The di­as­pora gold­mine

Financial Mirror (Cyprus) - - FRONT PAGE -

Many coun­tries have sub­stan­tial di­as­po­ras, but not many are proud of it. Af­ter all, peo­ple tend not to leave a coun­try when it is do­ing well, so the di­as­pora is of­ten a re­minder of a coun­try’s darker mo­ments.

El Salvador, Nicaragua, and Cuba, to cite three ex­am­ples, had more than 10% of their na­tive pop­u­la­tion liv­ing abroad in 2010. And this fig­ure does not take into ac­count their de­scen­dants. The bulk of this mi­gra­tion hap­pened at a time of civil war or revo­lu­tion. In other places, mas­sive out­mi­gra­tion oc­curred in the con­text of po­lit­i­cal change, as in Europe when com­mu­nism col­lapsed.

The re­la­tion­ship be­tween di­as­po­ras and their home­lands of­ten en­com­passes a broad pal­ette of sen­ti­ments, in­clud­ing dis­trust, re­sent­ment, envy, and en­mity. Col­lo­qui­ally, peo­ple de­scribe a bout of em­i­gra­tion as a pe­riod in which a coun­try “lost” a cer­tain pro­por­tion of its pop­u­la­tion.

But peo­ple who leave a coun­try have not dis­ap­peared. They are alive and so­cially ac­tive. As a re­sult, they may be­come an in­valu­able as­set not only to their coun­try of des­ti­na­tion but also, and im­por­tantly, to their coun­try of ori­gin.

One im­por­tant con­nec­tion is re­mit­tances, which add up to some $500 bln a year world­wide. The largest re­cip­i­ents are In­dia, Mexico, and the Philip­pines. For coun­tries such as Ar­me­nia, El Salvador, Haiti, Honduras, Ja­maica, Kyr­gyzs­tan, Le­sotho, Moldova, Nepal, and Ta­jik­istan, ex­pa­tri­ates re­mit the equiv­a­lent of more than one-sixth of na­tional in­come – an amount that of­ten ex­ceeds ex­ports. And this money can do a lot of good, as the World Bank’s Dilip Ratha has high­lighted.

But a di­as­pora’s po­ten­tial eco­nomic im­por­tance goes well be­yond re­mit­tances. As the late his­to­rian Philip Curtin doc­u­mented, from the be­gin­ning of ur­ban life, mil­len­nia ago, trade typ­i­cally in­volved net­works of co-eth­nic mer­chants liv­ing among aliens. Greeks, Phoeni­cians, trans-Sa­ha­ran traders, the Hanseatic League, Jews, Ar­me­ni­ans, over­seas Chi­nese, and the Dutch and Bri­tish East In­dia Com­pa­nies or­gan­ised much of world trade through such net­works. Although these alien traders were some­times po­lit­i­cally pow­er­ful in the host coun­tries, they were of­ten weak and faced dis­crim­i­na­tion.

The economist Avner Greif ar­gues that these co-eth­nic net­works’ dura­bil­ity and re­silience through­out history re­flects their abil­ity to en­force con­tracts at long dis­tances when the ex­ist­ing in­sti­tu­tional frame­work could not do so re­li­ably. They could es­tab­lish trust be­tween ex­porters and im­porters be­cause they could pun­ish op­por­tunis­tic be­hav­iours. For a tight-knit com­mu­nity, rep­u­ta­tional costs and other forms of so­cial pun­ish­ment tran­scend ge­og­ra­phy: not pay­ing for goods might mean not be­ing able to marry your chil­dren well.

Le­gal in­sti­tu­tions have since evolved to fa­cil­i­tate im­per­sonal trade. Ex­porters and im­porters no longer need to know one another, be­cause they can write a con­tract that a court will en­force.

And yet the im­pact of co-eth­nic net­works may well be as im­por­tant as ever. As Hil­lel Rapoport of the Paris School of Eco­nom­ics and his co-au­thors have shown, con­trol­ling for other de­ter­mi­nants of trade, coun­tries trade more with, and in­vest more in, the di­as­po­ras’ home coun­tries. In re­cent work with Dany Ba­har, Rapoport has also shown that coun­tries be­come good at mak­ing the prod­ucts that their mi­grants’ home coun­tries are good at mak­ing.

I in­ter­pret these re­sults as the con­se­quence of tacit knowl­edge or knowhow. To do things, you need to know how, and this knowhow is mostly un­con­scious. Af­ter all, most of us know how to ride a bi­cy­cle, but we are not re­ally aware of what our brain does to achieve that feat, or how it de­vel­ops that abil­ity through prac­tice.

This knowhow moves ge­o­graph­i­cally in the brains of those who pos­sess it and is trans­ferred to oth­ers at work. That is why eth­nic cuisines dif­fuse through di­as­po­ras, not cook­books. And it may be why economies with more di­verse sets of mi­grants per­form bet­ter. Also, re­turn mi­gra­tion is of­ten an im­por­tant source of new skills for a coun­try. In on­go­ing work, Lju­bica Nedelkoska of Har­vard’s Cen­tre for In­ter­na­tional De­vel­op­ment has found that the wages of Al­ba­ni­ans who never left tend to in­crease when mi­grants re­turn home.

Ev­i­dence of the im­por­tance of di­as­po­ras is ev­ery­where, if you care to look. Fran­schhoek (French cor­ner in Afrikaans) is a beau­ti­ful val­ley near Cape Town set­tled by Huguenots in the late sev­en­teenth cen­tury. That is why, to this day, wines are made there.

East Asian in­dus­tri­al­i­sa­tion ex­ploited the links cre­ated by the net­work of over­seas Chi­nese. In­dia’s high-tech in­dus­tries were to a large ex­tent cre­ated by re­turn­ing mi­grants and are deeply con­nected to the di­as­pora. Is­rael is an en­tire coun­try cre­ated by its di­as­pora, and its thriv­ing high-tech sec­tor, too, has ben­e­fited from sus­tained ties. By con­trast, many Latin Amer­i­can coun­tries have sub­stan­tial di­as­po­ras abroad, but few equiv­a­lent suc­cess sto­ries.

A coun­try’s di­as­pora, and the di­as­po­ras it hosts, can be a huge as­set for its de­vel­op­ment. Di­as­po­ras are not gu­sanos or worms, as Fidel Cas­tro refers to Cubans abroad. They are a chan­nel through which not only money, but also much tacit knowl­edge, can flow, and they are a po­ten­tial source of op­por­tu­ni­ties for trade, in­vest­ment, in­no­va­tion, and pro­fes­sional net­works.

But a di­as­pora can work its eco­nomic magic only if the host coun­try tol­er­ates it and the home coun­try ap­pre­ci­ates it. Gov­ern­ments should have a di­as­pora strat­egy that builds on nat­u­ral feel­ings of iden­tity and af­fec­tion to cul­ti­vate this so­cial net­work as a pow­er­ful source of eco­nomic progress.

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