International Migration as a Structural Transformation Policy

Last week I was on a panel at the 18th AFD-World Bank Migration and Development Conference, where I spoke on the theme of migration and structural transformation. Typically, when economists talk about structural transformation, the focus has been on rural-urban migration. The classic narrative is then one in which workers move from low productivity agriculture in rural areas to higher productivity manufacturing and services in urban areas. But international migration has received far less attention as a driver of structural transformation. I focused my discussion not just on how structural transformation may be a by-product of international migration, but also on how policymakers can use international migration as a deliberate economic strategy

Here are three ways international migration acts as a structural transformation policy:

1.      Emigration as an Industry the Country Specializes In

A big part of structural transformation is getting labor from places where it is less productive to places where it is more productive. The more productive place might be in another country. Some countries have made international migration a central pillar of their economic model. The Philippines is the most well-known example, launching an overseas employment program in the 1970s, and overtime the government has actively developed this industry through bilateral labor agreements, training and worker support programs, and an entire ecosystem of supporting institutions. Over 1 million Filipinos leave each year on work contracts. Other countries have followed this lead, with a recent example being Kenya, which last year set a target of facilitating the emigration of 1 million workers a year, “Besides sponsoring job fairs, the government has been helping people with employment offers to apply for passports, complete background checks and obtain bank loans to cover travel expenses …. It is also negotiating deals with other countries and working with vocational schools to tailor their courses to foreign labor demands. One university is now teaching sheep shearing with an eye to sending students to Australia.”

Such a strategy can be particularly important for small, remote, island nations in which the opportunities for developing large new industries at home can be limited. For example, Kiribati set up a Marine Training School in 1967 and developed a program of training seafarers to work on merchant ships. Other Pacific Islands such as Tonga, Samoa, and Vanuatu send workers to Australia and New Zealand for seasonal work, with John Gibson and I finding impacts that dwarf those of other development interventions.

One often hears complaints that migration is not having enough impact on development, based on discussions around how much of remittances is getting consumed versus invested in setting up businesses at home. But this misses the fact that migration itself might be the best investment strategy, and a new industry worth supporting.

2.      Emigration to get the skills and capital needed to develop new sectors

A second way international migration can drive structural change is through emigrants gaining new skills and income abroad, that can then be used to develop new sectors at home. The classic example here is of the development of India’s IT sector. In the 1980s and 1990s, thousands of Indian engineers and computer scientists moved to Silicon Valley and other tech hubs. A combination of some of these migrants moving back to India with the skills learnt abroad, along with diaspora networks that linked Indian firms to capital and customers abroad, helped spur an IT boom in India. Annalee Saxenian’s The New Argonauts is the classic book on this, while Khanna and Morales show how this in turn shaped the education decisions of Indians at home, further boosting this sector. Dinkelman et al. show how migrant capital can also spur movements out of agriculture. They look at workers from Malawi who migrated to South Africa to work in gold mining. When a plane crash led to this migrant opportunity being suddenly halted (so approach 1 of emigration as the new industry was shut down), the sudden repatriation of earnings abroad led to workers shifting out of agriculture and into non-farm services in the districts that received relatively more sudden capital.

The above cases leverage shocks from policy changes in the U.S., and from a ban on labor recruiting in Malawi in response to tragedy. We have fewer documented examples of deliberate policy strategies to build a new sector at home by first sending workers abroad. One private sector example is the development of the textiles industry in Bangladesh, where Daewoo brought a group of Bangladeshi workers to Korea to train, who then returned as workers in the first export garment factory. But it would be nice to have some examples of where a government has made a deliberate effort to jump-start a new industry by sending migrants abroad to gain the skills and connections needed to make this new industry more viable.

3.      Immigration as an Industrial Strategy

Even less attention has been devoted to how countries can use their immigration policies to develop and grow new industries. Most of the work has been on high-income countries, such as work looking at the impact of skilled workers in the H1-B program in the U.S. But it is worth thinking about how middle and low-income countries can also think creatively about how to use immigration to build new industries. One example that I think is interesting is the case of Start-Up Chile, which is currently celebrating 15 years. Start-Up Chile was launched as an ecosystem accelerator, with the goal of stimulating start-up activity in Santiago, changing Chilean mindsets about entrepreneurship, and developing the profile of Chile as a hub for entrepreneurship. Rather than just restricting it to Chileans, the government made a deliberate effort to bring in new start-up founders around the world, who were offered equity-free funding, visas, training, and access to a co-working space. The idea is then that these skilled immigrants can bring new ideas and networks to Chilean entrepreneurs, and that some of them may then stay on to generate business in Chile. The program benefits the firms themselves (Gonzalez-Uribe and Leatherbee use an RDD to show this), as well as building up the start-up space in Santiago. Other countries have since set up their own versions of this type of program, although I don’t know of research on the effectiveness in other countries. But the general point of not just using immigration to fill labor gaps, but using it strategically to catalyze new industries is one where more policy experimentation would be welcome.

Final thoughts

These examples show how international migration can be about much more than just higher incomes and remittances, but be a tool that countries can use to help the process of development itself. But it is a tool that is underused and understudied, and so we need a lot more policy experimentation and research in this area.