The Impact Of International Migration In Bangladesh

A brief review of international migration

In the recent world of economics, international migration has become one of the most talked-about phenomenon as labor migration from poorer nations to the richer ones continues to make its significant mark all over the world with globalization at its peak. According to International Migration Report by the United Nations (2017), the number of international migrants globally totaled to 258 million in 2017. Some of these migrants are seeking refuge from war and famine; others are pursuing a better paying occupation abroad in a developed country to escape the tight, competitive, and in some cases of severely low-paying job market in their homelands. Almost all of the migrant workers after employment abroad send a share of their earnings back to their families in their home countries, which is the most direct and positive after-effect of international migration. As of 2017, the total amount of remittance earnings received by households all over the world was US$ 580 billion (The World Bank, 2017)[footnoteRef:1]. [1: This total number of remittances received only includes remittance earnings reported through formal channels. As a result, the understated real amount including both formal and informal channels is expected to be much higher.]

According to Adams and Page (2005) international migration contributes significantly to the development of the poorer migrating nations in Asia, Africa, Latin America, and the Middle East. Haas (2007) also believes remittances from international migration to be a potential source of development finance for the underprivileged countries. This notion is supported by the fact that in 2017 the total remittances received worldwide surpassed the total official aid received of US$ 163 billion (The World Bank, 2017). From macro perspective, remittance earnings entering the home economy favors the balance of payments by reducing the deficit and helps to facilitate foreign investment. From micro perspective, remittances through international migration are used by the migrants’ families to increase consumption, invest in assets, and allocate for savings and loan repayments (Ahmad, 2014). With such positive spillover effects, it is of no doubt that experts praise this phenomenon, saying that the potential welfare from international migration might be the answer to the desperate far cry of economic development in the extreme poor, migrating countries. Therefore, it is of imperative importance for government authorities and stakeholders to understand how international migration can contribute towards solving the economic problems of the developing world.

Objective and Rationale of the research

The main research question that this paper attempts to answer is: “What is the impact of international migration on poverty?” The focus of this paper is on one particular economic hurdle of the developing world: poverty, for two reasons. First, rather than focusing on many economic struggles at once such as poverty, unemployment, and inequality all together like previous literature, only poverty is prioritized because it is the most severe crisis in the poor countries of the world: as of 2018, the total headcount of people living in extreme poverty was around 595 million (World Poverty Clock, 2018) . Second, after the remitted money from international migration goes directly to the poverty-stricken families in the origin countries it is mostly utilized behind food and other necessary consumption to escape poverty. Thus, there is a direct and positive effect of international remittances through overseas migration towards poverty mitigation, unlike aid and other humanitarian assistance aimed at poverty which need to pass through several channels initially.

Apart from remittance income which is the most obvious and observable variable, there could be other lesser unobserved channels through which overseas migration can impact poverty positively such as transfer of better technical knowledge from migrant to households and better investment decisions like small enterprises (poultry farms), thus increasing earning potential and reducing poverty. However, international migration can also negatively affect poverty reduction through unobservable channels such as through the migration of potential entrepreneurs in the society and thus plunging the community in poverty, or when the important supervision figure migrates and leaves the household more prone to bad investment and spending decisions thus leading to higher chances of poverty. In some cases of poorer migrating households, international migration is often financed by colossal amounts of loan, the repayment costs of which outweigh the benefits which puts households more in risk of ending up in poverty. Therefore, as viewed by McKenzie & Sasin (2007), although intuitively international migration seems to always reduce poverty in the poorer parts of the world through remittance earnings, in reality this may not always be the case. Thus, since the effects of international migration on poverty can split both ways (which goes against the initial intuition) through numerous unobservable variables apart from remittances and are not pre-determined, it establishes the valid rationale of the research question and makes it interestingly worthy enough to investigate the causal link between international migration and poverty using empirical analysis.

Scope of the research

Several previous studies have attempted to associate this chain link of these two variables of interest. For example, Adams and Page (2005) used a collective of 71 developing countries in a macroeconomic approach and concluded that international migration and remittances expressively diminish the level, depth, and brutality of poverty in the developing nations. But even poor countries differ considerably among themselves in terms of economic structure and performance. What works in one country may not successfully bear the fruits of positive results in other. Therefore, it is important to study them separately under the microscope of empirics. With this belief, the scope of the empirical methodology of this paper is confided to only one particular developing country: Bangladesh. A small, economically underprivileged nation in the South-Asia and surrounded by her bigger neighbor India, Bangladesh qualifies as the perfect setting to empirically test out this concept because of its economic characteristics. Despite being classified as a lower-middle income country, Bangladesh continues to emerge as one of the fast-growing economies with a remarkably consistent GDP growth of over 5% for the last 10 years (The World Bank, 2017). It is believed that this growth is supported by the remitted earnings from the massive amount of workers Bangladesh exports through international migration to the developed parts of the world: in 2018, around 734 thousand Bangladeshi workers employed overseas have sent back a total of around US$ 15 billion (BMET, 2018). Yet, despite such promising economic growth poverty still continues to plague Bangladesh and hinder human capital development. The naïve idea of “trickle down” economics of a significant GDP growth has worked to some extent but failed to eradicate poverty completely in Bangladesh. World Poverty Clock (2018) reports that as of 2018, around 15 million people in Bangladesh still live under extreme poverty. A nation cannot have sustainable economic development to progress forward dragging massive poverty count on its heels because there will be a high dependency ratio and not enough savings in the economy to be invested later as capital.

Therefore, in the absence of effective policies with nation-wide assistance at the microeconomic household level to overcome this problem as the country is stuck in a limbo with inadequate fiscal resources from the government and a high dependency on primitive economic activities such as agriculture, it is argued by experts that Bangladesh’s poverty misfortune has greatly benefited from the godsend effects of international migration and inflow of remittance earnings over the recent years. However, not many handfuls of tries have been made in the context of Bangladesh to examine this intuition. The most relevant case study of Bangladesh to investigate this relationship between remittances from international migration and poverty was done by Raihan, Khondker, Sugiyarto, & Jha (2009) at household level. Although their results supported the initial intuition, that research utilized an older dataset with a smaller sample size. Bangladesh economy has undergone through massive economic changes in the last 10 years. Therefore, it is necessary to reinvestigate the causal effect of international migration on poverty using an updated and broader dataset. Another issue with their methodology was the fact that the authors did not address the potential selection and endogeneity problems in their model.

Summary of empirical findings

To carry out the empirical analysis of the research question of the possible mitigating effects international migration can have on poverty, a comprehensive cross-sectional household dataset of the Household Income and Expenditure Survey (HIES) of year 2010 is used which was conducted by the Bangladesh Bureau of Statistics (BBS) (2011). The reason for looking at micro level is because both poverty and the realized welfare from international migration impacts most at the household level. Two advanced methodologies are employed in this paper. First, a logistic model is utilized to establish the causal link between household poverty status and household international migration status along with relevant control variables, which is found to be a negative one as in line with the initial intuition. Second, to correct for possible selection, endogeneity, and reverse causality problems in the model and arrive at accurate magnitudes of the effects, a two-stage residual inclusion (2SRI) method is used with a valid instrumental variable. Using 2SRI, the analysis concludes that households who have at least one member living and working abroad have their chances of becoming poor lowered on an average by a factor of 17.2% at national level, 16.4% at rural level, and 15.7% at urban level. This finding implies that there are indeed positive impacts of international migration on the reduction of poverty in Bangladesh, especially in the rural areas where the intensity of poverty is the strongest.

Contribution of the study

This paper contributes to the platform of existing related literature by being the first to investigate the causal impact international migration can have on poverty alleviation in Bangladesh with a logistic model of several control variables, supported by an instrumental variable using 2SRI approach to attempt to correct the possible taints of selection, endogeneity, and reverse causality in the model, and to arrive at accurate estimates. As suggested by McKenzie & Sasin (2007) that it is unwise to examine the effects of international remittances alone (which is the most direct and observable effect of international migration) because of measurement challenges and also because the two events are so intertwined, this study is the first to investigate the holistic impact international migration can have on poverty in the context of Bangladesh, rather than studying one singular impact of remittance earnings from international migration in isolation which has been done previously in many economic settings. This broader approach with correct estimates will hopefully enable government agencies and other stakeholders to design effective polices so that the maximum benefits of international migration are realized with minimal costs.

References

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