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Special Report: the economic impact of diaspora

Article|05 Aug 2008
Increased ease of travel across borders and between continents is boosting global
migration flows. With immigrants tending to settle in the same areas, this encourages
growth of diaspora communities. These groups are able to facilitate community-specific
economic development, encouraging further immigration to these areas and creating a
strong driver for remittances to their home countries. However, the global economic
slowdown in 2008 is causing diaspora communities to contract, with negative economic
consequences for receivers of remittances and migrant destination countries.
Key points
Diaspora communities are well established and have grown significantly with the advent of
globalisation and cheaper travel;
Communities include migrants of two types: permanent migrants form the basis of the diaspora
communities, providing a settled base to attract new migrants and establish business ventures.
Temporary migrants often work within diaspora communities, since it is easier to find jobs;
Both types of migrants send remittances to their home countries, where these funds are worth
proportionally more;
Diaspora fund flows are a major source of income in developing countries, driving consumer
spending and direct investment;
However, this can sometimes encourage some families to rely on remittances, reducing the
incentive to seek work and generate domestic economic activity;
The global economic slowdown in 2008 may force some migrants to return to their countries of
origin, reducing remittance potential. This will have negative implications for consumer spending in
both countries of origin and destination.
Diaspora communities are a long-established phenomenon. They were traditionally created
by conflict, when war would encourage entire communities to migrate to different
countries, such as the Lebanese diasporas caused by repeated civil conflicts. Diaspora
communities generally tended to be permanent. However, the growing ease of global travel
has facilitated a more fluid form of diaspora, comprising both permanent and temporary
migrants. Diaspora are now providing a variety of economic functions, both as a source of
remittances and investment, and a springboard for new migrants seeking employment.
Diaspora destinations
Migrants traditionally move from poorer developing or conflict-ridden countries to wealthier
and more peaceful countries:
Countries such as the UK, the USA and Canada have traditionally been popular diaspora
In addition, former colonial links encouraged the growth of diaspora communities, with major
examples being the Maghgrebi diaspora in France, the Latin American diaspora in Spain and the
Indian diaspora in the UK. In 2007 foreign citizens comprised 6.0% of the total population of the UK
and 9.9% in Spain;
Forei gn ci ti zens as a percentage of the total popul ati on i n France, Germany, Spai n and the UK: 2007

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Source: Euromonitor from trade sources/national statistics/UN
Diaspora growth has been encouraged by globalisation, particularly the easing of visa and labour
restrictions and greater access to travel. For example, the easing of the labour market since 2004
following the accession of Eastern European countries to the EU encouraged migration towards
wealthier EU states;
This is one of the major reasons behind the rapid growth of foreign residents in the UK. While in the
past most migrants to the UK came from India and the Caribbean, migrants are increasingly coming
from Eastern Europe, particularly Poland and Hungary.
Migrant differences
There are two different types of residents within diasporas:
Traditionally, migration has been permanent. Migrants moved to new countries and established
permanent communities. Examples of these are the Central American communities in the USA and
the Indian diaspora in the UK, both of which have become permanent communities of at least three
This allowed the development of community and economic structures, which provided employment
for members of the diaspora, often in preference to other nationalities;
New migrants are attracted to countries with large existing disaporas since there is a greater
likelihood of finding work. This encourages diaspora growth, providing further economic
Other residents are temporary. Their migration is motivated largely by the aim of earning money
before returning home. For example, many of the Eastern European migrants who went to the UK
after 2004 are beginning to return, since they have earnt sufficient funds to support lifestyles in
their countries of origin and the economies of their home countries are improving;
Workers in the UAE are also short-term migrants, largely owing to the country's stringent residency
regulations, which allow migration but rarely allow foreign workers to gain official residency. Over
90% of the economically active population is comprised of foreign workers.
The primary importance of diaspora communities to their countries of origin is financial:
Both temporary and permanent migrants tend to send remittances to their countries of origin,
although remittances from permanent migrants decline over time as their familial and emotional
connections to their home countries recede;
As diaspora communities grow in wealth, some begin to invest in their countries of origin, boosting
foreign direct investment flows;
Remittances have grown sharply in tandem with the increased ease of global migration. In 2007,
remittance flows to developing countries totalled US$251 billion, representing growth of 11% year-
on-year. Total global remittances in 2007 were US$337 billion;
China, India and Mexico registered the highest amount of remittances, at US$25.7 billion, US$27.0
billion and US$25.0 billion respectively,
These remittances contribute significantly to the economies of the recipient countries, some more
than others. In 2007 they totalled 2.8% of total GDP in Mexico, 2.5% in Poland, 11.9% in the
Philippines and 2.4% in India. In China remittances were less important contributing 0.8% to GDP;
Remi ttances of top ten reci pi ents: 2007
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US$ billion
Source: Euromonitor International from World Bank.
Mexico's greatest diaspora community is in the USA, while those of the Philippines, India and China
are split between the USA and Western Europe;
Diaspora communities are beginning to emerge in the Gulf States, in response to strong economic
growth in those countries. However, these are less permanent in nature owing to residency
Diaspora advantages
The creation of diasporas also has advantages for the destination country:
Migrants provide a ready pool of workers and a source of fresh consumer spending, contributing to
economic development;
Established diasporas are more likely to be incorporated into the legal system, meaning that
workers contribute to the economy via taxes;
Using diasporas as a springboard for new migrants means that jobs can be transferred quickly,
encouraging growth of a flexible labour market;
Economic, political and cultural assimilation of diasporas has benefits for the destination country in
terms of its future social development;
As diasporas become more permanent, job skills tend to increase, meaning that workers are able
to earn more and boost their potential spending power;
Skilled workers often choose to migrate since they can earn more money abroad. This helps to
ease skills shortages in developed countries, which benefit from trained workers and who are
suffering from shortages owing to ageing populations and shrinking labour forces;
Migrants who return home after a short period pay into a destination country's tax and pension
systems but do not use them in their old age, boosting government finances;
This means that there is a temporary impact on health and education spending, since migrants are
able to use these, but this is compensated for by the minimal payments in terms of pensions and
social security.
The existence of diasporas boosts consumer spending potential in the destination country
as well as the country of origin.
Diaspora disadvantages
However, there are some economic drawbacks to diaspora communities:
Their role as a provider of remittances can mean that families in the countries of origin become
dependent on these financial inflows. This can reduce incentives to seek jobs or higher-paid
This in turn weighs on potential consumer spending growth, removing a major driver of economic
Financial support from diaspora communities traditionally wanes in the second generation after
migration. Remittance flows from diasporas are therefore unreliable, particularly at times of
economic slowdowns, when there will be less work available;
Migrant reliance on joining a diaspora community can slow the process of integration into the
society of the destination country, particularly where there is a language barrier. This can restrict
job and wage growth prospects for migrants in the medium term;
Established diasporas and short-term migrants help to reduce unemployment in destination
countries by filling the jobs that the existing population may not want, although mass migration will
leave shortages in the countries of origin as occurred in Poland following EU accession.
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Future scenarios
The economic role of diaspora communities will be reduced by the global slowdown in
Global economic growth is forecast to slow to 4.1% in 2008 from 5.0% in 2007;
This growth will be led by a slowdown in the USA, which is forecast to grow by 1.3% in 2008 from
2.1% in 2007, owing to fears of a recession;
This will reduce available jobs, particularly in the construction sector, since the housing market is
falling in most major economies as a result of credit concerns. Many new migrants are employed in
the construction sector and a lack of jobs will either force them to return home or discourage
This is particularly the case in countries such as the USA, the UK and Spain, whose previously
booming construction and housing sectors have begun to slow since mid-2007;
Remittances from temporary diaspora residents will fall, reducing financial support and related
spending power in the countries of origin;
In the longer term, globalisation will discourage the further growth of diaspora communities. While
temporary migration will continue, the ease of travel means that permanent migration will become
less common;
Rising income levels in developing countries will make migration less attractive. For example,
migration rates have slowed in Eastern Europe since EU accession in 2004, as income levels
converge with Western Europe.
Euromonitor International 2014
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