Migration and its effects on demographic and economic development in Central and Eastern Europe

Migration and its effects on demographic and economic development in Central and Eastern Europe

More and more countries are affected by migration. Often referred to as “the migration problem”, international migration is reshaping societies and politics. Great mobility of the people makes a country’s human capital stock volatile. This means that the globalisation of migration triggers demographic and economic consequences.

Firstly, emigration of low-skilled workers is likely to benefit the CEE countries by reducing underemployment and unemployment rates. This helps to raise labour force participation. Moreover, returning migrants often invest their money in retail and building-work firms. However, since they are net contributors to government budget, their departure increases the fiscal burden on those still in the country.

The flow of remittances sent to Romania exceeds twice the flow of foreign direct investment. With this money, families pay for everyday expenses, buy cars and build new houses. Remittances can therefore lift people out of poverty and increase the security of a decent livelihood. Remittances-receivers sometimes invest in communities, for example by putting elevators in buildings. Furthermore, when they are used to purchase goods, money sent from abroad benefit other people who are engaged in both production and selling chains. Nevertheless, remittances can create economic inequalities between remittances-receiving and non-receiving citizens. The latter can be socially isolated.

At a macro level, remittances can be a prime source of foreign exchange for sending countries. They take the form of investments that sustain home industry. They can also improve the financial sector and can trigger investment and provide leverage for sovereign loans. However, when remittances are spent in consumption, they can also create structural inflation by raising prices, especially in the housing market. This can lead to the so-called inflationist spiral.

Migration also results in the departure of a country’s brightest and highly skilled citizens. This deprives the state of revenue and prevents the countries of origin from gaining a return from publicly-funded education. Also, since human capital accumulation is the engine of economic development, brain drain considerably challenges a country’s economic growth. This triggers losses in productivity levels and GDP, but also in research and innovation. Indeed, the number of researchers from CEE countries has decreased. This undermines the economic growth of CEE countries, as skilled labour force is essential in attracting foreign direct investment and foreign companies. The lack of competition on the labour market negatively influences the evolution of productivity. Or, when they do relocate, since there is no competition, these companies pay low wages. Because of job shortages, CEE countries’ citizens are likely to take any precarious or under paid jobs. A more problematic aspect is when professionals from health and education leave. This can affect the supply, thus quality, of basic services.

Brain drain triggers negative demographic rates. Low fertility rates represent a challenge for CEE. The size of demographic losses caused by migration depends on how fast the progress of societies is achieved. Generally speaking, the only sustainable solution is the raise of worker productivity, which would reduce migration. There are some regions in CEE countries where only young children and elderly people live, because the working-aged population left the villages to work abroad. This can change sex ratio because transnationalism splits families. Often, the parents work abroad and the children are cared of by grand-parents.

Emigration from CEE countries to Western countries will decrease only if the gap between living standards will narrow down. The population of CEE countries is becoming smaller and older, which threatens countries’ ability to improve economically and socially. Given the migration of their citizens, CEE countries have to orientate towards countries from Middle East or China in order to fulfil their labour costs.

Policies should focus on both tackling labour market management which would limit skilled migration and on return schemes which would make it easier for returnees to find a job. Jobs and sustainable livelihoods should be created for citizens not to feel economically forced to migrate. CEE countries should invest in human capital, in high quality education for students not to leave to Western countries. Indeed, investments in human capital are often more stable and with a higher return than attracting foreign capital. This is however hard to calculate it in a public property system. Governments should increase the gain from remittances. Finally, the need of  transnational policies should be acknowledged. This would aid development in sending-countries and inclusion of migrants in host-countries.

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