Xiaoxiang Chen, undergraduate student at School of Management Fudan University, Fudan winner of the CoBS student article competition 2019, critically analyses the  issue of migration from a China perspective.

How migration bears good news for host economies by Xiaoxiang Chen.

Europe appears currently cloaked in a shroud of panic: refugees have been flooding into this continent, along with emerging social conflicts. According to a UNHCR report, the forcibly displaced population increased by 2.9 million in 2017 alone. While radicals proclaim that refugees jeopardise the economy, I remain convinced that migration flow can stimulate the economy in more ways than one.

Busting some myths

Thanks to prejudiced portrayals in global media, many of us view migration flows essentially as a nuisance and disturbance for European countries. But did you know that it is, in fact, the developing countries which hosted a whopping 85% of refugee populations around the world in 2017? A study by the UNHCR revealed that the top five countries offering asylum are Turkey, Pakistan, Uganda, Lebanon and Iran, while the trend is soaring dramatically in other developing countries, such as Bangladesh, Ethiopia and Jordan. The findings appear counterintuitive given that most of these countries are neighbours with the refugees’ native countries; but that does not change the fact.

As such, at this juncture, the economic effect of migration flows into developing countries deserves our attention. The impact is manifold and can be explored from both supply and demand angles.

Seizing the opportunity for industrial transfer

In line with factor-proportions theory, we can assert that migration flows influence the capital-to-labour ratio in host countries. In most cases, migration results in enormous inflows of labour, but little of capital, especially in countries which host war refugees. Sometimes, refugees can make up a considerably large proportion of the population. For example, there are 164 refugees per 1,000 inhabitants in Lebanon, while the figures are 71 and 43 for Jordan and Turkey respectively.

A shift in the capital-to-labour ratio of a host country is inevitable. Fortunately enough, that change can be transformed into an advantage by these countries. It is proven by economic theory that lower capital-to-labour ratio contributes to lower marginal labour productivity, which means reduced labour costs. According to a report by the Structural Economic Research Department and Central Bank of Turkey, after receiving 2.7 million Syrian refugees between 2011 and 2015, Turkey’s agricultural sector experienced a 29% wage decline. And this is not the case in Turkey alone. The good news is that this makes such countries attractive for labour intensive industries. For example, in recent years, Crystal International Group Limited, a large apparel manufacturer based in Hong Kong, has moved its production facilities to Bangladesh. This strategic move has a lot to do with the fact that Bangladesh is currently hosting thousands of refugees from Myanmar. According to Andrew Lo, CEO of Crystal International Group, average monthly wage in Bangladesh lies in the region of $150, compared with $700 in southern China.

Lower labour costs can thus be considered as a key enabler for industrial transfers which benefit the economies of developing countries. Migration flows can effectively reinforce that advantage to a large extent by driving down labour costs. As such, it’s really up to the developing countries to grab the opportunity to maximise cost advantages and herald new economic trends in a wide variety of sectors.

Refugee entrepreneurship: A vital, new springboard

As indicated above, refugees serve as a profound pool of labour. What’s interesting here is that these refugees can not only engage themselves in existing jobs, often ones that locals are unwilling to do, but can also create new job opportunities. Let me introduce you to Annick Iriwacu, a refugee from Burundi and a mother of three. In 2015, Annick and her family were forced to flee from their country and settle in the Rwandan capital of Kigali. In order to sustain herself and her family, Annick started a cooking gas retail outlet. With the help of a business consulting company supported by the UNHCR, she successfully registered her own enterprise in Rwanda and started her business. Since then, Annick has been pushing forward with diligence and now her business employs five staff.

Similar stories can be found everywhere, including America. For example, Sergey Brin, co-founder of Google, is a migrant from the Soviet Union. Google, of course, requires no introduction as we are all aware of the countless jobs that it has created directly and indirectly. There is thus enough reason to believe in the potential of refugee entrepreneurship in boosting labour markets.

It should be noted that a labour market comprised of migrants is actually great news for developed countries too. Many developed countries, such as Germany and Italy, are confronted with the rising challenge of population ageing. At the current rates, these countries may soon be suffering from a shrinking labour force. The Prediction Model of the European Union indicates that the majority of migrants are young adults, who can address the dual challenge of ageing population and shrinking labour market.

 Fiscal expenditure vs social investment

Critics of migration insist that host countries suffer an enormous fiscal burden when they have to provide for refugees and migrants. Based on humanitarianism, governments indeed have the responsibility to offer financial or material aid to migrants and this adds up to large expenditures. For instance, the British government promises free accommodation and medical care for refugees, along with 150 euros per month per refugee as living expense. In Germany, migrants can receive up to 400 euros per month from the government and more assistance from various NGOs.

Yes, it does seem like quite the fiscal burden. But, in the long-term it all proves beneficial to the economy as a whole. The financial aid from government can barely cover the living expense of migrants. They are ultimately compelled to seek out jobs, meaning that the money spent on migrants is rapidly converted into social demand and national income. Hence, it would be wise to view welfare expenditures as an investment for future economic prosperity.

Nevertheless, it’s true that some governments cannot really afford to bear the financial burden of offering welfare. In such cases, international assistance plays a critical role. The World Food Programme has found that cash assistance for refugees can directly fuel the local economy. They estimate that each family supported by WFP can raise the national income of Uganda by $1100. That’s definitely some good news for developing countries! Long story short, fiscal expenditure and international financial assistance both stimulate the growth of economy, be it in a developing or a developed country.

Global economy stands to win

It’s true that migrant flows come up with their own sets of obstacles. Some host countries simply do not have the infrastructure to support mass inflow of people. A sudden shockwave in such local labour markets may hurt the welfare of native low-skilled and low-paid workers. And international aid alone is often not adequate when distributed over a large number of refugees. But on the bright side, refugees often come from countries where they couldn’t have contributed to economic welfare for the lack of a stable investment environment or a good infrastructure. Migration, thus, can be a way to ensure more efficient resource allocation and better utilisation of labour for the global economy.

Migration is not easy on any of the parties concerned. But it doesn’t have to be a curse either. The whole world needs to cooperate on this issue, and put aside their prejudices for once and for all. Let’s stretch out our helping hands, because hope still exists. As President Roosevelt said, “the only thing we have to fear is fear itself.”

Xiaoxiang Chen

Useful links:

• Visit the School of Management Fudan University website
• Read a related article: Beyond politics: The economic case for migrationhttps://cobsinsights.org/2021/08/26/beyond-politics-the-economic-case-for-migration/
• Download Xiaoxiang Chen’s article and other student articles featured in Global Voice magazine #10

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