Big Read

November 2, 2020

Migrants and refugees: The unlikely key for economic development

By Dany Bahar, senior fellow and migration economist at the Brookings Institution

Franschhoek valley, a small town in the Western Cape province of South Africa, is known today for its beautiful scenery and high-quality wineries. In fact, it is also known as the source of an important share of the wine exported by South Africa. The origin of this town goes back to the late 17th century, when French Huguenot refugees settled there after being expelled from France following King Louis XIV’s revocation of the Edict of Nantes. Coincidence?

Not really. These refugees were a source of knowledge, brought from France, which eventually made Western Cape the first-class wine exporter that it is today, competing in global markets with wineries from all over the world.

This anecdote suggests that migrants and refugees, in fact, are a key element in economic development and in closing the gap between the rich and the poor. Why is that? Economists have long known that differences in productivity is what explains the largest portion of cross-country income differences; yet, we know less about what makes a country, a firm, or a worker more productive.

But, if knowledge is the key component of productivity, how come we cannot simply “learn from each other” and thus close the gap between the rich and poor countries? In other words: How come those who are less productive cannot learn from those who are very productive?

The answer has to do with understanding that knowledge comes in three different types. First, there is the knowledge embedded in goods (often called technology). For instance, having a calculator exempts a person from knowing how to add or subtract, as the knowledge is embedded in the product. Yet, as this type of knowledge can be shipped around the globe at very low costs, it cannot really explain large differences in productivity.

"Migration is an important vehicle in the process of the diffusion of knowledge."

Second, there is the type of knowledge that can be codified, such as a patent or information that can be written down. This type of knowledge can also be transmitted around just by sharing at very low costs the paper or website on which it is written, and thus it can neither explain differences in productivity.

Third, there is knowledge that resides in people’s brains: tacit knowledge or know-how, for which its transmission requires human interaction, as well as time and effort. It is know-how that explains why a worker or manager is more productive than their peers: The knowledge they have on how to do their job cannot be easily transferrable. The only way we can learn from others, say a surgeon or a plane pilot, is not by reading a textbook or having access to their equipment, obviously. Rather, excelling in many professions implies years of learning from others who have been doing the same task for years and years beforehand.

This is why migration is an important vehicle in the process of the diffusion of knowledge, which is key for the development of nations. Migrants bring new knowhow to their destination as well as transfer such knowhow back to their home countries, resulting in productivity shifts in both locations. Precisely because of this, it is migration and international worker mobility —more than trade and capital—the flow from the world has more to gain at the moment.

This has important implications for policymakers. As we see horrendous humanitarian crises resulting in massive flows of migrants, and as climate change also threatens the livelihood of people in their home communities forcing them to resettle, it is important to remember that these people, if given the opportunity, will be a key ingredient for the wellbeing of both their countries of origin and of destination. There will be a growing need for governments to deepen global governance when it comes to migration in order to facilitate integration.

It is true that integrating migrants into the labor force in theory might result in some losing even when the aggregate gains are positive (though empirically the evidence of significant losses is thin). Thus, these policies must be accompanied by the proper safety nets to protect those who might lose because of migration flows. This should be key to reduce negative perceptions towards migrants and all forms of xenophobia.

Thus, the best way for nations of the world to assist poor countries in their process of economic development is to receive their migrants and refugees, and through them, let the knowledge flow.

Dany Bahar is a Senior Fellow at the Brookings Institution and an associate at Harvard Center for International Development. This is a modified version written for Immigrant Food’s Think Table. It’s based on a piece with the same name published at The Brookings Institution’s website on April 11, 2018 by the same author.