Assessing the Macroeconomic Effects of the Barcelona Initiative’s Liberalization Process

FEM31-10 | September 2007

Title

« Assessing the Macroeconomic Effects of the Barcelona Initiative’s Liberalization Process »

By

Bernd Lucke, University of Hamburg, Institut für Wachstum une Konjunktur, Germany and Roby Nathanson, The Israeli Institute for Economic and Social Research, Israel

Contributeurs

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

The objective of this research proposal is to fill the lack of literature with regards to the economic analysis of migration from MENA countries to the EU. It aims at providing a quantitative assessment of recent migration patterns from MENA countries to the EU. The main questions this proposal addresses are the following:

– What are the new patterns of migration from MENA countries to the EU ?

– What are the main migration determinants (differences in GDP per capita, EU social transfers, migration costs, unemployment, networks, policy regulations)?

– What are the particularities of Mediterranean countries compared with other Southern countries?

– What is the specific impact of migration policies in EU countries?

– Are these national migration policies coherent with the other policies involving MENA countries, and in particular Euromed or the New Neighbourhood Policy (NNP)?

– What is the migration potential of MENA countries with regard to the EU?

– What policy recommendations can be drawn from the results?

Based on a new migration dataset which specifically focuses on MENA countries (CARIM, 2005), the first part is devoted to the description and the analysis of recent patterns in migration from MENA countries to the EU. Related economic implications are also discussed, especially with regard to the EU labour market.

As a first result, it is shown that migration from Southern to Northern Mediterranean countries has increased at quantitative level. It has also changed at qualitative level. For instance, the three existing migration types have been reinforced. These are: family reunification, illegal migration (which have given rise to regularization programs in Southern EU countries) as well as skilled migration. This latter migration type has particularly been encouraged by the labour market needs of EU countries, especially Northern countries.

Although it is difficult to estimate the number of migrants originating from Mediterranean countries (especially because of illegal migration), part one proposes an estimation of about 10-15 million, depending on whether migrants are counted by the origin or destination country. As a result, Mediterranean migrants account for about 3.8%-5.8% of the overall population of MENA countries, which is equal to 260 million in 2005.

In a second part, the role of migration policies in the EU is highlighted, both at a national and at EU level. A survey of the migration policies adopted by individual European countries in the last two decades shows that they have put an emphasis on their need to attract skilled labor and also some types of unskilled workers. This has been more apparent in countries where shortages in specific sectors have been acute, such as Germany and the United Kingdom. In order to meet the demand for labor, the countries studied have, for instance, been running specific sector programs; attracting students to stay in the country following their graduation; and/or easing residence rights for skilled workers. At the same time, the survey shows that Germany, France, the Netherlands, and the United Kingdom were generally able to curtail simultaneously unwanted immigration, thus accomplishing mostly their aims. On the other hand, by choosing guest worker programs and a quota-system, aimed at relieving provisional (yet sometimes permanent) demands for labor, and at the same time being unable to stop the inflow of illegal migration, Italy and Spain have found it difficult to control immigration into the country. Their solution has been to accord amnesties and legalize the residence of illegally migrating foreigners present in the country according to certain criteria. This has been called “regularization”. Such a policy does not seem to be aimed at attracting the desired skilled migrants for permanent residence.

Changes in the migration policies of the EU member states have not been the product of a united and consistent political strategy, except perhaps in the field of short-term visas, asylum and border control, but rather of a series of choices and measures adopted at various levels and in successive periods which, nevertheless, have unfolded and continue to unfold effects which are, for the most part, convergent. Attempts at adopting a joint EU strategy for attracting or recruiting workers have not been evident. This is mostly due to the fact that each country has different needs and demands, ties with different countries of origin, and different laws regulating the entry of foreigners.

Yet, to be sure, there is an increased Europeanization of migration policies but there is still a long way to go. Cooperation and even integration has been mostly developed and actually achieved regarding the prevention of unwanted and irregular migration: Progress in other domains is slow. The transfer of authority from the national level to a supranational body like the EU in matters related to entry conditions and requirements as well as long-term residence and citizenship seems a long way off and the rejection of French and Dutch people by referendum of the project for a Constitutional Treaty has further delayed the establishment of a common migration policy.

Finally, with the enlargement of the European Union to Central and East Europe, there has been a gradual openness operated by the old EU member states to flows of immigration from the new EU member states and their adjacent neighbors, offsetting migration from sending countries farther away.

The last part is devoted to the quantitative assessment of migration from MENA countries to the EU. Based on new developments in migration theory, this part first provides an original theoretical framework which simultaneously includes traditional and new migration determinants, such as border effects, welfare magnets, networks and policy regulations. Afterwards, an empirical model is implemented in order to assess and discuss the migration determinants and the migration potential from MENA countries the EU. This can be achieved through an econometric model which relies on new developments in panel data econometrics such as three-way random effect models, dynamic estimators as well as Hausman and Taylor estimators.

Several major conclusions can be drawn from this last part. First, migration from Southern to Northern Mediterranean countries is explained by numerous and complex factors. These factors are first traditional, as North-South GDP differences, geographical distance as well as differences in the cost of living between the EU and Mediterranean countries. In addition, new migration determinants also have a significant impact on migration decisions. First of all, there are the human networks. It is clearly shown that the presence of previous migrants originating from the same Mediterranean country attracts future migrants. In the same way, business networks also increase migration. In this regard, it is also shown that migration rises with trade flows. We thus conclude there is a complementarity relationship between trade and migration. This result has important policy implications, as explained later.

Another crucial determinant is related to differences in income inequality and education. In this regard, we show that southern migration increases with income inequality in Europe. This can be explained by the fact that higher income inequality generally implies a greater return to skill and thus a greater salary for migrants. As a result, we find a positive relationship between migrants’ education and migration. This result correlates with the brain drain theory for Mediterranean migrants to Europe. It is also specific to Mediterranean countries, as the other Southern countries generally show a higher income inequality. As a consequence, the latter countries are less concerned with increasing their returns to skills by migrating to Europe.

As an additional result, it seems that migration from Mediterranean countries is not related to the level of social transfers offered in the EU. In fact, migrants primarily come to Europe to find a job to value their qualifications. As a result, migration is negatively related to unemployment rates in the EU, even if migrants have the possibility to enjoy social transfers in case of unemployment.

Non economic factors also seem to play a significant role in the migration decision. In particular, the former colonial relationship greatly increases current migration levels. Conversely, differences in religion between southern and northern countries deter migration flows. In the same way, climate and environment (measured by pollution emission) are also significant in explaining migration, though the contribution of these two variables to the r2 is limited.

Finally, migration policy in EU countries is also a key migration determinant. We show that a tighter policy clearly deters migration. Thus, this policy is efficient for regulating migration flows. However, there are important country differences. In this regard, we have shown that the migration policy of Northern EU countries strongly reduces migrations from Mediterranean countries. On the other hand, migration policies conducted by Southern EU countries as well as Germany do not seem to significantly alter migration flows. However, these results must be interpreted cautiously, because the model does not distinguish the effects of migration policies according to various migrant types. For example, it has been shown in part two that the German and French migration policies have recently been restrictive for unwanted migrants, whereas they have been attractive for skilled migrants. This can explain that the migration policy for the sum of the migrants has been neutral on migration flows.

There are also differences depending on the beneficiary country. Hence, it is shown that national migration policies deter migration from Mashrek countries, whereas they don’t significantly alter migration from Maghreb countries as well as Turkey. In other words, these results clearly stress that the impact of national migration policies greatly differ according to both the source and destination country.

Further indication is provided by the calculation of migration potential. It is calculated as the actual/fitted migration ratio. Results point out that EU Southern countries (as well as Germany) show ratio values well above unity with Maghreb countries and Turkey. This means that for these countries, actual migration is greater than migration levels fitted by the model. Such a result may be correlated with traditional privileged relationship between some country pairs, such as France/Maghreb. These relationships may have led to favourable bilateral migration policies. Conversely, Northern EU countries show migration potential ratios below unity, especially Finland, which is – everything being equal Рtraditionally closer to Russia or Eastern European countries than Mediterranean countries. Whatever the explanations which underlie these results, it clearly appears that the distribution of Mediterranean migrants throughout Europe is somehow imbalanced, and that this problem can be partly explained by differentiated national policies.

The results presented above have several major policy implications. First, they question the coherence of the trade and migration policies of EU countries with regard to Mediterranean countries. Indeed, the commercial policy (mainly driven by the Euromed agreement) is aimed at liberalizing trade flows as a means of increasing North-South trade. On the other hand, migration policies intend rather to reduce migration flows from Southern Mediterranean countries. However, the present study argues that these two policies are not coherent, precisely because we showed that trade and migration are complementary. As a result, the simultaneous objective of free trade and restricted migration is not possible[1]. Instead of that, a free trade policy is coherent with a free migration policy concerning workers. In this regard, the implementation of the European Neighborhood Policy would be more coherent with the Euromed agreement, since the former intends to provide the four freedoms to the new neighbours, including the free movement of workers.

A second major policy implication is related to the impact of the migration policies of EU countries. Indeed, we have shown that this impact greatly varies depending on the EU country involved. This has produced a certain migration disequilibrium within the EU, since Northern EU countries’ policies efficiently reduce migration from Mediterranean countries, whereas the Southern countries have a more limited impact. This questions the rationale of these national policies and the need for a harmonised EU policy.

The last policy implication concerns the EU migration objective itself. If this objective is to limit migration flows from Mediterranean countries, then it can be reached in the long run under certain conditions. First, a reduction in the GDP gap between the EU and southern Mediterranean countries is necessary. In this respect, the economic development must be a priority for these countries. This development can be accelerated by an increase in trade and FDI between the EU and these countries. This is one objective of the Euromed agreement. Second, it is crucial that Mediterranean countries provide better returns to skills to their qualified workers. This would render qualified jobs more attractive for natives and reduce the brain drain towards Europe. This requires a strong innovation policy. In addition, selected policies of return migration for qualified workers could also ensure a reduction in skilled migration and thus in the brain drain.

Nevertheless, from an economic point of view, it seems unrealistic and inefficient to strongly limit migration from Southern Mediterranean countries to the EU, simply because there are major structural migration-pushing factors. These are not only the GDP gap between these countries and the differences in returns to skill, but also the short geographic distance, the extensive human and business networks, the strong relationships due to colonialism as well as the impact of non economic factors (a favourable climate and environment especially in Southern Mediterranean countries). All these migration determinants explain why migration from MENA countries to the EU should continue and benefit both Mediterranean migrants and EU countries.