Emigration – transforming the flow of people into money flow

Posted on 01. July 2014

by Mihails Kozlovs

Mihails Kozlovs NEWEach year millions of people change their place of living: within the course of the last year alone more than 230 million people were living outside of their homelands. I myself emigrated twice; to Norway and to Serbia. However I wasn’t a usual emigrant who tries to find a job in the destination country and send money back home. Most migrants do and the remittances received by families around the world are growing in scope.

In those European countries that are mass sources of outward migration, there is a debate about coping with economical emigration. In Latvia we even have a “remigration plan” developed in order to bring people back. Yet somehow no one analyzes the meaning of each emigrant for the economy in his country of origin. What is more profitable in the short term perspective – to bring emigrants back home or leave them abroad?

In search for an answer I researched the relative importance of remittances to the three economies I am acquainted with – Latvian, Serbian and Moldovan – over the last decade. Of course, many of the migration-related factors cannot be mathematically coded and there is a lack of statistical data. Hence I only used those factors that can be statistically gathered, mathematically transformed and predicted in a short term period. This information gives a particular understanding of the real meaning of emigration – transforming the flow of people into money flow.

The results were astonishing. Annually, the Latvian economy receives around 500mln. EUR from its nationals living abroad – around 2-3% of its GDP. In Serbia it ranged between 7-9% of GDP. In Moldova the remittances account for a quarter of all GDP. Information like this provides an understanding of the real meaning of emigration – transforming the flow of people into money flow.

Hence the positive side – the economy of an origin-country gains remittances and expenditure tax, which is paid by consumers spending the money received from emigrants. On the other hand, migrants in economical terms mean unpaid income and expenditure taxes. So these are the negative aspects of emigration for a country of origin. Furthermore, the structure of the society needs to be taken into consideration. So the distribution of wages and taxes among different groups of society and the workforce – employers, employees, students and the unemployed – is examined. Let us briefly look at the most interesting findings.

In the case of Latvia, more than 200.000 people emigrated from the country in the last decade and the Latvian budget is gaining more than 600 EUR from each emigrant annually. If all the emigrants stayed in Latvia, they would have spent only their salary, paying value added tax (VAT). It is obvious that the positive impact from remittances is bigger than the possible negative impact from unpaid taxes.

In the case of Serbia, the impact of emigration in economical terms is much more tangible. Taking into consideration that we are talking about up to 400.000 emigrants in the last decade – then annually it brings up to 1,8bln. EUR more than people could have earned and spent if they had stayed in Serbia instead of emigrating.

The Moldovan case is special because of the proportion of remittances, which amounts to a quarter of the country’s GDP. The effect is enormous. In the developed model it was calculated that the economy is gaining 6 times more from emigrants than it could if these people did not emigrate.

That means that emigrants, in terms of factors included in the model, bring more benefits for the origin-country than they could give by staying in the country. However, it is important to understand that the model is taking into account a limited amount of factors, which make it possible to measure only the short-term effect of emigration. In  the calculation of the long-term effects, many more factors should be considered – such as emigrants’ education and skills, possible added-value production, investments in social care, education and others.

Read more in my research: Comparative analysis of migration economical effect in Serbia, Latvia and Moldova in last decade