Questions and Answers for Panel 3:
The Big Picture: Macroeconomic Effects of Migration and Remittances in Developing
Economies
Q: I had a question for Michael. I loved your paper. I thought it was great. I just
wondered whether the intro and first two minutes and last two minutes – I want to suggest an
alternative intro and conclusion. So the negative about why I’m not so excited about this intro
and conclusion is I guess the policy questions – one of the policy questions on brain drain is
should the demand in countries encourage brain drain. In other words, how do you feel about
an increase in demand for – you know, suppose Harvard get on committees – you know, is it a
good thing or bad thing for developing countries for Harvard to try and recruit more people.
It’s totally good for Harvard but is it good for other countries.
And I’m not sure that this sort of thing where it’s motivated by a shock in the supply in
country necessarily provides evidence for that. And a standard model would say you’d get
some supply response but the total supply of the total number of educated people in the
sending country would go down. So I’m just not sure whether you shed light on that.
But I think you shed light on an incredibly interesting issue in economic history, which is
there’s a big debate, for example, on why you have educated minorities in many countries, and
Jews being the paradigmatic example. So Mara Stollard Bottichini has argued that in fact it’s –
that in fact it’s no to do – one of the stories is people want to invest in human capital if they’re
not secure in one place because they can take that with them if they have to leave. And Mara
Stollard Bottichini has argued against that, that that’s not the driving force for Jews at least.
Your evidence suggests that at least in this case, there’s political uncertainties and then this
potential need to immigrate is leading minorities to invest in human capital, which I think is
incredibly fascinating.
MR. CLEMENS: Thanks. Thanks very much. What is the name of the author you cited?
I don’t know.
Q: Mara Stollard Bottichini.
MR. CLEMENS: Bottachini (ph). Bottichini.
Q: Okay, this is again Daniel Noyak, Institute of International Economics, Germany. My
direction is again to Michael.
First, the migration to Fiji of Indians is largely set indentured labor, but you have also
have a group of Gujaratis and Mawatis, which are into trade. And my question would be how
big is the influence of those people on the immigrants and on the people who are in higher
education.
The second thing, you see in the Indian diaspora in many different countries – in
Guyana, in Trinidad Tobago, very different patterns of how they develop. And they’re all
Indians, and they all came from the indentured labor 18 th, 19th century migration. So I wonder
if this would be something for you to look in.
And my most important question is the consequences of Mountford model is that I say I
expect higher returns of migration, that is why my entire community invests more on human
capital, but only a small part of those who invest actually go abroad. You said the Indians invest
in categories which are not very important for the local market, for the national market in Fiji,
but still you said the number to tertiary-educated people remains more or less the same
because I have immigration but I have increased level. My question would be, these people
who are not in the field which would matter to Fiji, they are in IT and other fields. What are
they doing? Are they now building new IT industry in Fiji? Are they helping? What are they
doing? Thank you.
Q: Lawrence – (inaudible) – HED. Thanks for four terrific presentations, and I know that
not every piece of academic work needs a policy implication, but I want to invite each of the
presenters to do a little bit of role-playing, and if this were instead of an academic conference
testimony before Congress and you were asked to say in one or two sentences what is the
implication of your work for American migration policy, what would you say. Thank you.
Q: Sir, I have two quick questions, one for Jeff and the other for Antonio.
I think in the second set of regressions, you use the gravity model. And I want to know
more about the role of the gravity model in explaining the stock or the flow of migrants. I have
in mind the Ecuadorians in Spain where distance does not seem to be the key factor. So it
probably has to be more – (inaudible) – income differences rather than distance.
The second issue for Jeff is this is a great paper about finding the evidence that
remittances are countercyclical. I don’t necessarily think that from there you can follow to the
argument that you should not tax remittances. I disagree entirely with the idea of taxing
remittances, but I think the argument for not doing that has to do more with equity than with
the fact that they are countercyclical. You could argue that the governments could tax them
and spend them as well, and that does not undermine the countercyclical role.
And for Antonio, I think the bottom-line issue of your paper is that the ideological
preferences of the countries of destiny of these students influence their political preferences
later on in their countries of origin. But those of us that have been involved in studying here
and coming from a developing or an emerging country, you know the role of the state in that
process. You know that the state is decisive in order to get grants, scholarships. So it’s not so
much the preference of the individual; the state is involved in one way or another. So I’m
guessing that that could actually reverse the causality of your argument.
Q: Yeah, Nora – (inaudible). I wanted to ask something, Mike Clemens, which probably
follow on what Michael Cramer (ph) said – I mean, the story of Fiji, I don’t know exactly how
you can use it to generalize about the impact of how you can actually incentivize for people to
invest in higher education when they have the prospects to migrate because you had a very,
very severe supply shock by all of the policies that were implemented in Fiji discriminating
against the Fijians of Indian origin. So how – I mean, I don’t know if I didn’t follow some of your
statements during your presentation, or whether your paper explains that, but how can you
generalize from such a – (inaudible) – case to something more broadly accepted that there
wouldn’t be a problem brain drain because of opportunities to migrate that incentivized
investment in higher education.
Q: Thank you very much. All four papers are very relevant. A question: Have you
considered immigration from Arab countries to Europe generally speaking, and specifically Arab
countries and Northern Europe. There’s a big debate. All the issues you are relevant in a
combined way, and that’s a very critical issue for the European Union right now, and in
particular for Nordic countries – Sweden, Norway, Finland, Denmark.
Q: I wasn’t going to make this point, but two of the previous questioners were –
(inaudible). And one question in particular asked about whether or not there might be
comparable data from Indian populations in Trinidad and Guyana in the West Indies. And I just
wanted to make the point that those populations are almost entirely descendents of
indentured laborers. And when you look at the educational achievement levels between blacks
in Trinidad and Guyana who would be descendents of slaves working on sugarcane plantations,
and Indians in Trinidad and Guyana who would be descendents of indentured laborers working
on sugarcane plantations, there are significantly higher levels of educational achievement
among Indians even at apparently equivalent socioeconomic levels.
So what that might indicate – and I don’t know if this is at all what’s going on here, but
what that might indicate is even if persons are ostensibly comparatively poor, there is
something happening in the homes, in the communities, in the culture where education
maintains – is a valued occupation, a valued pursuit. Pursuit is a better word. And then if you
have the right set of conditions, I mean, it breaks out in a way that you perhaps – (inaudible, off
mike). So, I mean, it’s not clear to me that that’s helpful, but I just thought I’d say that since the
other questioner – (inaudible, off mike).
MR. SPILIMBERGO: Okay. First a technical question about the reverse causality and role
of the government in sending country. For sure sending countries have a big role. But also the
availability of financing in receiving countries actually play a big, big role. What I did is in a
robust check is to do – is to through – (inaudible) – variable, using as an instrument the
availability of fellowships to foreigners. So this is a way which is not correlated with the
sending country and it is correlated with the ability of coming to other countries. So this should
be taken care.
About the other question about policy implication, I think there is a huge policy
implication for this. Nobody can forget that among the terrorist of September 11 th, three were
in this country with a student visa. And right after that when this was discovered, there was a
big debate, whether it made sense for security reason to have half a million foreigners every
year in the States with a G-4 – no, F-1 visa in the states.
And this is a very interesting debate because it reminded me of a debate that I read
about 50 years ago. At the end of the ’50s, the Soviet Union and the United States were
debating whether to admit foreigners, exchange students. And on the American side there was
a big debate internally. Basically some people in the Congress said, well, we have some security
issues. They already stole from us the atomic bomb. Why should we allow foreigners to come
here, in particular Soviet citizens? So they come here just as spies. They will try to spy our
secrete again. It was at the heat of the big effort for the – (inaudible). So the last thing we
want is to have Soviet students call us in the United States. On the other hand, people said,
well, no, because we are an open country. They come, they learn. They come back, they will
make a change.
At the end of the agreement – the big agreement called the Lucy – (inaudible) –
agreement I think, and four foreign – four Soviet citizens came to the United States. Two were
spies of course – (laughter) – not in charge of spying the secret but in charge of spying the other
two. Among the other two, there was Yakovlev – there was Yakovlev that I was mentioning
before. When they came back, the spy said, well, this idea – (inaudible) – do well, so they
decided to keep the Yakovlev in the party, but they sent him as an ambassador to Canada for
many years. Afterwards when Gorbachev came back, actually, as I was mentioning before,
Yakovlev was the intellectual architect of the perestroika.
So 50 years later we can say, well, that was a moment – a very strong decision. The
United States took – (inaudible) – and they won the – (inaudible) – because this is vast example
of how foreign education can actually lead to change if you put the – (inaudible) – right after
some years back.
Of course you have the counterexample of, for instance, the spiritual leader of the al
Qaradawi of the Islamic Brotherhood actually started in Arizona and he really dislikes the
United States. So he went back to his country and wrote a book and said, well, I saw a disaster.
We are willing to fight the Americans. Well, you have to take this risk, but I think that overall
we have to –
MR.
: Well, it’s clear that – (inaudible, off mike) – Arizona.
(Laughter.)
MR. SPILIMBERGO: He was particularly – (inaudible) – with women with long hair.
MR.
: (Off mike.)
MR. FRANKEL: All of those questions. Just on the Indians, indentured laborer, 19 th
century worked the sugar plantations – Fiji, Trinidad. I want to throw in another example,
which is Mauritius, which I’ve been studying, where they are the shop keepers. They went –
the next generation became shopkeepers, became educated. But the – maybe they – and by
the way Mauritius is the star performer among African countries by governance, by income, by
anything. And maybe it’s just that they were enough of a majority of the population that they
could dominate the governance. I mean, the key problems of the other is you get a 50/50
balance very fine, and then, you know, you saw it – it was the soonest – in Fiji – it was soon as
the population went over. And I visited Fiji shortly before the coup, and, you know, it was just –
the population – the Indian population was just going over.
On the U.S. Congress, I mean, I was mainly taking about policy for the developing
countries. But I would emphasize the importance, the constructive role both for rich countries
like the U.S. and the poor countries of the back and forth – not the stock – leave aside what we
usually think of, which is the, you know, the Statue of Liberty, you’re going to become a U.S.
citizen, this is permanent. We’re focusing – that’s important, but we’re focusing too much on
that. I would make it easier to send remittances. I would make it easier for workers to come
and go back and forth, to have legitimate temporary visas, where they can work here
legitimately. And it’s stabilizing. When you have a labor shortage, you have more of them, and
when you got on employment recession, they go home. I mean, what could be better? It’s
what Europe did for years with the Mediterraneans. I’m speaking a little bit flippantly.
MR.
: A little bit.
MR. FRANKEL: And Mauricio asked – anyway, Mauricio asked two questions. On the
gravity model I didn’t report my results for like the first-stage regression of determining their
migration itself, but the gravity model does very well. And it doesn’t mean that you can’t come
up with examples. And after all, from Trinidad to India is a long way. So distance is not the only
variable that matters. But it is highly significant statistically, and the gravity model also includes
a dummy variable for common language and a former colonial master, which explains perfectly
Ecuador and Spain.
And then you said about – I have to think more about my language about we don’t want
to harness remittances. I have to think – target it a little more about what I’m warning against
and to the extent to which my data shed light on it. But you said the reason not to tax
remittances as equity, I’m not sure I would say that. Incentive – you want to kill the goose who
lays the golden egg. That’s the big reason not to tax – not to tax remittances. And in terms of
equity, I mean, they’re probably better off than the local worker.
But more generally, I’m trying to make a point. The connection with how it’s different
from financial markets. There was this debate years ago about the myth of the rational
peasant. Do peasants respond to incentives? And we’ve heard examples on both side – you
know, drinking away the money, or whatever, but I think there is some African countries that
ruin their cocoa and coffee industries, to take that example, because they said these farmers do
not respond to local – to incentives, to prices, and so they tax the money through marketing
boards for industrialization, and they drove their industries into the ground. I’m thinking of
Ghana for a while and cocoa, but other examples as well. So I think there’s the same issue
here.
And so it seems to me it does shed some light on it if they’re responding to the cyclical
differences that this is kind of a rational stabilizing force, and that we can make the kind of freemarket arguments the economists like to make, but which have failed so miserably in the case
of capital flows. But I need to do more. I’d like to get measures of rates of return also because
I think that is a factor. You don’t send your money back home if you think the home currency is
about to devalue.
MR. CLEMENS: (Inaudible, off mike) – three questions.
MR. KAPUR: Just I think, you know, one thing, which Michael’s paper sort of raised, like
for me, is something which we generally ignore on the effects on how – how a diaspora is likely
to affect a country of origin. It’s not just who leaves, where do they go, but why they left. And
if it is ethnic cleansing or ethnic discrimination which occurs in a variety of developing countries
and which we tend to always downplay, the idea that they are likely to have a positive impact
on the country of origin is likely to be less.
And I think Michael, in this group of Indian Fijians, they’re probably less likely to invest
back in Fiji if they think they have left once and for all, right, and this is true of Jews who were
expelled from somewhere – (inaudible) – you know, sort of North Africa. And one of the things
is that in all of these cases – or not all but sort of many of these cases, these minorities have
higher human capital but also these are the entrepreneurs.
I mean, in Southeast Asia they did not expel their Chinese diaspora, which became their
entrepreneurial class and drove it, whereas East Africa drove out their minorities which were
entrepreneurs, and that has had I think far more long-term negative impact because it’s very
hard to sort of measure, you know, selection effects by, say entrepreneurial capabilities. It’s
easier to measure education so on and so forth.
On the thing about policy for the U.S. government, my own thing would be essentially
what Lant had sort of said about temporary workers programs to self-supported, but in a legal
way which links something that many people don’t want to do, which is to link sort of INS data
with IRS data. So you have a temporary Social Security number which is valid for the time that
your visa is valid, and it lapses when your visa lapses, so you automatically can’t be paid. But
people are – I mean, I find all sorts of groups are reluctant to link the two. And I think – I’m not
sure why, but I think if you have that, that will actually be a good enforcement mechanism.
MR. CLEMENS: That’s also the sort of thing I had in mind. I will try – Michael, thanks
very much for making me think hard about how to frame this paper. The reason that I believe it
contains – it does contain some information about the causation of human capital investment
by migration is that unquestionably a change in the relative value of Indian’s perceived value of
their human capital abroad versus at home have changed. There opened up a gap between
them. And then they flooded into school.
So the question is was the ability to immigrate a necessary and sufficient condition for
that to happen. There are lots of other mechanisms – theories suggest plenty – but it didn’t
happen in families with more remittances; it didn’t happen – there was the no cognizant big
increase in the supply of educational spots. As we think through some of the other
mechanisms, there’s evidence – there are reasons to doubt them. It definitely isn’t the policy
experiment, which is a big change in visa policy, and so that’s what you’d want. And I don’t
want to oversell that. And I’m very interested in this other literature which I don’t know at all,
and I appreciate that.
About Gujaratis versus the others, you know Fiji really well. It’s certainly true that a
small minority of the Indians came not as indentured laborers but to do business. The data
don’t’ distinguish between them. And actually something really remarkable that happened in
Fiji is that while Muslims and Hindus haven’t intermarried, within the Hindus, everybody has
intermarried so that people in – even people who were speaking Gujaratis when they came in
1915 now speak Fiji and Hindustani. And it’s not clear that the – that there is a category of
Gujaratis who respond selectively to this. If there were I wouldn’t know because the data don’t
distinguish between them.
And Nora asked this very thoughtful question of what can we really learn from Fiji? I
just want to point out that a lot of people have observed this massive exodus of skilled people
from Fiji. And lots of newspaper articles I’ve read and books about this issue are very
concerned. And they have – they have posited that this has to mean a loss of skilled people
from Fiji. And that didn’t happen; it didn’t happen. That’s a really remarkable thing.
So can we take any lesson from Fiji and apply it to Peru? Definitely not, but if anything
this evidence should give us pause I think in a situation where it seems absolutely
unquestionable that a vast flow of skilled people out of a country simply must be leading to a
decrease in the stock of skills. That may not be true. And I think Fiji can definitely teach us that
for – can teach that to any setting.