The Impact of Migrants' Remittances on the Egyptian Economy
| Author | M. KANDIL,M.F. METWALLY |
| DOI | http://doi.org/10.1111/j.1468-2435.1990.tb00142.x |
| Published date | 01 June 1990 |
| Date | 01 June 1990 |
The Impact
of
Migrants’ Remittances
on
the Egyptian Economy
M. KANDIL* and M.F. METWALLY**
INTRODUCTION
Over the last three decades, Egypt has experienced a massive outflow of Egyptians
migrating to work in other neighboring Arab oil-producing countries. Although the
Egyptian labor migration has grown steadily since the early 195Os, there has been a
profound change in the magnitude and nature of migration since 1973. This change can
be explained as follows: Egypt, a highly populated country, has suffered from severe
economic problems as a result of its participation in several wars in the Arab-Israeli
conflict. By contrast, the Arab oil-producing countries have enjoyed
a
significant
increase in their wealth as a result of a sharp increase in energy price following the world
energy crisis in 1973 and 1979. With the increase in wealth, these countries have engaged
in large scale restructuring and development programs that have created chronic labor
shortages. The sharp contrast in wealth and the size of labor force has created a
pronounced difference in rewards to employment in Egypt and the Arab oil-producing
countries. This difference has attracted a large number of Egyptian workers to migrate to
neighboring Arab oil-producing countries such
as
Kuwait, Saudi Arabia, the Gulf States
and Libya.
This phenomenon
is
worth studying from several aspects. First, a thorough
investigation of factors determining this migration ought to be considered. Second, as
Greenwood (1975) has suggested, research should be directed to analyzing the
consequences of this migration on three groups: (i) the labor exporting countries, (ii) the
labor importing countries and their citizens, and (iii) the migrants themselves. In our
previous investigation (Kandil and Metwally, 1989) we focused on the first issue,
determinants of Egyptian labor migration to Arab oil-producing countries. In the present
investigation, we turn to the issue of analyzing the impact of labor migration on the
Egyptian economy. There are positive and negative aspects that one needs to consider in
this respect. On the positive side, we have the following to consider. Remittances sent
home by Egyptian migrants have become a valuable source of foreign exchange for this
country. In addition, the departure of migrants can be seen as an effective way
of
reducing the unemployment rate, which presents one of the most pressing problems
facing Egypt. On the negative side of the problem, one needs to consider factors such as
*
**
Department
of
Economics, Southern Illinois University, Carbondale (U.
S.
A.),
Department
of
Economics, Alexandria University, Alexandria (Egypt).
159
labor supply shortages that have resulted in some areas of the Egyptian labor market. In
addition, the accumulation of savings by migrants has affected the level of aggregate
spending
in
the Egyptian economy. There has been an increase in consumption spending
and in particular luxurious consumption. This increased spending has created severe
inflationary pressures in an economy in which productive resources are very limited.
This paper addresses the issue of the impact of workers’ remittances
on
the Egyptian
economy in some detail. One of the major effects of the massive Egyptian workers’
migration has been the resulting remittances and the dependency of the Egyptian
economy
on
this source of foreign exchange. In order to motivate the issue, we start by
summarizing some figures about the recent magnitudes of Egyptian labor migration and
some related facts. In the theoretical section of the paper, we analyze the impact of
remittances in the context of the standard Keynesian macroeconomic model. This
theoretical framework identifies factors determining the magnitude of the remittances’
multiplier. The multiplier utilizes the structural parameters underlying the economy to
measure the impact of a dollar increase in remittances on the
gross
national product. In
the empirical section of the paper, we proceed to estimate the structural equations
identifying the aggregate Egyptian economy using the specifications of the standard
Keynesian model. We use the estimates of the model’s structural parameters to analyze
empirically the impact of remittances on major components of aggregate demand in
Egypt. The results are consistent with a large positive impact of remittances
on
GNP and
its major components in Egypt. We then conclude by drawing some policy implications
that are necessary in order to maximize the positive impact of migrants’ remittances on
the Egyptian economy.
EGYPT’S EXPERIENCE WITH LABOR MIGRATION
In the absence of accurate data
on
the number of Egyptian workers abroad, attempts were
made to provide estimates as substitutes for the real figures.
The Magnitude
of
Egyptian
Labor
Migration
We provide two different estimates for these magnitudes
:
Estimates by the Central Agency for Mobilization and Statistics (CAMAS)
Table
1
(page
170)
shows the estimates of CAMAS which cover the period from
1966
to
1986‘.
The figures of the table suggest that there has been a steady increase in the number
of Egyptian migrants to the Arab oil-producing countries between
1969
and
1979.
The
rate of increase was the largest between
1970
and
1972,
however. After
1972,
Egyptian
labor migration continued to grow although at a more moderate rate. The only exception
to this growth is the slight reduction in the number of migrants between
1973
and
1974.
The increase in the number of Egyptian migrants was discontinued, however, after
1979.
In the wake of the Camp David Accord, political relationships between Egypt and its
neighboring countries deteriorated. Consequently, there was a big reduction in the
number of Egyptian migrants to these countries between
1980
and
1982.
Although labor
migration continued to grow after
1982,
the number of migrants remained below its high
record that was reached in
1979.
Estimates
of
the International Labor
Force
Table
2
(page
17 1)
shows the numbers of Egyptians working abroad in
1975
based on the
estimates of the Department of Economics at the University of Durham. These estimates
were developed as part of the ‘International Migration Project’ sponsored by the
160
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