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"Migradollars" Can Affect Homelands

5/8/2003 --

ANN ARBOR, Mich -- International migration from less-developed countries to industrialized nations has a critical impact on the global system, in part because many immigrants maintain relations with their homelands and send money back to their families, according to Mina Yoo and Klaus Weber, both of whom recently received doctorates from the University of Michigan Business School.

Official reports show the total remittance outflow from the United States increased to $70 billion in 1995 from $43.3 billion in 1980. In addition to its direct economic impact, migration also affects the transfer of skills and knowledge, social change and political developments.

“Although foreign investments by corporations make up the majority of transnational capital in the world system, the financial resources injected into home countries by emigrants should not be ignored,” Yoo said.

Using a computer simulation, they attempt to predict the long-term consequences of migration flows, capital injection and entrepreneurship on both the sending and host countries. They present their findings in a working paper, “Brain Circulation, Capital Flow and the World Order: A Computer Simulation of Migrant Economic Activity.” The two researchers believe “migradollars” can have a positive effect on the economic development of an immigrant’s homeland by increasing individual consumption, improving the standard of living and promoting economic growth, employment and capital formation. In Mexico, annual remittances of $2 billion result in 10 percent of the country’s total output and 3 percent of its GDP, with increases in production via direct investment and consumer spending, according to 1996 figures. In Vietnam, remittances of $3.2 billion are equal to more than 30 percent of the nation’s exports, according to 1998 figures.

More significantly, emigrants who become successful entrepreneurs in their host countries develop management skills, know-how, resources and relationships, which they can “re-import” to their homelands. This “émigré payback” or “brain circulation” is as significant as emigrant financial capital, the researchers say.

“When emigrants take the skills, relationships and financial capital they’ve gained back to their homelands and apply these toward entrepreneurship, the impact could be multiplicative,” Yoo said. "Entrepreneurship begets entrepreneurship.”

The authors also examine how increasing immigration brings about subtle changes in the social and human capital growth and productivity of financial capital in a host country, and they suggest that industrial countries “refrain from viewing highly qualified immigrants as substitutes for excellence in domestic education.”

Yoo and Weber conclude that even with a multiplier effect, foreign investments by migrants living abroad are not enough to “kick-start” economic growth in their homelands. Developing countries must initiate self-help measures internally if their economies are to grow and move out of a peripheral position in the world system.

For more information, contact:
Bernie DeGroat
Phone: 734.936.1015 or 734.647.1847