Does International Migration Affect Labor Supply, Non‐farm Diversification and Welfare of Households? Evidence from Egypt
| Author | Cuong Viet Nguyen,Mohamed Arouri |
| Published date | 01 February 2018 |
| Date | 01 February 2018 |
| DOI | http://doi.org/10.1111/imig.12384 |
Does International Migration Affect Labor
Supply, Non-farm Diversification and Welfare
of Households? Evidence from Egypt
Mohamed Arouri* and Cuong Viet Nguyen**,***
ABSTRACT
This study examines the effect of international migration in Egypt using fixed-effect regres-
sions and panel data from Egypt Labour Market Panel Surveys in 2006 and 2012. We find that
men and people with higher education are more likely to migrate than women and people with
lower education. Middle-aged people are also more likely to migrate than young or old people.
International migration does not seem to affect the overall employment of remaining members
of migrant-sending households. However, it tends to increase the self-employed work of mem-
bers of migrant-sending households. Finally, international migration also helps migrant-sending
households increase their wealth index. Remittances are used to improve living conditions
(housing) and purchase more assets and durables. This finding supports the theory as well as
the policy to increase migration as a way to stabilize consumption and reduce poverty in low
income countries.
INTRODUCTION
The economic literature suggests that international migration is one of the most important strategies
of households, especially in rural areas in developing countries, to increase income and reduce pov-
erty (Stark and Bloom, 1985; Stark and Taylor, 1991; Stark, 1991; Adams and Page, 2005). Poor
households often rely mainly on low incomes from agricultural activities. Agricultural incomes are
rather volatile because of economic and natural risks. Poor farmers are vulnerable to economic
shocks such as fluctuations of input and output prices (Winters et al. 2004; Easterly and Kraay
2000). Natural disasters and diseases can result in heavy losses for agricultural households. Starting
non-farm business is not easy due to credit constraints and lack of business knowledge. As a result,
households can choose migration as a way to increase, diversify and stabilize their incomes. Mov-
ing the whole family to a new area is costly, and households often tend to send one or two family
members for migration.
Sending a household member for international migration can have effects of different outcomes
on remaining household members. Firstly, a direct effect of migration is a loss in the labour of
migrant-sending households. Labour shortages for migrant-sending households could prevent these
households from engaging in high-return but labour intensive activities (Taylor and Lopez-Feldma,
2010). Remittances sent to home households can be used to hire labour to compensate the negative
* Universit
ed’Auvergne & EDHEC Business School, Lille & Paris
** Institute of Public Policy and Management, National Economics University, Vietnam
*** Mekong Development Research Institute, Vietnam
doi: 10.1111/imig.12384
©2017 The Authors
International Migration ©2017 IOM
International Migration Vol. 56 (1) 2018
ISSN 0020-7985Published by John Wiley & Sons Ltd.
effect of migration on labour loss (Taylor et al., 2003). But remittances can create work disincen-
tives, increase the reservation wage of non-migrating members and reinforce the negative impact of
the loss of labour (Sahn & Alderman, 1996; Chami, Fullenkamp & Jahjah, 2005; Farrington and
Slater, 2006). Several studies have documented that migration reduces the labour supply of non-
migrants of migrant-sending households (Rodriguez et al., 2001; Yang, 2008; Kim, 2007; Grigorian
and Melkonyan, 2011).
Migration can also have effects on income diversification of home households through remit-
tances. Remittances increase households’non-farm income and enable households to better mitigate
the impact of income fluctuations. Remittances help home households relax the credit constraints
and use more capital in production and investment. Stark (1991) suggests that in rural areas where
access to credit and insurance is limited, migration can play the role of financial intermediaries by
helping home households to achieve the transition from familial production to commercial business,
to diversify their incomes or to enter higher returns and undertake more risky activities. Productiv-
ity and outputs will be increased if remittances help relax liquidity constraints and allow house-
holds to invest in high-return capital intensive activities or purchase more assets and goods
including education and health inputs (Stark, 1991; Martin and Taylor, 2001; Taylor et al., 2003;
and Taylor and Lopez-Feldma, 2010).
Through remittances, labour supply and household production, migration can affect the welfare
of migrant-sending households. Although remittances might increase household income, labour
shortage can reduce household production. Depending on the relative magnitude of the effect of
migration though different channels, the final effect of migration is theoretically uncertain and can
be negative or positive. In the empirical literature, there are a large number of empirical studies on
the effect of migration on home households’income and income diversification; but they show
mixed results (Stark and Levhari, 1982; Stark and Bloom, 1985, Rosenzweig, 1988; Stark, 1991;
Taylor and Martin, 2001; Taylor & Lopez-Feldma, 2010; Nguyen et al., 2011; Nguyen & Mont,
2012). Adams and Page (2005) conclude that international remittances have a strong effect on pov-
erty reduction in developing countries. At the country level, positive impacts of remittances, espe-
cially international remittances, on household welfare are found in some studies such as Adams
(2004, 2006), Taylor et al. (2005), Acosta et al. (2007), and Adams et al. (2008).
On the other hand, there are several studies that do not report significant effects of international
remittances on households in home countries. In a cross-country study, Cattaneo (2005) does not
find any effect of international remittances on poverty. Stahl (1982) even argues that international
remittances may eventually lead to an increase in poverty since poor households would not benefit
from the inflow of international remittances. Azam and Gubert (2006) find that in Mali and Senegal
migrants mainly come from rich families, so rich families receive most remittances. Nguyen (2016)
shows that parental migration can reduce health outcomes of children in low income countries.
The existing studies, both theoretical and empirical, show a wide diversity of results on the
impact of migration on home households. Whether the effect of migration is positive or negative
depends on different country contexts, and this calls for more empirical studies to better understand
the economic effects of international migration and remittances. In this study, we aim to assess the
effect of both international migration and remittances on labour supply, non-farm diversification,
and the income of home households in Egypt.
For several reasons, Egypt is an interesting case to look at. Egypt is the largest country in the
Arab world and the largest labour exporter in the MENA region with increasing international
migration and remittances (Wahba, 2015). In 2013, there were around 8 million migrants abroad
from Egypt (Wahba, 2015). International remittances to Egypt increased from 3.8 billion USD in
1991 to 9.7 billion USD in 2010. Surprisingly, studies on international migration in Egypt remain
limited, in particular those on the impact of international migration as well as remittances on home
households. Zohry (2007) and Wahba (2015) present excellent analysis of migration flows and
characteristics of migrants but do not study the effect of migration on home households. Zohry
40 Arouri and Nguyen
©2017 The Authors. International Migration ©2017 IOM
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