (27^th Mar`15) Here's One Way to Double the World's $80 Trillion Economy: Scrap Migration Restrictions
3. Global Competitiveness Report 2013-14 – World Economic Forum
4. The Global Innovation Index 2014 – Human factor in Innovation : Johnson Cornell University, INSEAD and WIPO
5.  Economic Effects of Migration – SUNY 2015, The Levin Institute
6. The economic implications of changing age structures – Ronald Lee, University of California at Berkeley.
7. International Migration 2013 (chart)- United Nations, Department of Social and Economic Affairs, Population Division
8. Is Migration good for the economy- Migration Policy Debates, 2014
9. Population Facts, 2013 – United Nations
10. World Bank database – www.worldbank.org

 

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[i] Migrants; International migrant stock is number of people born in a country other than that in which they live. It also includes refugees. 

[ii] Labor Participation Rate; Labor force participation rate is the proportion of the population ages 15 and older that is economically active: all people who supply labor for the production of goods and services during a specified period.

[iii] Tertiary Education Rate ; Total is the total enrolment in tertiary education (ISCED 5 and 6), regardless of age, expressed as a percentage of the total population of the five-year age group following on from secondary school leaving.