Structural Change in MENA Remittance Flows

By George S. Naufal and Ismail H. Genc

http://econpapers.repec.org/paper/izaizadps/dp7485.htm

 

Policy Brief:

 

Blessed with generous natural endowments of oil and gas, but lacking an economically and educationally suitable indigenous population, the Gulf Cooperation Council (GCC) countries[1] have turned to foreign workers to satisfy the labor demand. Initially the source countries were fellow Arabs from the MENA region due to cultural, religious and geographical proximity. Given that the GCC is among top remitters in the world, this policy resulted in the flow of tremendous sums of income to labor sending countries in the MENA region. GCC employment policy however has changed over time shifting the interest in hiring to mainly the Indian Subcontinent.[2] We, in fact, find in our study[3] that a gradual but permanent shift in the direction of remittances occurred in early 1990s depriving countries such as Egypt of a significant source of income through overseas employment, especially that of the youth.

 

Our study does not directly analyze the employment issues in the labor source countries, in particular those in the MENA region. But it stands to reason that these countries have long ignored and/or failed to cope with the actual implications of the GCC labor policy shift. Naturally, labor exporting countries should have taken timely precautions to eliminate economic hardships, with likely significant social implications. However, large remittance inflows allowed receiving countries to avoid real labor market reforms. Unfortunately, the resultant impact of the aforementioned problems rendered their solutions intractable. The stress piled up on their citizens and governments. Eventually, the situation came to a full blown social explosion in 2010, toppling the long running dynasties in some countries in the Middle East. Obviously, a more focused study on the causes and effects of labor sending countries’ employment policies is needed to more precisely shed light on the impact of the implied policy failures. Yet, our study aims at pointing to a relationship between the shift in the direction of remittance flows in the MENA region and likely employment, and eventual political consequences.


[1] The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (KSA) and United Arab Emirates (UAE).

[2] To such countries as India, Bangladesh, Pakistan and the Philippines.

[3] Naufal, G. S. and I. H. Genc (2013) “Structural Change in MENA Remittance Flows,” IZA Discussion Paper Series IZA DP No. 7485, (July).

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One Response to “Structural Change in MENA Remittance Flows”

  1. Iván Martín Says:

    Dear Colleagues,

    Whereas I have nothing to object to the econometric analysis of GCC remittances to MENA countries in the reference paper, I think that the policy implications drawn both in the conclusions of the paper and in the policy brief are very questionable. Three main points come to my mind after a quick reading:
    - The conclusions in the paper establish a direct link between the level of remittances received by some MENA countries and the lack of adequate employment policies. However, it does not explain why countries with huge differences in the level of remittances from GCC (such as Egypt and Algeria or Morocco) ended up having very similar employment policy failures. The conclusion might be that remittances are only one minor factor in explaning that policy failure. Actually, despite the insistance of the World Bank on using the MENA country grouping, I do not think this makes any sense for employment policy analysis (even the Arab Mediterranean Country which I tend to use is problematic, but at least it groups a set of countries with similar economic challenges).
    - To explain the poor performance of the labour markets in MENA countries, a full analysis of the developmet model (and not only the employment policies) is required.
    - Finally to event “guardedly” imply a causal link between the change in remittances flow from GCC coutnries to MENA countries and the Arab Spring seems to me quite adventurous (labour market situation certainly played an important role, but not linked to GCC remittances, which for Tunisia for example, where all started, where always very low) and “GCC-centric”.

    For a very preliminary analysis of interaction between remittances and labour market performance in Arab Mediterranean Countries, you can refer to the study Philippe Fargues & Iván Martín (dirs.) (2010): “Labour Markets Performance and Migration Flows in Arab Mediterranean Countries”, Final Report and 10 background papers, in European Economy, Occassional Papers nº 60, DG ECFIN, European Commission, Brussels, 3 Vol. (http://ec.europa.eu/economy_finance/publications/occasional_paper/2010/op60_en.htm)

    Best regards,

    Iván Martín
    Part-time Professor
    Migration Policy Center – European University Institute

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