Determinants and Consequences of Migration and Remittances: The Case of Palestine and Tunisia

FEM33-16 | February 2012


« Determinants and Consequences of Migration and Remittances: The Case of Palestine and Tunisia »


Mahmoud Eljafari, Al-Quds University of Jerusalem, Palestine


Mongi BOUGHZALA & Mohamed KOUNI, Université de Tunis El Manar, Tunisie

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 :

This report includes two papers which address some of the main issues regarding migration and remittances as they look into their macroeconomic role and their determinants and into the impacts of skilled migration on human capital accumulation and growth.  In the first paper, Eljafari explores the significant macroeconomic effects of the remittance inflows on the Palestinian economy. The main purpose of the paper by Boughzala and Kouni is to study the impact of both the brain-drain and the brain-gain on human capital accumulation (HC) and consequently on growth. Within this same context, the determinants of return migration are also examined.1. The macroeconomic effects of migration and remittancesUsing time series data for the period 1970-2008 Eljafari estimates an econometric model in order to trace out the impact of changes in remittances on important economic variables, namely imports, private consumption and investments. His model includes seven equations and the main determinants of remittances. Demand for remittances flows from Israel and GCC countries to Palestine was specified into two separate equations.The impacts of the mobility of skilled workers, technicians and graduates from Palestine to GCC countries and to Israel were estimated in terms of remittances to the Palestinian economy, given that more than 15% of Palestinian workers in Israel hold at least an intermediate diploma from vocational institutes and most of the Palestinian employees in the GCC countries hold at intermediate diploma and above.  Shocks on the Palestinian economy variables such as GDP, unemployment, exchange rates and inflation are highly responsible for the demand of Palestinian workers in Israel and in the GCC countries. Consequently, the impact of remittances on merchandise exports and imports and private investment and consumption were found to be highly considerable.The main challenge for policy markers remains how to design policies that could offset the adverse effects of remittances. How to channel remittances towards investment in the national economy remains the main challenge to Palestinian policy markers.Remittances have been viewed by policymakers as a potential solution to many economic problems facing developing economies [McKenzie and Sasin, 2007], and it is obviously the case for Palestine and to some extent to Tunisia. Remittances are a vital income source.  On the individual bases, they are utilized to cover the expenses of living, healthcare, education, and housing [Sander, 2003].  They may also provide financial resources needed for capital accumulation, and may create incentives to more investment in academic education and vocational training by individuals and governments.In general, remittances could lead to the following consequences: ( i ) represent a stable and reliable source of foreign exchange, ( ii ) insure consumption against bad shocks such as inflation and unemployment, (iii ) enhance investment in physical and human capital. However, as households in developing countries receive financial support from family members working in wealthy countries in North America, Europe, Asia, and the Middle East, until recently, there has been surprisingly little hard evidence that shows how exactly households benefit from such help [Gregorian and Melkonyan, 2008; Gltsos, 2005; Adams, 2006].International migration has been accelerating over the past three decades: the contribution of immigrants in industrial countries’ populations has doubled and remittances flows to developing countries have become larger than foreign investment or overseas aid. An average of 1 out of every 10 individual living in more developed regions is a migrant. In many developing countries, the percentage of the population working abroad and the rate of Gross remittances as a share of GDP are in the double digits range. It is estimated that around 180 million people or 3% of the world’s population work and live away from the country of their birthplace.Due to the modest investments in Palestine (WBGS) and to the limited capacity of the Palestinian economy to absorb new graduates and because the Palestinian Authority has been unable to create jobs, immigration remains the main and last resort for graduates to seek jobs. Therefore, structural unemployment in Palestine, as well as in Tunisia, is a main reason behind the increase of migration and the dependency on remittances.  Investment in academic education and vocational training becomes the solution to seek decent jobs not only in the local economy but also in the international job market, mainly in the Arab region for Palestinian workers and Europe for Tunisian.In addition, while remittances for all developing countries represented only 0.5% of their GDP since 1970, for the countries of the region they have accounted for at least 2% of GDP since 2004. Remittances represent currently one-third of the total financial flows to developing countries.  They have steadily grown and have become the major international financial source for developing countries. Worldwide, remittances are estimated at about US $167 billion per year, and approximately 60 percent of the remittances were channeled to developing countries. However, remittance estimates are imprecise because they often move through private, unrecorded channels.Household expenditure patterns and the distribution of income between consumption and saving depend on the level of current and expected remittances. Hence, factors which ?explain? migration or remittances may also shape education and healthcare choices.In the years 2005-2006, the number of Palestinian workers, mainly from the West Bank, in Israel exceeded 60 thousand. Labour remittances from this source were estimated to be $500 million per year, approximated 13% of the GDP, 10% of GNP, 150% of the merchandise exports and equal to total merchandise and service exports [Palestine Monetary Authority, Twelfth Annual Report, 2007].  More recently, labor mobility of the Palestinian workers through the Palestine-Israel borders has been restricted to the minimum level.Regarding the role of remittances, the case of Palestine is comparable to countries such as Jordan and Lebanon, but less so to Syria or Tunisia.   Remittances counted for more than 40% of the total foreign   resources in Palestine.  The importance of remittances to the Palestinian economy could be summarized as follows:}   Total remittances averaged 20% of gross domestic product (GDP) during the period 1968-2007 with wide fluctuations. The proportion of the RM to the GDP ranged between 8% in 2005 to the highest level of 35% in the mid of 1980s. In the year 2000, the proportion of   remittances to the GDP reached the peak of 27%. In that year, proportion of remittances to GDP ratio in Palestine was particularly high compared to most other countries. Similarly, net flows of remittances with respect to GNDI showed similar trend, particularly between1970 and 1990. RMs have been viewed as the engine of the economy, as a result, the Palestinian economy has been viewed more as a consumption and income economies than a production economy. The share of the agricultural, manufacturing and construction sectors   have indeed dropped from 50% in the 1990s to less than 25% by the year 2009, and, consequently, the gap between gross national disposable income (GNDI) and GDP has being widened over time.  This could be attributed to the fact that for more than 30% of the Palestinian labor force were employed in Israel.}   Persistent and continuous receipts of remittances have generated relatively stable levels of consumption.  Over the past four decades, consumption expenditures exceeded GDP. They came at the expense of long-run growth. Remittances have been found to be highly associated with private consumption and investments, but with some variations. Remittances are allocated first to private consumptions and then to private investments.}   Israeli restrictions on the mobility of the Palestinian workers to the Israeli economic sectors have pushed the returning workers to join labor intensive sectors. Consequently, total factor productivity declined overtime.}   Per capita remittances in Palestine ranged between $180 in 2007 to the peak of $369 in 1999. It was greater than that in most of the Arab Countries. Only per capita remittances in Lebanon were almost greater than that in Palestine. However, per capita remittance in Tunis was less than $150 over the period 1990- 2005.}   The remittances received by Palestinian laborers who worked abroad and in the Israeli economy exceeded the value added of any sector in the national economy. In general, official remittances transferred to the WBGS were greater than foreign direct investments and merchandise exports. The significance of remittances was also due its impact on expansion of the gap between the GNP and GDP, and the deterioration of the trade balance. In fact, Palestinian Authority has financed the budget deficit by trade deficit [Eljafari, 2000; 2001].In the case of Tunisia, total remittances have also significantly contributed to incomes and growth and have accounted for about 11% of total foreign resources, but not as much as for Palestine or Jordan. Nevertheless, remittances are important and continue to grow. More than one million Tunisian, or 10% of the population, live abroad, mostly in Europe, more than half of them in France. In spite of the restrictions imposed by the European destination countries, migration continues as close to 25000 Tunisian manage to migrate per year. Among them, the share of the most skilled and the best trained young people is increasing.2. The impact of skilled migration on human capital formation and growthThe second paper by Boughzala and Kouni addresses migration issues from the Tunisian perspective but also referring to a larger set of countries. The main concern is with the impact of both the brain drain and the brain gain on human capital accumulation (HC) and growth. Migration may indeed impact on the accumulation of both human capital (HC) and on physical capital, which are major determinants of economic growth. As mentioned above, individuals are likely to decide to invest more in education in order to qualify for better job opportunities offered not only locally but also abroad. The likelihood of finding a better job abroad has been a powerful engine in terms of HC formation, especially in countries like Palestine and Jordan. Migration could also provide learning and training opportunities, which create additional incentive for investing more in human capital.However, the net effect of migration remains uncertain because remittances have positive impacts, the brain-gain, as well as negative impacts, the brain-drain, at both macro and micro levels. The net gain of migration and of the remittances it generates is uncertain and depends to a large extent on the policies applied by the recipient country and on the way remittances are utilized.The findings of the Boughzala and Kouni paper, especially its first part, are relevant for countries like Tunisia, Palestine and for other similar countries. The data used in this paper for studying the effect of skilled migration on human capital formation is primarily the Docquier and Marfouk international database.The first part of the paper explores the impact of skilled migration for the countries of origin on human capital (HC) accumulation and growth. The main question is about the existence of a positive effect on HC. This is the brain-gain hypothesis, given that migration from developing countries is increasingly a skilled labor migration. Brain-drain is nevertheless obviously a real concern for the countries of origin, as it is an immediate loss of HC for them, but this loss is not currently very heavy because of the high level of unemployment among the educated youth.Many studies (for instance Beine et al., 2001 2003, 2008; Schiff, 2005; Docquier and Rapoport, 2007?) were devoted to testing the brain-gain idea in different ways and contexts. The main concern here is more about the net effect: do the losses due to skill migration outweigh the gains or the opposite? For instance, Haque and Kim (1995) concluded that skill migration causes a net reduction in the growth rate of human capital and GDP, and also aggravates the inequality between rich and poor countries.  Docquier and Rapoport (2004) argue that the opposite.For this research, basically, the same analytical framework developed by Beine Dockier and Rapoport (2008) is adopted with some small adaptations. The main finding is that the perceived emigration outlook index has a clearly significant positive effect on human capital formation; however, the value of its coefficient is low. That is, the brain-gain hypothesis is valid, but, given the size of the negative effect, the brain-drain, the net effect of migration must be rather negative.3. The determinants of return migrationThe second part of the paper is about the determinants of return migration. It may be argued that the ideal situation is when migration is temporary and migrants end up soon enough deciding to return and to bring back home the knowledge and knowhow they have accumulated abroad (Amin et Mattoo (2005)). This is the motivation for studying the determinants and the probability of return of migrants; which is the purpose of the second part of the paper.This issue has been previously widely addressed and analyzed, mainly by Jérôme Adda & Christian Dustmann and Josep Mestres (2006), Belinda I. Reyes (1997), Mary Haour-Knipe and Anita Davies (2008), Christian Dustmann (2003) and John Gibson et David McKenzie (2009). Income and employment opportunities are always viewed as important factors but there is also a consensus that other important non financial factors enter in the preference function. Cultural variables and social integration also matter; which is confirmed by our results. ThisOur results are based on the estimation of a ?logit? model using The MIREM database (covering the three Maghreb countries: Algeria, Morocco and Tunisia). However, some emphasis is put on the Tunisian case. Many significant results are found; the following are among the most meaningful.

  • First, expatriates would be more likely to return if they had a relatively better situation before migrating, those who used to be unemployed or never had a decent job think less of returning. And if the possibility to find a better employment after returning becomes more available then they may change their attitude and would be more willing to return. The quality and the availability of employment opportunities at home is the most important determinant of return regardless of the employment status during migration. The latter status is not significant.
  • Second, people indeed care about how well they are socially accepted in the foreign destination country. Integration is a highly significant variable. Moreover, those who have invested in the foreign country are less interested in returning. The coefficient for this variable is also significant, with a high magnitude and the right sign.


Finally, and most importantly from the perspective of this paper, the more expatriates acquire skills and obtain higher degrees abroad, especially graduate level degrees, the less they are likely to return. This finding is particularly important and explains why the positive impact of migration on human capital accumulation within the home country has been weak.