Remittances and long-run economic change in rural labour markets

International labour migration and related remittances increase human capital attainment in rural areas, and over the long run trigger a shift of jobs out of farming towards the service sector

Labour migration acts as one of the conduits for capital to flow from rich to poor countries. In 2019, remittances from international migrants were on course to be the largest source of foreign capital received by developing countries, overtaking both FDI and development aid flows (World Bank 2019). A recent article in the popular press frames these remittances as the “hidden engine of globalisation”.1 Yet, as Clemens and McKenzie (2018) note, “economists remain surprisingly unsure of its (remittances) broad development effects”.

Studying the long-run effects of labour migration shocks in Africa
In two recent projects, we investigated how sending regions are affected by labour migration, by collating historical data on migration flows in Africa and by taking a long-run view of economic effects in source regions. In particular, we study a period of widespread, regulated international labour migration between Malawi and South Africa. We used census data to follow rural communities that were differentially exposed to large labour migration shocks and analysed how education and labour market outcomes evolved in the three decades after these shocks.

Our findings show that in areas with more circular (return) labour migrants, children attained higher levels of education. Moreover, in areas that received more remittances per migrant, workers shifted out of farming and into higher value-added service work over the long run. Our work illustrates the persistent effects of the end of international labour migration and remittance flows on the labour market structure of rural economies. Investments in the education of the next generation of workers appears to have been a key channel for these changes.

Shocks to international migration from and remittances to Malawi: Historical context
Historically, South Africa’s mining industry recruited millions of men from the broader southern African region for contract work on gold mines. These mining jobs were lucrative relative to income-earning possibilities in home countries and many men took up these jobs on two-year contracts. Workers were contractually obliged to receive two-thirds of their earnings upon repatriation. As a result, many rural local economies received large capital inflows when migrants returned home. One of the countries linked into this system of legal, international labour migration was Malawi. We collected archival data on the flows of men and money between Malawi and South Africa to investigate what happened to rural sending areas after a period of mass migration.

In the late 1960s, Malawians flocked to the gold mines when local quotas on recruiting labour were removed. This migration surge was soon curtailed by a ban on recruiting and an immediate repatriation of migrants in response to a plane accident in the early 1970s that killed returning miners. Between 1967 and 1973, mine migration increased by 200% and then fell to zero (Figure 1). Remittances followed a similar pattern (Figure 2). Total remittances were large – in the order of $53 million, triple the amount of total US foreign aid sent to Malawi in the mid-1970s. We exploit these unexpected changes in the ability to migrate internationally to identify the effects of migration and remittances on the local Malawian economy.
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