Chapter 1. Immigrants’ contribution to developing countries’ economies: Overview and policy recommendations
This chapter gives an overview of the project Assessing the Economic Contribution of Labour Migration in Developing Countries as Countries of Destination. The ten countries that participated in the project are Argentina, Costa Rica, Côte d’Ivoire, the Dominican Republic, Ghana, Kyrgyzstan, Nepal, Rwanda, South Africa and Thailand. The chapter first explains why a better understanding of the economic effects of labour immigration matters for policy makers in developing countries, and how and why the ten partner countries were selected. The chapter then provides details on the different methodological approaches used by the project team and summarises the main findings of the report from a comparative perspective. Finally, the chapter offers policy recommendations to increase immigrants’ economic contribution in developing countries.
International migration has become an integral component of the global development agenda. Both the 2015 Addis Ababa Action Agenda and the 2030 Agenda for Sustainable Development acknowledge the positive contribution that migrants make to inclusive growth and sustainable development in countries of origin, transit and destination. They also highlight the need to strengthen international co-operation to ensure safe, orderly and regular migration, with full respect for human rights, regardless of migration status. The Sustainable Development Goals (SDGs) incorporate these concerns through the need to protect the rights of migrant workers, especially women (Target 8.8), adopt well-managed migration policies (Target 10.7) and reduce remittance transfer costs (Target 10.c) (United Nations, 2015a). In addition, the spread of humanitarian refugee crises led the international community to discuss implementing two global compacts: one for safe, orderly and regular migration; the other for refugees (United Nations, 2017 and 2016).
Although these new commitments represent significant milestones towards a more co-ordinated international migration agenda, immigration remains a sensitive issue in most countries. Local populations often believe that immigrants take the jobs of native-born workers, contribute to lowering wages, take advantage of public services, do not pay enough taxes, and threaten social cohesion and security.
The perception that immigrants cost more than they yield is widespread but rarely relies on empirical evidence. In fact, most existing studies show that the economic effects of immigration in the countries of destination, though limited, are usually positive. However, these studies typically focus on high-income OECD countries. Few studies analyse the contribution of immigration in low- and middle-income countries, and those that do usually cover either one specific channel (e.g. labour, trade or productivity) or a single country.1
The project Assessing the Economic Contribution of Labour Migration in Developing Countries as Countries of Destination aimed to fill this knowledge gap. It provides empirical evidence – both quantitative and qualitative – on the multiple ways labour immigrants affect the economic development of their countries of destination. The OECD Development Centre and the International Labour Organization (ILO) implemented this four-year project, which the European Union’s Thematic Programme on Migration and Asylum co-financed. The project was launched in August 2014 and carried out in partnership with ten low- and middle-income countries: Argentina, Costa Rica, Côte d’Ivoire, the Dominican Republic, Ghana, Kyrgyzstan, Nepal, Rwanda, South Africa and Thailand.
This report, together with the corresponding ten country reports, intends to serve as a useful tool for policy makers in the countries included in the project and other developing countries. It offers the latest and most exhaustive research findings that exist on the economic contribution of labour immigration in low- and middle-income countries. It can help policy makers design and implement both immigration and sectoral policies to enhance immigrants’ contribution to development. The report also provides methodological guidance to policy makers and researchers interested in assessing immigrant workers’ economic contributions.
The report focuses on three of the main channels through which immigrants potentially contribute to the economies of their destination countries: labour markets, economic growth and public finance. After explaining the immigration context in each partner country (Chapter 2), the report discusses how well immigrants are integrated into the labour market (Chapter 3). It then analyses the impact of immigration on the ten partner countries’ labour markets (Chapter 4), the different ways immigrants contribute to economic growth (Chapter 5) and how they affect public finance, both as public service users and tax payers (Chapter 6).
The project: Understanding the economic effects of labour immigration in developing countries
Understanding how immigrants contribute to developing countries’ economies interests policy makers for many reasons. Immigrants affect not only a country’s economic prosperity, but also the well-being of the native-born population as well as social protection systems and other compensatory schemes. Immigrants indeed play a diverse set of roles and exert a variety of influences on the economy of the host country:
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As workers, immigrants are part of, but also have an impact on, the labour market; they also alter the country’s income distribution and influence domestic investment priorities.
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As students, immigrants – or their children – contribute to increasing the stock of human capital and diffusing knowledge.
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As entrepreneurs and investors, they create job opportunities and promote innovation and technological change.
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As consumers, they contribute to increasing the demand for domestic – and foreign – goods and services, thus affecting the price and production levels, as well as the trade balance.
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As savers, they not only send remittances to their countries of origin but also contribute indirectly, through the bank system, to fostering investment in their host countries.
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As tax payers, they contribute to the public budget and benefit from public services.
Through these different roles, immigrants can help stimulate economic growth in their countries of destination and thus promote development. Immigrants also contribute to the social and cultural diversity of the communities in which they live, but that aspect goes beyond the scope of this project.
Against this backdrop, the project Assessing the Economic Contribution of Labour Migration in Developing Countries as Countries of Destination aimed to inform partner countries, as well as other developing countries with similar economic and political contexts, of the different ways immigrants contribute to development. It also attempted to provide policy makers in partner countries with guidance on relevant issues to make the most of immigration in their countries. To do so, the project applied widely accepted methodologies, taking into account the specific challenges that developing countries face. Given that analysis and data on native-born and foreign-born populations tend to be rare and dispersed in these countries, the project team collated relevant data on immigration and helped generate new data, especially through enterprise surveys and sectoral studies. To better understand how immigrants contribute to economic development, the analysis took into account the historical, legal and economic environment in each country.
As a result of these efforts, this report examines empirically how immigrants contribute to their host countries’ economies (Figure 1.1). It focuses specifically on:
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labour markets, not only in terms of labour force and human capital, but also employment and wages
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economic growth, in particular production and productivity, at both firm and economy levels
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public finance, including public spending and fiscal contributions.
Partner countries represent a diverse range of regions, income levels and immigration backgrounds
The project was developed in partnership with a balanced mix of ten developing countries (Figure 1.2), which represent different regions, income groups and immigration patterns. With a total amount of 13.7 million immigrants in 2015, the ten partner countries covered about 6% of the international migrant stock (243.7 million) and 16% of all immigrants in low- and middle-income countries (84.8 million) (United Nations, 2015b; see Figure 2.1 in Chapter 2). By region, immigrants in partner countries represented 38% of all immigrants among low- and middle-income countries in Latin America and the Caribbean, 15% in Africa and 12% in Asia.
The project team collaborated closely with a variety of stakeholders. Together, they helped define the priorities that each country faces. The choice of partner countries was based on three main criteria:
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The willingness of the relevant authorities in each country to become partners. Their co-operation was obtained through discussions and formal agreement with the public authorities. Each country was then asked to appoint a national institution as project focal point (Table 1.1).
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A balanced representation of low- and middle-income countries. The World Bank’s 2015 country income classification categorised Argentina, Costa Rica, the Dominican Republic, South Africa and Thailand as upper-middle-income countries. Côte d’Ivoire, Ghana and Kyrgyzstan were classified as lower-middle-income countries, and Nepal and Rwanda as low-income countries. By including diverse income groups, the project aimed to explore how different income levels and socio-political conditions influence the ways immigration contributes to economic development.
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A significant weight of immigrants as a share of the population. To analyse the economic contribution of labour immigration, partner countries needed significant immigration rates. The share of immigrants as a share of the population varied in 2015 from 1.5% in Ghana and 1.8% in Nepal to 8.8% in Costa Rica and 9.6% in Côte d’Ivoire (Figure 1.3).2
Note: The size of the circle represents the stock volume of immigrants. The colour of the circle indicates the country’s income level: blue = upper-middle-income countries, grey = lower-middle-income countries, black = low-income countries.
Source: United Nations (2015b) and World Bank data (http://data.worldbank.org/indicator/NY.GDP.PCAP.KD).
Given the project’s focus on labour migration, countries where refugees represent more than 50% of all immigrants are not included. Rwanda is the partner country with the highest share of refugees; its registered refugees made up about 16.5% of its immigrant population in 2015 (United Nations, 2015b). In all other countries, refugees represented less than 5% of the immigrant population (4.9% in Costa Rica and 4.6% in Ghana, but only 0.1% in Côte d’Ivoire and the Dominican Republic).
Certain partner countries have counted immigrant populations in the millions or have high shares of immigrants in the total population (Figure 1.3). Two upper-middle-income countries, Thailand and South Africa, had the largest total numbers of immigrants in 2015 (3.9 million and 3.1 million, respectively). Côte d’Ivoire and Costa Rica reported the highest shares of immigrants in the total population (9.6% and 8.8%, respectively). Two low-income countries, Nepal and Rwanda, and two lower-middle-income countries, Ghana and Kyrgyzstan, had the smallest sizes and shares. Between 1995 and 2015, Thailand experienced the greatest growth in volume (4.8 times) of the ten countries, while in Nepal and Kyrgyzstan the number of immigrants declined. In Argentina, South Africa and Thailand, the share of immigrants in the total population increased between 1995 and 2015, but it decreased in the seven other partner countries.
All immigrants are not workers, but most are. Labour immigration makes up a large portion of total immigration worldwide. The average share of labour immigration at the global level, measured by the labour force participation rate of the immigrant population, is 72.7% (and 63.9% for the non-migrant population) (ILO, 2015a). The labour force participation rates for immigrants in low-income, lower-middle-income and upper-middle-income countries are 59.4%, 69.7% and 70.7%, respectively (ILO, 2015a). At 64.3%, the average labour force participation rate is lower in the partner countries (excluding Thailand due to data limitations), due to the relatively low participation rates in Kyrgyzstan (47%) and Nepal (41.9%). The labour force participation is high in Côte d’Ivoire (85.5%), South Africa (78.8%) and the Dominican Republic (72.7%).
Reflecting the diversity of income levels and immigration backgrounds, the migration governance systems also vary greatly across the ten partner countries. Immigration policies range from a relatively open regime, such as in Argentina and Costa Rica, to a more restrictive one, such as in Thailand where immigration laws reserve some occupations for Thai workers. Other countries feature different degrees of openness and restriction vis-à-vis immigration. Nepal has an open border policy with India, while Ghana and Rwanda have developed policies that encourage immigration as a means to development. Similarly, South Africa has diversified the origin countries of immigrants due to economic restructuring since the 1990s. Kyrgyzstan has frequently changed the institutions responsible for immigration and undergone many reforms regarding migration.
Similarly, integration policies are diverse and immigrants have various levels of immigrant rights across partner countries. Immigrant workers in all partner countries should have the same rights as native-born workers in terms of equal pay for the same work and equal employment conditions and protections. But, in practice, restrictions sometimes apply. Generally in most partner countries, access to public education, training and public health services is immediately available for regular immigrants. However, there are still limitations for irregular immigrants. Most partner countries guarantee similar economic, social and civil rights to immigrants, but some restrictions may exist, like in Côte d’Ivoire with regard to land rights. Political rights are often limited in most countries. One significant integration measure − access to citizenship through naturalisation − exists in the ten partner countries and requires two to seven years of permanent or temporary residence, depending on the country.
Defining immigrants and labour migrants is not straightforward
One important challenge is related to the definitions of immigration and labour migration. Different organisations and countries have their own definitions. For the sake of comparison across countries the project tried to use the same working definitions for all countries, even though available statistics do not always fit these definitions.
Immigrants
No universal definition of an immigrant exists. The most commonly cited definition accords with the 1998 Recommendations on Statistics of International Migration: “any person who changes his/her country of usual residence, […] in which an individual normally spends his daily period of rest” (United Nations, 1998). An individual who enters the nation for up to three months is not considered as an immigrant, but rather a visitor. Beyond three months, the individual will be termed a short-term immigrant for the next nine months. Only after one year of legal residency in the country the immigrant will be termed a long-term migrant.
In line with this definition, the Population Division of the United Nations’ Department of Economic and Social Affairs estimates international migrant stocks by using the country of birth as a reference (United Nations, 2015b). This report adopts this definition, as it is widely used in analytical work and as data are available in all countries covered by the project. International immigrants are therefore individuals who were born in another country than the country in which they live. This definition does not take into account the citizenship of people.
Some people are born abroad but are not foreigners, while others are born in their country of residence but do not have its citizenship. This often relates to the national legislations in terms of citizenship and naturalisation. Four different scenarios in terms of country of birth and citizenship are illustrated in Table 1.2:
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In countries that favour jus sanguinis, it is more difficult for the children of immigrants born in the country to get access to the citizenship of their country of birth (native-born foreigners).
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In countries where jus soli prevails, children of immigrants can become citizens of their country of birth more easily. They are therefore native-born citizens, but are often referred to as the second generation.
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In some countries, and depending on the naturalisation rules, individuals born abroad can become citizens of their country of residence after a certain number of years. They are foreign-born citizens.
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While most people born in their country of residence are also citizens of that country, in most cases the foreign-born are also foreigners (foreign-born foreigners). Reasons can include that i) they do not stay long enough to acquire citizenship, ii) the legislation in their country of origin does not allow for dual citizenship or iii) the rules in their host country are too strict.
This report cites administrative data that therefore sometimes refers to foreign citizens. Given potential differences in national definitions, each country report explains in detail the definitions used.
Labour migrants
While labour migration refers to immigration for employment in the destination country as the primary purpose, different ways to measure it exist. There are two major ILO instruments on labour migration and the protection of migrant workers:3 ILO Convention No. 97 (1949) and accompanying Recommendation No. 86; and ILO Convention No. 143 (1975) and accompanying Recommendation No. 151. The latter document states (Article 11) that the term “migrant for employment” means “a person who migrates from one country to another with a view to being employed otherwise than on his own account, and includes any person regularly admitted as a migrant for employment”. According to the UN Convention of 1990, Article 2, the term migrant worker refers to “a person who is to be engaged, is engaged or has been engaged in a remunerated activity in a State of which he or she is not a national”.
For statistical purposes, the ILO global and regional estimates of migrant workers define the term “migrant worker” as “all international migrants who are currently employed or are unemployed and seeking employment in their present country of residence” (ILO, 2015a). Another definition encompasses those who chose work or employment-related opportunities as the primary reason for immigration. Information on the reasons for immigration is not always available, even in high-income countries (OECD/European Union, 2014). However, some partner countries (e.g. Argentina, Costa Rica, the Dominican Republic and Thailand) do have that information.
This report refers to labour immigration by taking those immigrants who are looking for work or are employed from labour force surveys or population censuses. In a broad sense, it also refers to the working-age population (defined either as aged 15 and above, or 15 to 64), knowing that most labour immigrants are drawn from this age group. This definition reflects the fact that labour immigration often drives other types of flows, such as family immigration, but may also itself be partly driven by them (OECD, 2017; OECD/European Union, 2014). Non-labour immigrants by a strict definition, for instance humanitarian migrants and students, may also enter the labour market at some point and contribute to the destination country’s economy in similar ways that labour immigrants do.
Citizenship is also an important criterion of labour immigration. For example, the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families refers to the term “migrant worker” as “any person who is to be engaged, is engaged or has been engaged in a remunerated activity in a State of which he or she is not a national” (United Nations, 1990). This report distinguishes between labour immigrants who are citizens and those who are not, where appropriate.
Methodology: How did the project measure and analyse the immigrant contribution?
Analyses of the economic impact of labour immigration in developing countries as well as relevant data are scarce. The different methodologies that this project adopted could therefore be of value to policy makers and researchers wishing to measure the impact themselves. To overcome data paucity and increase the comparability among the ten partner countries, the project team relied on secondary data from national and international sources and collected primary data, in particular through a set of qualitative sector studies. The main methodologies for the analysis and primary data collection are presented below. The analysis covered three components of immigration’s impact across the ten countries, yet each country analysis required adjustments to the methodologies (OECD/ILO, 2017a-b and forthcoming a-h).
To develop the methodological framework, the project team first reviewed the existing literature (Böhme and Kups, 2017), held an international expert meeting on 23-24 February 2015 in Paris and organised country-level consultation seminars throughout 2015.4 These events also provided the opportunity for raising interest in better understanding the context of immigration and its economic impact at the country level. Furthermore, the events benefited from contributions from national experts with regard to the historical, policy and regulatory environment.
To examine the impact of immigration on the labour force and human capital, the project team used key indicators of the labour market (ILO, 2016), indicators on skills mismatch (ILO, 2014a) as well as a demographic accounting method (OECD/European Union, 2014). The indicators allowed for an analysis of the labour market integration of immigrant workers. The demographic accounting method decomposes changes in the labour force between two periods by age group. The result of this method shows the contribution of new immigrant workers compared to different groups of native-born workers.
The project team also applied the skill cell approach and regression analysis (Borjas, 2003; Card, 2001; Facchini, Mayda and Mendola, 2013). These were necessary given that the level of human capital among immigrant workers determines the presence or degree of the impact on labour market outcomes of native-born workers. This method classifies workers according to skill level by dividing them into groups based on their educational achievement and estimated work experience. It then investigates whether the share of foreign-born workers in each skill group affects the labour market outcomes of native-born workers in that group in the same time period and, in some cases, at sub-national levels. This method is based on the assumption that workers compete with other workers with a similar level of skills.
Regarding the link between immigration and economic growth, the team estimated immigrants’ contribution to value added (ILO/OECD/World Bank, 2015). For countries where relevant data were available, they also examined how immigration could affect productivity through contributions to exports (in Costa Rica, the Dominican Republic, Ghana, Kyrgyzstan and Rwanda), firm–level production (in Côte d’Ivoire, Nepal and Rwanda) and entrepreneurship, i.e. business ownership (in all countries). In particular, the project team collaborated with national statistical offices in Côte d’Ivoire and the Dominican Republic on including a module on immigrant workers in the existing surveys of economic activity at the firm level.5
In addition, a multisectoral macroeconometric model was used in South Africa and a computable general equilibrium model in Thailand. These models are based on a series of assumptions on how the economy functions. They simulate how gross domestic product (GDP) and its major components react to changed shares of immigration under different scenarios. In contrast to other methodologies used in this report, the analysis based on these two models can be used to provide a long-term perspective of immigration’s impact.
In addition to this quantitative analysis, a qualitative approach was used to collect new, complementary data on sectors in selected partner countries. Sector studies, implemented in Côte d’Ivoire, Ghana, Kyrgyzstan and Nepal in collaboration with national research institutes, cover qualitative aspects of the immigrant impact in selected sectors, given the scarce data available at the sector and enterprise levels. The sector studies focused on two selected economic sectors that represent a significant share of immigrant workers in each country. The studies included (i) interviews with formal enterprises, (ii) interviews with key stakeholders and (iii) focus group discussions among both native-born and foreign-born workers. The project team organised training workshops to conduct pilot fieldwork and surveys, and a local research team in the four selected countries participated. Sector studies are important to better understand some of the perspectives of individual native- and foreign-born entrepreneurs and workers on real and perceived impacts of immigration in their workplaces and industries.
Finally, to analyse the fiscal contribution of immigration, the project team employed a static accounting method (Dustmann and Frattini, 2014). The method first estimates immigrant expenditure and revenue shares based on household surveys in each country and then combines them with public budget data on the same expenditures and revenue categories. Thailand was missing due to the lack of a survey that contains information on both the country of birth and the income of respondents.
Two conceptual difficulties in analysing the impact of immigration, particularly in developing countries, are irregular immigration and the informal economy. Official statistics rarely report them. For example, in most partner countries no estimates are available on the size of the irregular immigrant population. Indications either come from those irregular immigrants that are apprehended and expelled or are obtained retroactively through regularisation campaigns.
Given that a large part of this report’s analysis is based on household surveys or population censuses, both irregular immigrants and informal employment are included. However, the accuracy of these data is not guaranteed. Although the legal status of immigrants certainly affects the quality of their labour market integration and by extension their economic impact, the lack of data does not allow for an impact analysis by legal status.
Main findings: How does labour immigration affect partner countries’ economies?
This report shows that the impact of labour immigration in developing countries on the native-born population, as well on the economy, varies across demographic and educational groups, sub-national levels, sectors, occupations and personal characteristics. Detailed information and insights on levels of impacts can be useful for designing and implementing better policies.
Immigrants perform relatively better than native-born workers on the labour market, but their working conditions are often poorer
Immigrants’ labour market outcomes show how well immigrants are integrated into the host country’s labour market and, in turn, how they affect the entire labour market, in particular the outcomes of native-born workers (Chapter 3). Foreign-born workers in most partner countries do not seem to significantly influence the labour market in terms of their size compared to other groups on the labour market. Native-born workers, especially new young entrants, drive most changes in the composition of the labour force. However, in many partner countries the immigrant labour force tends to grow faster than the native-born.
Although labour market outcomes may differ depending on the sub-group and personal characteristics, in general immigrant workers are proportionately more often employed and earn lower wages than native-born workers (Table 1.3). Paid employment is more prevalent among immigrant workers. However, their work is more likely, and increasingly, in lower-quality, low-skilled occupations − such as construction, private household services and trade sectors − than native-born workers’ (Table 1.4). This tendency reflects the fact that immigrant workers tend to be less educated than native-born workers, more often underqualified for their jobs, and more prone to take up non-standard employment. Overqualification of foreign-born workers is an issue in medium-skilled occupations.
Immigration has a limited impact on the labour market outcomes of native-born workers
The relationship between the share of immigrant workers and employment of the native-born workers is generally negligible in the partner countries. However, results vary depending on the sub-national scale of the analysis and factors such as years of residence, sex and education. For example, in Kyrgyzstan, Nepal and Thailand the insignificant effects on native-born employment rates at the national level become significantly positive at the sub-national level while in South Africa it becomes significantly negative (Table 1.5). The effects on unemployment, paid employment and vulnerable employment also differ at the sub-national level. The difference between national and sub-national levels can be probably explained by different sub-national characteristics, for example a higher level of urbanisation (in Rwanda) and a large outflow of native-born worker from some provinces (in Kyrgyzstan and Nepal).
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Table 1.5. Labour market impacts of immigration are different between the national and sub-national levels
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Note: The sample is restricted to the working-age population (15-64 year olds). The immigration share is equal to the number of immigrants of a given year-education-experience (-province) labour force group over the number in the labour force in the same group. o = no significant effect; - = significant negative effect (shaded in grey), + = significant positive effect (shaded in dark blue). The national wage effect in South Africa in Facchini, Mayda and Mendola (2013) was negative. There were no regressions carried out for Côte d’ Ivoire at the sub-national level due to an insufficient number of observations. |
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Source: OECD/ILO, 2017a-b and OECD/ILO forthcoming a-h. |
Native-born women seem to be the most negatively affected by the presence of female immigrant workers. This is possibly due to their over-representation in vulnerable and temporary employment and ensuing competition from immigrant workers.
In several countries, the relationship between native-born labour market outcomes and the presence of recently arrived immigrant workers is much stronger than that of all foreign-born workers. Recently arrived immigrant workers are considered as those who have arrived in the past ten years. This suggests that there are noticeable short-term effects, which indeed dissipate over time, as immigrant workers integrate into the labour market. The effects of recently arrived immigrant workers were most pronounced in South Africa.
The effects on native-born wages are also insignificant in the partner countries, with two exceptions. Ghana and Rwanda exhibited strongly positive and negative effects, respectively, at the sub-national level. In South Africa the effect of newly arrived immigrant workers as well as female immigrants on the wages is positive. Human capital differences only partially explain the wage gaps between native-born and immigrant workers. The wages of immigrant workers are sometimes higher than those of native-born workers. This is the case for example in Ghana and Rwanda. The occupation explains the wage gap only in Costa Rica. Other factors such as language and knowledge of local markets and opportunities may also influence the wage gap.
At the national level, employment rates of native-born workers tend to be lower in the presence of a higher number of foreign-born workers. This effect is not necessarily unfavourable given other impacts. For instance, in Rwanda, a negative impact of immigration on employment rates of native-born workers likely results from labour immigration policies and long-term development planning. The country attracted highly-skilled foreign-born workers to sectors and positions for which there are insufficient qualified native-born workers. Conversely, in Thailand, the statistically positive impact of immigration on native-born paid-employment rates and the negative impact on native-born vulnerable employment suggest that immigrant workers complement the native-born. Immigrants provide native-born workers the opportunity of finding better employment.
Labour immigration is unlikely to result in strong effects on factors closely linked to economic growth
Labour immigration’s economic contribution goes beyond potential changes in the labour market outcomes as illustrated above. For instance, immigration can have an impact on the overall income of native-born individuals by affecting labour productivity. Changes in the number and productivity of workers through immigration can determine immigrations’ impact on GDP. Immigration typically raises the share of employed individuals in the total population primarily because of the higher concentration of immigrants in the working-age population. This rise leads to growth of the labour force and consequently increases GDP per capita. Human capital measured by years of education is lower for immigrants than native-born workers in all the partner countries except Nepal, Rwanda and South Africa. The differences are small, indicating a modest decrease in average human capital per worker.
Immigrants’ contribution to value added is estimated by taking into account the sectoral distributions by foreign- and native-born employment and years of education of workers. The estimation reveals that immigrants’ contribution to value added often exceeds their population share in employment (Figure 1.4). Their contribution to GDP ranged from about 1% of GDP in Ghana to almost 19% in Côte d’Ivoire. In Côte d’Ivoire, Kyrgyzstan, Nepal and Rwanda, immigrants’ contributions to GDP were higher than their shares in employment, while in the remaining countries they were similar or lower. Overall, it seems unlikely that foreign-born workers depress income per capita.
Note: The estimated contribution of foreign-born workers to GDP is calculated as follows: the share of employed individuals that are immigrants in a sector is multiplied by the ratio of years of education of foreign- to-native-born workers employed in the sector and by the value added generated by the sector. These estimates of the value added generated by immigrants in the different sectors are then added up to arrive at the total estimated value added generated by immigrants. The share of this value added in total value added corresponds to the estimated contribution of foreign-born workers to GDP.
Source: Authors’ own work based on population census data from the Minnesota Population Center (2017) or national statistical offices; household survey data was used for Argentina and Côte d’Ivoire.
Immigration can affect the productivity of a country through several channels. Immigrants often contribute to sectors where skills shortages are acute. These include both generic and specialised skills, either from emigration or low education levels among native-born workers. However, some qualitative evidence at the individual, business and sectoral levels shows that employers may perceive recruiting and hiring immigrant workers as a burden. Qualitative evidence from the sector studies also shows that immigrants may contribute to competition, displacement or pressure on the environment but also to knowledge transfer and innovation. The study found no conclusive evidence suggesting a positive or negative effect by immigrants on productivity at enterprise and sector levels, though this may be a result of limited data.
Another channel through which immigration can affect a country’s economic growth is entrepreneurship. In the majority of partner countries (Argentina, Costa Rica, Kyrgyzstan, Rwanda, South Africa and Thailand), immigrants are more likely to be employers than are native-born individuals. For Costa Rica, the Dominican Republic and South Africa, a higher share of native-born individuals tends to be employers if they live in an area with a higher concentration of immigrants. In order to develop meaningful policy implications, however, further analysis is necessary. It should examine whether the concentration of immigrants also affects the productivity of businesses owned by native-born individuals.
The direct impact of immigration on public budgets in partner countries is generally small but positive
The direct impact of immigration on public budgets in nine partner countries (Thailand was excluded due to the absence of relevant data) in a recent year is found to be small (Chapter 6). This mirrors the findings in OECD countries (OECD, 2013a). Using a static accounting method, the overall net fiscal contribution of immigrants is estimated to be lower than 1% of GDP, whether the impact is positive or negative (Table 1.6). Under certain assumptions, the per-capita contribution of foreign-born individuals is on average higher than that of native-born individuals in the majority of the studied partner countries. Argentina and Kyrgyzstan are exceptions, mainly due to their higher share of elderly people among immigrants.
The analysis presents some limitations. For example, it considers only a single year, but the net fiscal contribution of immigrants can vary greatly over time. Immigrants who are older, have lived longer in the host county and seemingly generate higher public expenditures than revenues may have contributed significantly to the economy and to public finance in the past. Also, secondary effects, such as increases in economic growth that boost public revenues, are not taken into account. Finally, the precision of the overall estimates is limited because they are not based on actual tax records.
Several factors can shape the difference in the net fiscal contribution of foreign- and native-born individuals. The first is the structure of taxes and expenditures itself. For example, the estimates presented in Table 1.6 allocate the costs of so-called “pure” public goods to native-born individuals only. These are public goods such as defence and culture whose expenditures are not thought to rise when the population grows. If they account for a sizeable chunk of total expenditures, this favours the net fiscal contribution of the foreign- compared to the native-born population. Under an alternative estimate, the cost of these goods is equally split between all. Under this scenario, the average immigrant in Costa Rica, Côte d’Ivoire and Nepal no longer has a higher net fiscal contribution than the average native-born person.
Another factor is how much immigrants benefit from the social protection system. Once their personal characteristics are taken into account, immigrants in the partner countries are equally or less likely to benefit from pension or social benefit payments than the native-born population. This may partly be due to immigrants’ over-representation in informal employment and in some cases their irregular immigration status. But they may also not have worked a sufficient number of years in the country to be eligible for benefits.
Personal characteristics of native- and foreign-born individuals can also explain the difference in their fiscal contribution. For example, if foreign- and native-born individuals were more similar in terms of their age, the difference in contribution between the two groups would be less pronounced in most partner countries than it currently is (see Figure 6.10 in Chapter 6). If immigrants had the same employment rates as native-born workers, their per-capita contribution would decrease, except in Ghana, Kyrgyzstan and Nepal.
Policy recommendations: How destination countries can enhance the contribution of immigration to development
This report shows that labour migration has a relatively limited impact on the ten partner countries’ economies. This is consistent with the existing literature on the economic contribution of immigration. Significant differences between the ten partner countries and high-income OECD member countries exist in terms of the size of the informal economy, the share of informal employment and the quality of working and living conditions for immigrants. However, the way foreign-born workers contribute to their host countries’ economies is relatively similar.
The effects in terms of labour market outcomes of native-born workers, public finance and economic growth are relatively limited in both groups of countries. This implies that perceptions about a possible negative contribution of immigrants in destination countries are often not justified. But, it also means that most countries do not sufficiently leverage the human capital and expertise brought by immigrants. Yet, immigration is an increasingly important feature of many contemporary labour markets and for many countries it is an essential component of the future of work (ILO, 2015a; OECD, 2016).
In this respect, public policies can play a key role in enhancing the contribution of immigration to the development of the countries of destination. While many developing countries have adopted policies to maximise the positive impact of emigration, few have comprehensive policies to make the most of immigration. This may in part be due to immigration not being considered a policy priority, as the issue is often new and must compete with many other pressing policy concerns. However, excluding immigration from development strategies usually represents a missed opportunity for countries of destination.
The contribution that immigrants can make to the economy of their host countries depends on a series of factors:
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the socioeconomic characteristics of the immigrants themselves, such as their age, sex, country of origin and skills level
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their working conditions, which are related both to their immigration status and labour rights
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their level of integration into the society, especially the labour market, but also in terms of social protection, education and health services
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the economic environment of the country of destination, which relates to business cycles and long-term growth perspectives
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the policy and institutional environment, which can affect (i) the extent to which immigrants’ skills are effectively recognised and used and (ii) whether immigrants can invest and develop new businesses and can contribute to the fiscal system.
Public policies can have direct and indirect effects on all these factors and influence not only the profile of the immigrants who come to the country, but also the way they contribute to the economy and integrate into the society. Building on the current research findings, immigration countries should therefore base their policies on the five priorities shown in Figure 1.5. This is also in coherence with international best practice, such as the recommendations of the Declaration of the High-level Dialogue on International Migration and Development (United Nations, 2013) and the “Resolution concerning fair and effective labour migration governance” recently adopted at the International Labour Conference (ILO, 2017a).
Adapting migration policies to labour market needs
Most developing countries can benefit from immigrants – and this at all levels of the skills distribution. As countries develop and go through a process of economic transformation and diversification, the need for new skills emerges. By enriching the stock of human capital, immigrants can help destination countries that face significant skills shortages to upgrade their production structures and move up the global value chains (OECD, 2013b). In addition to the needs for medium- and high-skilled workers, the foreign-born labour force can also replace or add to the native-born workforce in the low-skilled segments of the economy. In many countries, investments in education enable populations to work in better and more qualified jobs, but the demand for low-skilled jobs remains. Immigrants with low skills often have jobs that are less attractive to the local labour force, enabling the native-born to move to the most dynamic sectors. However, this process also depends on native-born workers’ skills and the skills needed in these sectors.
Immigrants often facilitate transition processes in developing countries. They tend to replace the native-born workers that have moved from rural to urban areas or from lower-skilled to higher-skilled occupations, as well as those who have left the country in search for better opportunities abroad. In ageing economies, immigrants can also help maintain the ratio between active and inactive populations. In addition, they can ensure the sustainability of the pension system, assuming their migration and employment statuses allow them to contribute to that system.
Partner countries, but also other low- and middle-income countries, should therefore aim to develop migration management systems that facilitate labour mobility. They can do so by protecting migrant workers, relying on up-to-date assessments of labour market needs and identifying skills gaps. Such systems need to be designed and implemented in partnership with worker and employer organisations.
Develop migration management systems that facilitate labour mobility
While all countries are sovereign in the way they manage immigration, policies that are overly restrictive tend to be both costly and counterproductive. The more restrictive immigration policies are, the more costly they are to enforce. There are costs for issuing visas, controlling entries, patrolling borders and deporting irregular immigrants. Also, in many developing countries, the restrictive measures are often difficult to enforce. Borders tend to be porous and controls particularly complex to implement in a context marked by strong cultural and family ties across neighbouring countries and by a high degree of informality on the labour market (OECD, 2011a).
Against this backdrop, it would be easier for many developing countries to implement migration regulation frameworks based on labour market needs. It may be more advantageous to be open to foreign-born workers and their families than to spend scarce financial resources on costly and often inefficient border management measures. National security may depend as much on providing decent work opportunities as it does on border control. Facilitating entries and providing more legal pathways to labour migrants would automatically increase the share of immigrants with a regular status. As a result, immigrants would also benefit from more formal employment opportunities and would hence contribute more significantly to the economy of the host country, in particular by paying more taxes.
Along these lines, Rwanda adopted a National Migration Policy in 2009. It aims to enhance the country’s economic and social development and competitiveness, promote regional integration, and protect the country’s security and stability. It gears migration legislation and policy towards attracting foreign investments and needed skills into the country. The policy document deals with permanent and temporary residency and creates paths between them. It also provides indications regarding access to citizenship. This comprehensive policy positions immigration as an integral part of the country’s economic development strategy (OECD/ILO, forthcoming g).
Legal pathways should not only target high-skilled immigrants, but also include low- and medium-skilled workers, who contribute significantly to the economies of their host countries. Granting permanent visas to immigrants who have worked or lived for some time in the country is a way to help them circulate more easily between countries. It does not force them to stay in the host country even though they would prefer to go back and settle in their home countries (OECD, 2016).
Likewise, bilateral agreements represent a useful tool for countries of origin and destination. This is particularly the case if they are based on social dialogue and supported by worker and employer organisations. They should foster safe, regular and orderly migration, but also guarantee the protection of migrant workers (ILO, 2017b):
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Visa agreements help reduce the migration costs incurred by labour migrants. The number of visas can, in some cases, be adjusted according to the labour market needs in each country.
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Labour agreements contribute to the adoption of standardised contracts for migrant workers and cover working and salary conditions, as well as a series of other basic rights. Many partner countries have already signed such agreements, even though in some cases not with the main countries of origin.
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Skills recognition agreements, through which migrants can certify their skills and qualifications, foster skills matching on the destination country’s labour market.
Agreements between important civil society actors in origin and destination countries can also help strengthen the exchange of information and promote labour mobility. Agreements which aim specifically at protecting the rights of migrant domestic workers can support joint activities of trade unions and domestic workers’ organisations in both home and host countries. Such agreements exist in, for instance, Argentina and Paraguay, and Lesotho, South Africa and Zimbabwe. They provide a space for migrant workers to take a greater role in advocacy efforts while helping communities bridge cultural divides.6
While bilateral agreements facilitate labour movements and skills matching, some issues remain to be addressed. In this respect, most bilateral agreements are not aligned with international labour standards.7 For example, family reunification, despite being a basic right for all migrants, is still a sensitive issue in many countries (ILO, 2006; OECD, 2016). Signing agreements on pension portability with the main countries of origin of immigrants would also be a way to promote migrants’ rights to a decent pension (Holzmann, 2016; ILO, 2015c).
Finally, regional agreements can foster labour migration. They can remove most of the administrative barriers to mobility and ensure effective implementation for a better allocation of human capital at the regional scale. Immigration agreements across countries usually complement regional trade agreements. This is the case for instance for the ASEAN Economic Community (AEC), the Economic Community of West African States (ECOWAS) and the Southern Common Market (MERCOSUR). Yet, in many cases free mobility exists more on paper than in reality, as labour mobility does not always come with equal access to jobs and social protection.
To encourage regional mobility, regional agreements would also need to remove barriers to work at the national level and allow citizens in any countries of the region to benefit from social protection mechanisms. Opening jobs in the public sectors to skilled workers from neighbouring countries would reduce skills gaps and provide better public services in destination countries. For instance, French-speaking ECOWAS countries could benefit from the language skills of immigrants from Ghana and Nigeria to improve learning English in classrooms. These two countries could also rely on French and Portuguese speakers from neighbouring countries to teach these two languages at school.
Better assess labour market needs
Coherent migration management systems should take into account the short- and long-term needs of the domestic labour market, which reflect broader development goals and population aspirations. Adopting objective indicators can help policy makers identify skills shortages, both at the sectoral and occupational levels (OECD/European Union, 2014). Labour market indicators can include, for instance, changes in the rates of employment, unemployment, unfilled vacancies and wages.
However, it can be difficult for destination countries to assess such needs. First, labour shortages are often related to business cycles. If it takes too long to collect labour market indicators, the information may lose its accuracy. This risk is even higher in developing countries, where data collection can represent a serious challenge. Second, labour market indicators should only be used to indicate the general situation. It is not because a particular sector or occupation does not seem to be short of employees that individual companies are not experiencing difficulties in finding workers with specific skills. Third, labour market indicators can only anticipate short-term needs and might overlook the structural changes in place in the economy.
One way to overcome the limits inherent to labour market indicators is by developing consultation mechanisms with the private sector to align labour immigration with labour market needs. Consultation mechanisms can help reflect on the future needs of the economy. They can bring together representatives from the ministries in charge of, for instance, migration, labour and development planning, industry associations and trade unions. Working jointly with public employment services and private recruitment agencies can also help policy makers better anticipate labour market needs.
An example is the declaration by the Forum of Employment Directors of Central America and the Dominican Republic on “Decent Work, Youth Employment and Labour Migration and their Importance in the Region”. The Forum agreed to promote co-ordination to guide the governance of orderly labour migration according to national and international standards. It also aims to intensify efforts to improve social dialogue around employment and labour migration policies.8
Overall, migration management systems should rely on labour market indicators and consultation mechanisms to assess labour market needs. But they should also keep some degree of flexibility to address unforeseen needs.
Protecting migrant rights and fighting discrimination
The way immigrants contribute to the economies of their host countries depends a lot on their working and living conditions. In this respect, protecting the rights of immigrants and preventing all forms of discrimination should be a priority for public authorities as well as employee and employer organisations in migrant-receiving countries.
Protect migrant rights
Target 8.8 of the Sustainable Development Goals (SDGs) highlights the need to “[p]rotect labour rights and promote safe and secure working environments for all workers, including migrant workers, in particular women migrants, and those in precarious employment” (United Nations, 2015a). The respect of migrant rights represents a fundamental goal by itself, but it also contributes to economic development. If immigrants’ socio-economic and political rights are respected, their well-being is higher, as is their capacity to contribute more productively to the economies of their host countries (Kerwin, 2013). Yet, immigrants are often victims of human trafficking and vulnerable employment. Migrant workers also often experience restrictions on the right to freedom of association and collective bargaining (ILO, 2017b). Female migrants might face additional challenges related to limited access to decent work and basic services, especially health care and education, a lack of legal assistance and psychological support, and gender-based violence (UN Joint Migration and Development Initiative, 2017).
Policy makers in immigration countries should adopt mechanisms to address vulnerable employment. It is important that central and local authorities work together to develop specific mechanisms to protect immigrants’ rights and fight against the worst forms of vulnerability. Immigrants should be allowed to join trade unions and form associations. In addition, local redress mechanisms, which give immigrants information about rights and procedures, legal support, and assistance in reporting abuses, constitute an efficient way of helping them defend their rights.
Along these lines, the municipality of Upala in Costa Rica developed an Inter-institutional and Inter-sectoral Action Mechanism aimed to protect migrants, especially women. It did so in partnership with state institutions and social organisations. The Action Mechanism relies on a local network of volunteer female promoters responsible for guiding women experiencing violence, through legal advice and psychological support. In addition, the House of Women’s Rights provides a safe place where victims of violence can find accommodation and benefit from assistance and protection.
Combat discrimination and racism
The high levels of informality in many developing countries increase the risks that immigrants are victims of discrimination in terms of wages, working conditions, housing and land rights. Immigrants tend to be proportionally more affected by poorly paid and hazardous jobs than native-born workers (Chapter 3). The fact that in many cases their migration status is irregular, or at least precarious, makes them even more vulnerable. Linguistic, ethnic and sometimes religious differences typically reinforce discriminations and racism against immigrants.
For such reasons, destination countries need to adopt specific measures to counter xenophobia as well as social and cultural stereotypes that contribute to discrimination against immigrants, including in their jobs (ILO, 2017b). This implies that public authorities better understand what constitutes acts of racism and which discriminatory mechanisms are in place in their countries. While most countries have anti-discrimination legislation, measures to address it actively must also be encouraged. One interesting initiative in this area is the National Institute against Discrimination, Xenophobia and Racism (INADI) in Argentina, a governmental agency that produces a map of discriminations.
Policy makers should also start dismantling discriminatory laws, especially as social norms and stereotypes tend to persist over time. The 2015 Addis Ababa Action Agenda (United Nations, 2015c) encourages countries to adopt communication strategies aimed at changing perceptions about immigration and making local populations understand how immigrants contribute to development. The Observatory of Mass Media on Migrants and Refugees in Costa Rica thus promotes transparent and reliable information on migration matters. The work with media is important to ensure multi-ethnic and unbiased journalism (OECD, 2011c).
Policy makers should also aim to ensure equal treatment between immigrant and native-born workers by enforcing labour standards (ILO, 2014b). Low-skilled immigrant workers in particular, who are often associated with non-standard employment, lack bargaining power and are relatively easy to replace. They are therefore more likely to suffer from discrimination on the labour market than the native-born.
Basic mechanisms to guarantee that immigrant workers are covered by medical insurance should also be a requirement in destination countries. Thailand, for example, has developed a compulsory Migrant Health Insurance Scheme for immigrant workers from Cambodia, Lao People’s Democratic Republic and Myanmar. It covers both regular and irregular immigrants, including their dependants, and allows them, on payment of an annual fee, to benefit from health care services.
Specific emphasis should be put on female migrants. They are more likely to suffer from discrimination by being both immigrants and women.
One way to combat discrimination is by extending the coverage of public services to all residents, including immigrants. Argentina and Costa Rica provide good examples of countries that aim to offer the same education, social protection and health services to all individuals, regardless of their countries of birth, citizenship or even immigration status. Yet, policy makers need to make sure that equal conditions on paper are actually applied in the country. This implies in particular that inspectors can control labour market conditions within companies and that people who feel discriminated against can easily access redress mechanisms to complain about potential abuses.
Investing in immigrants’ integration
Although a growing number of developing countries have become countries of destination, most of them lack comprehensive policies to facilitate the integration of immigrants. One reason is that many countries see immigration as a temporary phenomenon. Immigrants are expected to return to their home countries after some time. Yet, as many immigrants decide to settle permanently in their host countries, return rates tend to be relatively low, thus increasing the need for better integration. Another reason for the lack of integration policies is that immigrants in most developing countries come from neighbouring countries. Thus they often share the same language and culture with the citizens from their host countries. This usually facilitates the integration process. However the fact that immigrants come from neighbouring countries does not mean they are always well accepted and that discrimination is not a concern.
A lack of integration can generate serious problems of social cohesion, which in some cases even translates into riots and political turmoil. For example, the 2010-11 conflict in Côte d’Ivoire was strongly connected with national identity issues. Poor integration results not only in less social cohesion, but also in the reduced ability of immigrants to contribute to the development of their host societies. For instance, if skilled migrants do not speak the local language, they are less likely to find a job that corresponds to their expertise. Not only does this limit immigrants’ ability to integrate into the labour market and socially, but the host society suffers from brain waste, that is, a loss in the human capital that immigrants bring with them. Likewise, the lack of integration, in a context of racism and discrimination, might translate into problems of marginalisation and violence in the society.
By contrast, integration means that the host-country population accepts immigrants in diverse spheres of society, including the labour market, and that immigrants benefit from equal opportunities (OECD/European Union, 2015). As a result, they can contribute better to the economic development of their host countries not only with their work, but also through their ability to invest, innovate and pay taxes.
Integration starts when immigrants arrive. Providing support to recently settled immigrants is a way to help them understand the administrative and cultural challenges they might face. In this respect, the Migrant Help Desk in Johannesburg, South Africa, provides an interesting example of a local initiative oriented towards immigrant integration into the city. Because language is one of the first skills that immigrants need to acquire, another good practice consists in providing free or subsidised language courses to immigrants and their families.
Local authorities, in particular, can play an active role in promoting language learning by hiring teachers and developing courses for foreigners. In Argentina, for instance, the 2003 immigration law provides for Spanish language classes and training courses. One challenge, however, arises when immigrants are poorly educated and have difficulties with their own language. This can happen when immigrants are low skilled and live in communities where the opportunities to learn the local language are weak. In such cases, efforts should be even greater. Besides language training, host countries should likely invest in literacy teaching to foster immigrant integration.
Education plays a key role in the integration of not only the first but also the second generation of immigrants. The main challenge for a number of developing countries is to address the financial cost of this investment in human capital, especially when the native-born students themselves lack fundamental education standards. An additional constraint appears when immigrants come from countries where the language is different from the one spoken in the host country. It is, however, vital that host countries invest in quality education for all children, regardless of their migratory status. In parallel, housing policies should aim to avoid concentrating immigrants in the poorest areas (OECD, 2011a). Smart education, housing and urbanisation policies help foster immigrants’ economic and social inclusion, but also contribute to the social mobility of second generations.
Finally, from a legal perspective, countries of destination should allow immigrants to gain citizenship after a reasonable period of time spent in the country. Dual citizenship is a way for immigrants to maintain the link with their countries of origin, while becoming full citizens of their host countries (OECD, 2016).
Leveraging the impact of immigration on the economy
The policy environment often explains why immigration has positive effects in some countries but negative one in others. In this respect, policy interventions in destination countries should particularly aim to foster the employability of immigrants, encourage their investments and maximise their fiscal contribution.
Foster the employability of immigrants and native-born workers
In most partner countries, immigrants have employment rates higher than those of the native-born. This is related to the fact that immigrants actually move for labour reasons and are therefore more prone to occupying a job than their native-born counterparts. But being employed does not always mean that immigrants work at their level of skills. Overqualification might be an issue in countries where skilled immigrants do not have the same opportunities as the native-born on the labour market. And even though immigrants use their skills, it is also important to acknowledge and update these skills, in particular through recognition of prior learning systems and lifelong learning.
Labour market policies can help both native-born and immigrant workers find the jobs that best correspond to their skills by developing better labour market information systems. This can be done through an extended network of public employment services, with a clear mandate to work with immigrant workers.9 It is particularly important that immigrants have access to public employment services so that they have the same mobility opportunities within their host countries as native-born workers. In this regard, the services of the Youth Employment Agency in Côte d’Ivoire, which also delivers labour permits to non-regional immigrants, are open to foreign- and native-born individuals alike. Likewise, in Thailand, regional employment centres aim to facilitate the hiring of immigrant workers while providing them employment training. Employment agencies should also help native-born workers affected by the potential competition of immigrants to find new jobs more in line with their qualifications and experience (ILO, 2017c and forthcoming).
Education and skills policies should provide equal access to education and training for all. Children of immigrants and foreign-born students represent an opportunity for destination countries to build human capital, which will contribute to long-term economic development. These young people should therefore benefit from the same conditions as the native-born in terms of access to quality education and transition to work. This implies in particular to expand targeted education programmes, such as scholarships and conditional cash transfers, to immigrant students.
In addition, education and skills policies should aim to increase training and lifelong learning opportunities, help both foreign- and native-born workers upgrade their skills, and give unemployed people access to a broader labour pool, facilitating their re-entry into the labour market. In many developing countries, public employment services often have limited resources and capacities. Training programmes should therefore make their services more easily available to immigrants, who could thus improve their employability and more easily meet the needs of the host country’s labour market. They should also address the needs of native-born workers with reconversion problems to help them move towards other occupations and sectors.
Gender-sensitive policies should provide specific protection for female immigrants, for instance women in domestic work or other poorly visible sectors. They should create incentives to help female immigrants study and have access to new and extended employment opportunities. Widely accessible public childcare programmes could also enable more female immigrants to participate in the workforce. Given that immigrants are frequently over-represented among domestic workers, general policy changes that improve the labour rights of all workers in this sector, regardless of their place of birth, can benefit immigrants disproportionally. In Argentina, for example, a 2014 law defined rights for domestic workers, such as a maximum number of working hours and paid vacation days.
Encourage immigrants’ investments
It should be a priority for most countries to remove the barriers to investment and business creation that immigrants have to cope with. Migrant entrepreneurs face specific business constraints related to linguistic, social and cultural barriers, complex procedures and, in some cases, discriminatory practices (OECD, 2011b). For example, the lack of access to land often prevents immigrants from investing in agricultural activities. Likewise, the conditions for access to credit and investment are not always the same for native-born and immigrant populations.
Countries of destination should aim at promoting and providing incentives for enterprise creation and development (ILO, 2006). That implies simplifying the procedures that make creating a business cumbersome. Complex administrative and bureaucratic procedures tend to curb investment, in particular from immigrants who do not master the host country’s language. For this, host countries can develop one-stop shops, following the examples of the Ghana Investment Promotion Centre or the guichet unique in Côte d’Ivoire. One-stop shops can offer specific services targeted at immigrant entrepreneurs, to ease the bureaucratic process associated with business creation and encourage them to invest.
Because the business environment in the host country might differ significantly from that in immigrants’ home countries, it can be useful to develop targeted training programmes to strengthen their business skills. These programmes can help immigrants better understand some of their host countries’ institutional specificities, such as administrative procedures, financial regulation and labour market rules. Specific programmes for female immigrants aimed to increase their financial and business skills can help empower them, facilitate their integration and enhance their contribution to the development of the host country.
Another priority should be to address the needs of migrant entrepreneurs, in particular in terms of property rights and access to credits. In some countries, land rights cannot be transferred to foreigners, making it difficult for immigrants to invest in agricultural activities. Likewise immigrants tend to face discrimination on the credit market due probably to the fact that financial institutions might consider foreign-born investors as riskier than the native-born. One way to overcome such barriers is through targeted programmes oriented towards business initiatives conceived by migrant entrepreneurs. Programmes aimed to help women access finance could enable female immigrants to develop their own businesses. One example is the Women Entrepreneurs Support Association (WESA) in Kyrgyzstan, which provides support to women through free legal consultations about property ownership and land rights.
Another approach is to encourage openness to goods and services from major countries of origin. While doing so, trade agreements should actively merge human rights, including labour rights, with trade considerations. Immigrant entrepreneurs would be able to fully benefit from networks in their countries of origin to successfully set up their businesses and create further linkages with markets there.
Migration policies also play a significant role in the way immigrants invest in their countries of destination. Immigrants with regular status are indeed more prone to invest than irregular migrants. Regularisation procedures for irregular immigrants with a demonstrated record of business and job creation could spur business activities. Likewise, specific admission policies targeted towards would-be entrepreneurs and investors could encourage more foreigners to come and invest in the country (OECD, 2011b).
Maximise the fiscal contribution of immigrants
The fiscal impact of immigration varies across countries, but is limited overall. It may depend on the extent to which immigrants are allowed to access the social safety nets and welfare services, in particular the pension system. The way in which immigration, labour and tax policies interplay also affects the capacity of the fiscal system to turn immigrants into direct tax payers.
Several options to maximise the fiscal contribution of immigrants exist. Because in many developing countries immigrants are often over-represented in informal sectors, destination countries should try to foster the growth of the formal sector, or at least expand the tax base and contribution payments from the informal one. Governments could also try to align tax incidence with the income and consumption patterns of immigrants. All immigrants, whether they have a regular or irregular status, actually contribute to the public purse of their destination countries through consumption taxes. However, a detailed cost-benefit analysis would probably reveal that changing tax codes for this reason would not pay off.
Other policy measures mentioned above would likely also boost the fiscal contribution of immigration. For example, ensuring that immigrants have a regular immigration status makes it more likely for them to benefit from formal employment opportunities, and hence to pay more taxes.
Monitoring the economic impact of immigration
A lack of data and evidence prevents adequate public policies and actions. While the main objective of this project was to provide empirical evidence on the economic contribution of labour immigration in developing countries, many limitations emerged due to the lack of reliable, time consistent and internationally comparable data. It therefore seems important that developing countries in general and partner countries in particular invest in improving migration-related data collection. They also need to develop the analysis of the different potential impacts of immigration on the economy.
Improve data collection
Most partner countries collect data that are useful for the study of immigration, such as the population census and household, labour force and enterprise surveys. Yet, these data do not always allow a comprehensive view of immigrants, in terms for instance of gender, skills, occupations, income and activity sectors. In some countries, immigration is clearly not a priority and data collection can be incomplete and inconsistent over time. In addition, data are sometimes not comparable from one country to another, since definitions and methods differ. This is also the case in many other developing countries.
Increasing the availability of high-quality, timely and reliable data on migration should therefore be a priority for most low- and middle-income countries, as highlighted by Target 17.1810 of the SDGs (United Nations, 2015a). This implies in particular to harmonise and integrate immigration data across government institutions and difference sources, and to more systematically include information about citizenship, country of birth, and duration of a migration spell in household and enterprise surveys (ILO, 2015b).
Regular and comprehensive data collection can help better match immigration flows with labour market needs. Systemic, quality data are important to inform both employment and immigration authorities, and provide orientation on migration management, employment services and skills training programmes (ILO, 2015d). In countries where such a migration management system is in place, such data can also help policy makers compile occupation shortage lists and inform them about the way they should set or adjust quotas. The information can also be shared with the governments and recruitment agencies in the main countries of origin, thus allowing them to more effectively match labour supply and demand.
A high level of informality in developing countries’ labour markets is also a major factor that prevents collecting accurate and broad data. Not only irregular but also regular immigrants are likely to work in informal sectors. Likewise, assessing the real impact of immigration is more complex when the number of irregular immigrants and their characteristics are unknown. If progress is made in this regard, improving the management of immigration and maximising its positive impact will be possible. For example, the right balance between regularising irregular workers (ex-post) and lifting the limits of regular work visas (ex-ante) can be made through more accurate data collection and its analysis.
A number of developing countries have the internal capacities to develop these tools. However, the poorest countries would likely benefit from specific knowledge-sharing platforms and capacity-building support. In this regard, regional co-operation on data collection of both immigration and emigration flows could offer a useful starting point. Thailand thus contributes to the International Labour Migration Statistics (ILMS) Database for ASEAN. The ILMS gathers all official government sources of data on the stocks and flows of migrant workers within and outside Southeast Asia. It provides a useful source of quantitative information for evidence-based policy making on labour migration in the region. It also maps the existing data sources that countries collect, including their quality, scope, completeness, comparability and possible weaknesses that can be filled through capacity building. Co-operation on data collection between countries of origin and destination contributes to evidence-based policy making at the national but also regional level.
Develop analysis
Another issue to consider is how the data are used to better understand the specific challenges of immigration in developing countries. Based on the experience gained during the project, these aspects seem to deserve the most attention:
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More data and research are needed to better assess the relative labour market positions of native-born and immigrant workers. This concerns complementarities between workers in terms of human capital and skills, and the extent to which immigrant workers fill shortages and contribute to the economy in this way.
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Analysing the overall contribution of immigration to GDP requires developing or refining econometric models, including computable general equilibrium models, in such a way that they reflect better the dynamic and long-term interactions between migration and economic growth.
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The contribution of migrant entrepreneurship to employment creation is a topic that needs more research, probably through both quantitative and qualitative analysis.
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The productivity effects of immigration through various channels should be explored further. Nationally representative enterprise surveys with detailed information on the migration history of business owners and employees can form the basis for this analysis.
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The direct fiscal impact of immigration could be analysed more in-depth and accurately with multiple years of data from anonymised tax records linked to information about the country of birth. For certain countries it may be feasible and worthwhile to study not only the current, but also the lifetime net fiscal contribution.
In addition, more analysis could be carried out on specific questions, which have been mentioned, but not developed in this report, both for data and time constraints. One of them is the long-term impact of immigration on the formation of human capital. For instance, how do immigrant children affect the quality of the education system and the performances of native-born students? The evidence for OECD countries is not straightforward and an in-depth analysis of this question in developing countries would certainly be of interest for both academics and policy makers.
Another question of interest relates to the environmental impact of immigration in countries already constrained in terms of natural resources. This topic will be of growing importance in the future and has implications in terms of sustainable development.
The issue of social cohesion is also an important topic that was not directly addressed in this report but should be studied more in-depth. The way immigrants integrate into a society has strong repercussions for social cohesion, which in turn affects the economic growth of the host countries.
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Notes
← 1. An OECD Development Centre working paper prepared in the framework of this project reviews the literature on the economic impact of immigration in both high-income and developing countries. It identifies the main channels through which immigrants can contribute to their host countries’ economies (Böhme and Kups, 2017).
← 2. In 2014, when the project started and the partner countries were selected, the United Nations estimated that in 2013 immigrants represented 7.6% of the total population in Ghana and 3% in Nepal, which explains why these two countries were included in the project. After the 2015 revision, the share dropped to 1.5% in Ghana and 1.8% in Nepal (United Nations, 2015b). These discrepancies in the numbers do not change the relevance of the project in these two countries, where immigration is an important issue. Furthermore, to the extent that census data captures irregular migrants, they were included in these estimations.
← 3. The definition of migrant worker in ILO International Labour Standards (ILS) has its origin in the ILO Constitution (1919), calling for the “…protection of the interests of workers when employed in countries other than their own”, although it does not provide a generic legal definition of “worker”.
← 4. More information on these activities is available at www.oecd.org/dev/migration-development/eclm.htm and www.ilo.org/global/topics/labour-migration/projects/WCMS_344706/lang--en/index.htm.
← 5. Due to delays in the data collection, the report could not include the enterprise survey results for the Dominican Republic.
← 6. For more information, see www.ilo.org/dyn/migpractice/migmain.showPractice?p_lang=en&p_practice_id=163.
← 7. A recent ILO study found that, with reference to covering the provisions in the model agreement annexed to ILO Recommendation No. 86, no agreement incorporated all 27 relevant provisions (ILO, 2017b).
← 8. For more information, see www.ilo.org/dyn/migpractice/migmain.showPractice?p_lang=en&p_practice_id=99.
← 9. In many developing countries, public employment services do not have the mandate to work with migrant workers and often need capacity building to be in a position to do so.
← 10. Target 17.18 of the SDGs stresses the need to “by 2020, enhance capacity-building support to developing countries, including for least developed countries and small islands developing States, to increase significantly the availability of high-quality, timely and reliable data disaggregated by income, gender, age, race, ethnicity, migratory status, disability, geographic location and other characteristics relevant in national contexts”.