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Michael C. Hudson (ed.)
1999
12. Labor Migration and Economic Integration in the Middle East
Antoine B. Zahlan
Note: The views expressed here are those of the author and do not reflect the views of the World Bank or its affiliated institutions.
The idea of an economically integrated Arab world has been part of the region’s political discourse for decades. While the idea is compelling to many, the Middle East is in some ways one of the least integrated regions in the world, despite decades of attempts to give economic meaning to the notion of Arab unity. The major exception is labor mobility, as intraregional migration flows have been extensive in recent decades. Remittances from migrant labor now exceed the value of regional trade in goods as well as official capital flows.
What are the characteristics of economic integration in the Middle East and why have labor flows been the major channel through which intraregional economic ties have been forged? What are the motives for regional integration, and to what degree is the region integrated—in terms of trade in goods and movement of factors of production? What special role has labor migration played in regional integration in light of the region’s endowment and trade policies? The Middle East’s pattern of labor–based economic integration is fairly unique. Has it left the region better or worse off? These are the questions that will be analyzed below.
Why Regional Integration?
The appeal of economic integration in the Arab world is based on the circumstances of the region and, increasingly, on the changing characteristics of the world economy. At the regional level there have been two interrelated motives for promoting integration. One was purely political and had its origins in the ideology of Arab nationalism. An economically integrated Arab world would provide the region with critical support for sustained and meaningful political integration. The second motive was more economic and stemmed from the view that the complementarity of endowments across the region could be the basis for enhanced development. The high–income oil exporters were capital–rich, but poor in labor and productive land. Countries like the Sudan, Egypt, Syria, and Morocco had substantial agricultural potential and low–wage labor, but lacked capital. Lebanon and Jordan had surpluses of skilled labor. The more diversified economies, such as Algeria and Iraq, could also benefit from imports of labor and capital from abroad. Moreover, regional integration would enable all countries to take advantage of economies of scale in production, distribution, and resource use. In the Middle East, there is the added dimension of regional conflict. Many argue that a region that is more economically interdependent and prosperous is less likely to experience political and military conflict. The example of the European Coal and Steel Community formed after World War II is often cited as an example where encouraging economic ties laid the groundwork for peaceful coexistence and eventual integration in the form of the European Union.
The economic motive has become increasingly important as most countries in the region experienced economic stagnation in the late 1980s and the early 1990s. Per capita income growth in the Middle East was respectable from 1960–73, and the period of the oil booms, 1973–81, was one of accelerated growth. With the collapse in oil prices in 1986, most countries in the region experienced negative per capita income growth. Only four countries—Morocco, Turkey, Tunisia, and Yemen—in the region had positive growth rates in the second half of the 1980s. The challenge for the future is even greater because of the region’s young, urbanized, and rapidly growing population. The Middle East, along with Sub–Saharan Africa, has the highest rate of population growth in the world. Total population in the Middle East was about 260 million in 1990, 51 percent of whom live in urban areas and 43 percent of whom are under 15 years of age (World Bank 1992). About one–third of the population in the region’s developing countries lives in poverty (living on less than $1 per day) (Ravallion, Datt, and Chen 1992). This combination of growing populations and deteriorating living standards has reinforced the imperative for economic development in the region.
Changes in the world economy, and particularly in world trade, have also reinforced the need for integration. Intraregional trade has been growing faster than world trade in recent years. The emergence of three major trading blocks in the world economy—dominated by the United States, Japan, and Europe—has resulted in fears that countries outside such regional arrangements could suffer a fall in exports as the adverse substitution effects of regionalization outweigh the favorable income effects. Such fears have provided a stimulus to renewed attempts at regional trading arrangements all over the world—Latin America, Central America, Africa, and Asia.
The conventional economic view on regional integration is that it is desirable where the trade creation effects are greater than the trade diverting effects. Thus, agreements among countries that would tend to trade with each other anyway would result in greater welfare gains than those that divert trade to higher cost suppliers. This is consistent with the evidence that effective agreements tend to emerge among countries where there is already intense trade. In many cases, the static gains from more efficient resource allocation are overshadowed by the dynamic efficiency gains that result from competition. There is also evidence of the benefits of such agreements. Bigger countries tend to grow faster—lending support to the view that economies of scale and efficiency gains associated with integration result in higher incomes (Lachler 1989).
The numerous attempts to promote economic integration in the Arab world have been analyzed extensively elsewhere (Waterbury and Mallakh 1978; Makdisi 1979; Ghantus 1982). Since the creation of the Arab League in 1945, economic integration has been on the regional agenda. In 1953, Arab countries signed a multilateral trading agreement under the auspices of the Arab League, which exempted Arab agricultural commodities from tariff barriers and reduced tariffs on some industrial goods. The Arab Economic Unity Agreement signed in 1956 sought full economic union among Egypt, Iraq, Jordan, Kuwait, and Syria. The same countries, with the exception of Kuwait in 1964, formed the Arab Common Market that sought the gradual elimination of tariff and non–tariff barriers over a ten–year period.
These and numerous other attempts to promote integration failed largely because there was no willingness to subsume national interests to regional ones. Protectionist interests in all countries often secured exemptions to more open trading arrangements that undermined regional integration efforts. Local interest groups also often undermined coordination of other regional policies. The failure of economic integration efforts was not unique to the Middle East. The majority of such efforts failed at promoting integration in virtually every developing region.
The oil boom in the 1970s spurred the growth of institutions to transfer resources from the high–income oil exporters to the poorer states in the region. Kuwait and Abu Dhabi actually set up the national funds (the Kuwait and the Abu Dhabi Fund for Arab Economic Development, respectively) the first oil price increase in 1973, while Saudi Arabia and Iraq created similar funds in 1974. Regional institutions were also established—the Arab Fund for Economic and Social Development (1968), the Islamic Development Bank (1974), the Arab Bank for Economic Development in Africa (1973), the Arab–African Technical Assistance Fund (1974), the Arab–African Oil Assistance Fund (1974), the Special Fund for Arab Non–Oil–exporting Countries (1974), and the Arab Monetary Fund (1976). Most of these provided balance of payments support or concessional financing for projects. Economic integration increasingly came to mean transfers from rich to poor states, rather than the more solid ties of genuine economic interdependence.
How Economically Integrated is the Middle East?
Economic integration can take many forms. These include free trade areas, customs unions, joint ventures, preferential payments arrangements, favored trading status or common markets. The Arab world has experimented with a variety of mechanisms to promote integration.
The extent of integration in terms of trade in goods and in factor flows that resulted from these experiments will be assessed before considering the special role of labor movements.
Trade. The most striking feature of trade patterns in the Middle East is how little the countries of the region trade with each other. Table 13.1 provides data on Middle Eastern exports and imports in world trade. About two–thirds of all the region’s trade is with the industrial countries. Intraregional Middle Eastern trade accounts for only 6–7 percent of total imports and exports. The Middle Eastern countries trade more with Asia and with Eastern Europe and the former Soviet Union than they do with each other.
Table 13.1 Intraregional Middle Eastern Exports and Imports
as a Share of Total Exports and Imports, 1985–1990
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Exports | Imports | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Percent distribution | ||||||||||||
| Industrial countries | 60.6 | 62.9 | 58.3 | 56.9 | 59.0 | 63.9 | 68.1 | 69.3 | 66.3 | 66.3 | 67.4 | 71.8 |
| Developing countries | 31.7 | 28.9 | 31.7 | 33.0 | 31.5 | 28.2 | 26.5 | 25.7 | 27.2 | 28.0 | 28.3 | 25.3 |
| Africa | 1.8 | 1.8 | 1.9 | 2.1 | 1.9 | 1.5 | 0.8 | 1.0 | 0.9 | 1.0 | 1.1 | 1.1 |
| Asia | 13.2 | 11.0 | 14.0 | 15.1 | 15.0 | 14.6 | 8.4 | 8.9 | 9.7 | 10.8 | 10.6 | 10.9 |
| Europe | 6.1 | 5.5 | 5.9 | 5.6 | 4.7 | 4.1 | 7.3 | 7.3 | 7.4 | 7.3 | 6.7 | 5.0 |
| Middle East | 6.2 | 6.7 | 6.3 | 6.8 | 6.7 | 5.0 | 7.6 | 6.4 | 7.3 | 6.7 | 7.6 | 6.1 |
| Western Hemisphere | 4.3 | 4.0 | 3.6 | 3.4 | 3.1 | 3.1 | 2.4 | 2.1 | 1.9 | 2.2 | 2.3 | 2.2 |
| Former U.S.S.R. | 0.8 | 1.1 | 1.0 | 1.0 | 1.5 | 1.8 | 1.2 | 1.6 | 1.6 | 1.4 | 1.2 | 1.1 |
| Annual percent change | ||||||||||||
| World | –12.1 | –19.9 | 12.9 | –1.4 | 22.3 | 23.9 | –17.8 | –9.0 | 1.2 | 11.5 | –0.9 | 16.9 |
| Industrial countries | –10.8 | –18.3 | 6.5 | –3.8 | 26.8 | 34.3 | –20.7 | –7.3 | –3.0 | 11.5 | 0.6 | 24.4 |
| Developing Countries | –15.5 | –26.8 | 23.7 | 2.6 | 16.5 | 11.1 | –13.0 | –11.9 | 7.4 | 14.6 | – | 4.4 |
| Africa | –17.5 | –20.2 | 20.7 | 11.2 | 10.0 | –2.5 | –25.2 | 18.5 | –12.7 | 24.4 | 9.4 | 14.6 |
| Asia | –20.1 | –33.4 | 43.5 | 6.3 | 21.4 | 20.6 | –14.8 | –4.3 | 11.1 | 23.4 | –2.8 | |
| Europe | –9.7 | –27.9 | 22.0 | –7.1 | 3.0 | 7.5 | –13.8 | –8.8 | 3.5 | 10.3 | –10.2 | –12.6 |
| Middle East | –14.7 | –14.1 | 6.6 | 6.3 | 21.0 | –8.3 | –9.7 | –23.9 | 15.4 | 2.5 | 13.2 | –6.3 |
| Western Hemisphere | –7.8 | –26.0 | 1.3 | –6.3 | 11.6 | 21.3 | –9.0 | –19.8 | –9.2 | 28.9 | 3.4 | 11.8 |
| Former U.S.S.R. and selected other countries n.i.e. |
18.1 | 6.4 | – | 3.7 | 82.7 | 48.1 | 14.6 | 19.9 | –2.8 | –1.8 | –12.0 | 1.6 |
Source: International Monetary Fund (1991)
When intraregional trade is examined by country (table 13.2), the pattern is even more stark. The major share of intraregional trade is dominated by three oil economies: Bahrain, Saudi Arabia, and the United Arab Emirates. This is because the data on trade do not exclude reexports—such as when Saudi Arabia exports oil to Bahrain for refining, which Bahrain then reexports. Such trade involves little value added and the products are not destined ultimately for the regional market. If such reexports were excluded from the data, regional trade would be even less than that reported in tables 13.1 and 13.2.
Table 13.2 Intraregional Exports and Imports of Middle Eastern Countries
1985-1990 (US$million)
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Exports | Imports | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
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1985 | 1986 | 1987 | 1988 | 1989 | 1990 | 1985 | 1986 | 1987 | 1988 | 1989 | 1990 |
| Bahrain | 1,224 | 942 | 1,189 | 1,02 9 | 1,309 | 1,390 | 444 | 253 | 258 | 274 | 326 | 351 |
| Egypt | 231 | 197 | 196 | 226 | 230 | 231 | 167 | 131 | 143 | 212 | 271 | 2 53 |
| Iran, Islamic | 143 | 152 | 220 | 268 | 372 | 292 | 823 | 327 | 424 | 227 | 2 92 | 274 |
| Republic of Iraq | 557 | 483 | 501 | 645 | 824 | 478 | 266 | 337 | 362 | 449 | 5 29 | 504 |
| Israel | 229 | 230 | 140 | 146 | 168 | 5 | 8 | 59 | 27 | 28 | 22 | 7 |
| Jordan | 638 | 479 | 515 | 565 | 497 | 587 | 383 | 329 | 851 | 391 | 465 | 4 27 |
| Kuwait | 298 | 322 | 389 | 479 | 588 | 324 | 780 | 605 | 684 | 770 | 843 | 4 35 |
| Lebanon | 144 | 100 | 105 | 152 | 253 | 287 | 267 | 251 | 274 | 349 | 261 | 2 58 |
| Libya | 19 | 24 | 13 | 16 | 30 | 40 | 285 | 104 | 143 | 1 | 2 | 4 |
| Oman | 43 | 66 | 394 | 472 | 5 76 | 547 | 28 | 27 | 31 | 38 | 38 | 38 |
| Qatar | 212 | 230 | 111 | 132 | 188 | 187 | 211 | 160 | 158 | 200 | 238 | 2 26 |
| Saudi Arabia | 783 | 818 | 634 | 776 | 903 | 903 | 2,406 | 1,956 | 2,084 | 2,386 | 2,501 | 2,527 |
| Syrian Arab Republic | 810 | 281 | 394 | 122 | 152 | 124 | 75 | 128 | 162 | 24 9 | 512 | 646 |
| United Arab Emirates | 859 | 961 | 988 | 1,071 | 1,397 | 1,405 | 1,216 | 919 | 866 | 1,028 | 1,190 | 1,048 |
| Yemen Arab Republic | 323 | 281 | 130 | 212 | 169 | 176 | 31 | 21 | 34 | 42 | 41 | 43 |
| Yemen P.D. Republic | 201 | 194 | 226 | 220 | 251 | 264 | 7 | 9 | 15 | 21 | 15 | 16 |
| Middle East not specified |
24 | 19 | 20 | 10 | 23 | 21 | 28 | 31 | 11 | 14 | 15 | 16 |
Source: International Monetary Fund (1991)
Some of the explanation for such a low level of intraregional trade must lie in the composition of regional imports and exports. The exports of the Middle East remain dominated by primary products, particularly oil. Petroleum and petroleum products constitute more than 90 percent of total exports for all the Gulf countries, as well as for Algeria and Libya. The Middle East, along with Africa, has the smallest share of world trade in manufactures (World Bank 1992, 17). The region is also a net importer of food. Thus the imports of the region, which consist largely of food, manufactures, and capital goods, are not major exports of the region.
But the explanation for the composition of trade lies not only in endowment but also in the policies adopted by the governments of the region. Many of the labor surplus economies (such as Egypt, Sudan, and Syria) that could have been meeting the region’s demand for food and manufactures have followed import substitution policies for decades. Meanwhile, the capital–surplus economies have tended to have very open trade regimes, which enable them to import from anywhere in the world. The protected production of regional neighbors cannot compete in terms of quality or price with world markets.
The evidence of the enormous divergence in trade policy between the labor surplus and the capital–surplus countries of the region is presented in tables 13.3 to 13.5. Three different measures of openness are reported because there is considerable controversy over which measures are the most appropriate (Pritchett 1991).
The structure adjusted trade intensity ratios in table 13.3 represent the share of imports and exports in gross domestic product (GDP) adjusting for structural characteristics of the economies such as size, per capita income, and oil endowment. Table 13.4 reports average import charges by category, and table 13.5 reports the frequency of non–tariff barriers. The conclusions are consistent across all measures of outward orientation—the capital–surplus oil economies tend to be very open while the labor surplus economies of the region tend to be very closed.
Table 13.3 "Structure Adjusted Trade Intensity Ratios, 1985,
by Rank: Middle Eastern Countries"
| LDCs | Overall | Manufacturing | Agriculture | Resources | ||||
|---|---|---|---|---|---|---|---|---|
|
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% | Rank | % | Rank | % | Rank | % | Rank |
| Bahrain | 69.1 | 4 | 21.3 | 6 | 2.7 | 26 | 44.7 | |
| Jordan | 27.2 | 12 | 11.6 | 16 | 2.1 | 28 | 9.8 | 14 |
| Egypt | 22.5 | 17 | 20.8 | 7 | 7.6 | 11 | -6.3 | 73 |
| Algeria | 9.6 | 25 | 8.3 | 23 | 0.1 | 37 | 1.0 | 26 |
| Morocco | –2.1 | 40 | –0.8 | 43 | –0.9 | 42 | –0.5 | 33 |
| Sudan | –2.9 | 41 | 1.0 | 32 | 0.7 | 33 | –4.2 | 57 |
| Tunisia | –5.0 | 44 | –0.7 | 42 | –6.4 | 83 | 3.1 | 22 |
| Syria, Arab | –12.4 | 60 | –4.1 | 56 | –0.9 | 41 | –7.4 | 75 |
| Republic of Turkey |
–19.2 | 75 | –9.2 | 72 | –6.7 | 84 | –2.1 | 42 |
| Yemen, Arab | –21.1 | 77 | –6.7 | 62 | –6.1 | 81 | –7.6 | 77 |
| Republic of United Arab Emirates |
–23.0 | 79 | –26.4 | 92 | –2.9 | 58 | 7.2 | 15 |
| Kuwait | –37.7 | 90 | –22.2 | 87 | –1.6 | 50 | –13.1 | 89 |
| Oman | –43.4 | 93 | –10.8 | 73 | –1.6 | 49 | –31.2 | 93 |
Note: The structure adjusted trade intensity ratios are derived from a regression of trade intensity (imports plus exports as a share of GDP) on population, land area, GDP per capita, transportation costs and oil endowment. The resulting residual is an indicator of the openness of the economy taking into account structural characteristics. Rank refers to where a particular country is relative to 93 other countries in the sample.
Source: Adapted from Pritchett (1991)
Table 13.4 UNCTAD Data on Mean Total Import Charges
by Major Aggregate,In Percent and Rank
| LDCs | Overall | Manufacturing | Agriculture | Resources | ||||
|---|---|---|---|---|---|---|---|---|
|
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% | Rank | % | Rank | % | Rank | % | Rank |
| Saudi Arabia | 3.7 | 4 | 4.1 | 6 | 1.4 | 3 | 4.4 | 10 |
| Qatar | 4.3 | 5 | 4.0 | 5 | 5. 4 | 7 | 4.0 | 7 |
| United Arab Emirates | 4.3 | 6 | 4.7 | 7 | 1.5 | 4 | 5.9 | 13 |
| Kuwait | 6.5 | 7 | 3.9 | 4 | 2 .1 | 6 | 23.1 | 48 |
| Bahrain | 7.2 | 8 | 7.6 | 8 | 7.6 | 8 | 5.0 | 12 |
| Algeria | 18.2 | 21 | 22.1 | 27 | 15.5 | 20 | 2.4 | 5 |
| Syria, Arab | 24.5 | 34 | 25.2 | 33 | 23.4 | 33 | 22.8 | 47 |
| Republic of Jordan |
27.1 | 39 | 32.2 | 48 | 16.3 | 23 | 12.4 | 31 |
| Tunisia | 27.5 | 40 | 28.0 | 40 | 27.8 | 42 | 10.7 | 30 |
| Morocco | 34.6 | 51 | 35.1 | 51 | 29.8 | 46 | 37.5 | 67 |
| Egypt | 41.4 | 62 | 42.6 | 61 | 57.3 | 68 | 16.0 | 37 |
| Turkey | 44.8 | 65 | 46.9 | 65 | 37.3 | 58 | 26.7 | 54 |
| Sudan | 47.0 | 66 | 49.4 | 66 | 54.6 | 65 | 25.5 | 52 |
| Iran | 70.1 | 72 | 80.4 | 74 | 69.2 | 70 | 20.4 | 42 |
Note: Rank refers to where a particular country is relative to 75 other countries in the sample.
Source: Adapted from Pritchett (1991)
Political alliances have added another dimension to regional trade patterns. The composition of Egypt’s trade during the late 1960s and early 1970s and Syria’s trade until recently were dominated by the Eastern bloc. Extensive trade with Eastern Europe and the former Soviet Union was a reflection of political alliances, not market incentives. Similarly, the United States has emerged as one of Egypt’s major trading partners in the 1980s, not because of comparative advantage, but because American aid is tied to U.S. source restrictions
Table 13.5 UNCTAD Data on the Frequency of Nontariff Barriers,
by Major Aggregate, in Percent and Rank
| LDCs | Overall | Manufacturing | Agriculture | Resources | ||||
|---|---|---|---|---|---|---|---|---|
|
|
% | Rank | % | Rank | % | Rank | % | Rank |
| United Arab Emirates | 0.5 | 2 | 0.3 | 3 | 1.5 | 4 | 0.1 | 9 |
| Qatar | 1.2 | 3 | 1.2 | 4 | 1. 5 | 5 | 0.0 | 1 |
| Bahrain | 3.5 | 4 | 0.0 | 1 | 7.2 | 10 | 0.0 | 3 |
| Oman | 4.0 | 6 | 5.2 | 9 | 1.5 | 3 | 0.1 | 14 |
| Kuwait | 7.9 | 8 | 7.2 | 14 | 15.1 | 18 | 0.3 | 19 |
| Sudan | 8.0 | 9 | 8.4 | 16 | 12.2 | 14 | 0.0 | 7 |
| Saudi Arabia | 8.4 | 11 | 8.8 | 18 | 14.4 | 17 | 0.1 | 11 |
| Libya | 9.4 | 12 | 10.0 | 23 | 14.3 | 16 | 0 | 8 |
| Jordan | 16.8 | 28 | 7.1 | 13 | 66.5 | 45 | 0.1 | 12 |
| Egypt | 38.6 | 40 | 35.4 | 42 | 46.4 | 37 | 42.8 | 35 |
| Morocco | 39.7 | 41 | 23.0 | 36 | 66.6 | 46 | 84.4 | 50 |
| Algeria | 68.4 | 52 | 60.1 | 50 | 86.6 | 56 | 87.4 | 54 |
| Tunisia | 77.6 | 55 | 71.7 | 54 | 84.0 | 55 | 94.1 | 58 |
| Turkey | 90.6 | 59 | 97.8 | 60 | 79.7 | 50 | 70.2 | 40 |
| Iran | 98.8 | 62 | 98.6 | 62 | 94.2 | 60 | 100.0 | 73 |
| Syria, Arab | 100.0 | 63 | 100.0 | 63 | 100.0 | 63 | 100.0 | 62 |
| Republic of Yemen | 100.0 | 71 | 100.0 | 71 | 100.0 | 71 | 100.0 | 70 |
Note: Rank refers to where a particular country is relative to 75 other countries in the sample.
Source: Adapted from Pritchett (1991)
Capital Flows. Regional capital flows follow a pattern of movement from the capital–surplus oil exporters to the labor–surplus countries. Because of this pattern, the size of regional capital flows is closely tied to developments in the oil market. The evidence on capital flows, both official aid and private unrequited transfers (largely remittances), is presented in table 13.6. The size of regional capital flows tended to be greatest during the oil boom of the 1970s and fell considerably after the oil price collapse in 1986.
Three economies—Jordan, Yemen, and Egypt—emerge as highly dependent on regional capital flows, as shown in table 13.6. (Lebanon may also be highly dependent on regional capital flows, but the data are too poor to draw any conclusions.) For example, more than two–thirds of Jordan’s GDP came from regional transfers in 1979, about half of GDP came from Arab aid and one–fifth of GDP was remittances from Arab countries. In the case of Yemen, remittances have been between one–third and one–half of GDP since the 1970s. Egypt, like Jordan, also received substantial Arab aid until the Camp David accords in 1979 when Arab governments isolated Egypt both politically and economically. But private capital flows continued to grow rapidly and remittances emerged as Egypt’s major source of foreign exchange in the 1980s and 1990s.
Table 13.6 Intraregional Arab Capital Flows Official and Private, 1973–1987
a. Total official Arab assistance as a percentage of GNP of Arab and recipient countries, 1973–87
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1973 | 1974 | 1975 | 1976 | 1977 | 1978 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | Cum ulative |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Arab Middle East | 3.3 | 5.3 | 4.7 | 5.3 | 4.7 | 3.9 | 6.1 | 5.6 | 4.8 | 3.1 | 2.7 | 2 .1 | 1.8 | 1.7 | 1.1 | 3.3 |
| Bahrain | 6.1 | 20.1 | 20.2 | 39.6 | 10.9 | 7.4 | 10.1 | 5.3 | 4.6 | 3.4 | 7.3 | 7.0 | 3.6 | 4.8 | –0.1 | 5.9 |
| Iraq | 0.1 | 0.0 | 0.2 | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.7 | 0.5 | 0.1 | 0.1 | 0.1 | 0 | 0.1 |
| Jordan | 13.8 | 26.8 | 28.9 | 32.2 | 17.3 | 16.6 | 47.5 | 35.5 | 29.3 | 2 0.1 | 18.4 | 17.2 | 12.2 | 10.5 | 8.2 | 20.6 |
| Lebanon | 0.1 | 3.9 | 0.3 | 0.5 | 2.1 | 5.2 | 1.9 | 4.9 | 9.6 | 3.1 | 0.3 | 0.0 | 0.6 | 0.1 | 0.8 | 2.5 |
| Oman | 3.2 | 10.7 | 3.4 | 6.1 | 8.3 | 2.1 | 6.1 | 4.9 | 3.4 | 1.3 | 0.6 | 0.7 | 0.7 | 0.9 | –0.3 | 2.2 |
| Syria | 8.9 | 11.0 | 9.6 | 6.3 | 9.8 | 8.1 | 16.1 | 12.1 | 9.7 | 5.6 | 4.6 | 3.8 | 3.6 | 3.5 | 2.5 | 6.7 |
| Yemen Arab Republic | 3.2 | 12.8 | 15.9 | 17.1 | 12.8 | 10.6 | 6.1 | 10.4 | 8.8 | 5.3 | 4.5 | 4.0 | 3.5 | 2.6 | 1.8 | 6.2 |
| Yemen, P.D.R. | 4.3 | 9.2 | 15.2 | 35.6 | 22.2 | 9.5 | 4.6 | 9.1 | 3.9 | 14.1 | 3.5 | 5.3 | 4.9 | 0.1 | 4.7 | 8.1 |
| Arab Africa | 2.8 | 4.6 | 6.9 | 4.7 | 5.0 | 3.3 | 1.6 | 1.5 | 1.4 | 0.9 | 0.7 | 0.3 | 0.8 | 0.3 | 0.2 | 1.7 |
| Algeria | 0.8 | 0.1 | 0.7 | 0.1 | 0.9 | 0.2 | 0.1 | 0.1 | 0.1 | –0.5 | 0.0 | –0.1 | 0.1 | 0 | 0 | 0. 1 |
| Egypt | 7.4 | 14.5 | 22.6 | 11.9 | 11.5 | 9.9 | 1.2 | 0.0 | –0.1 | –0.1 | –0.3 | –0.1 | –0.1 | 0. 2 | 0.2 | 3 |
| Mauritania | 10.7 | 17.7 | 4.7 | 40. 5 | 21.1 | 30.1 | 13.2 | 22.7 | 15.4 | 16.7 | 10.3 | 9.9 | 10.9 | 8.4 | –0. 2 | 14.6 |
| Morocco | 0.0 | 0.2 | 1.2 | 1.2 | 5.3 | 2.3 | 1.8 | 3.8 | 6.4 | 4.1 | 1.1 | 0.6 | 4.6 | 0.6 | –0.2 | 2.4 |
| Somalia | 3.0 | 13.9 | 14.7 | 5.4 | 13.2 | 10.5 | 9.2 | 8.7 | 3.2 | 6.9 | 3.8 | 0.6 | 1.3 | –0.2 | 0.1 | 4.8 |
| Sudan | 0.6 | 6.9 | 4.6 | 6.9 | 3.2 | 2.2 | 5.5 | 4.4 | 2.4 | 2.8 | 5.9 | 1.3 | 3.5 | 2 | 1.8 | 3.4 |
| Tunisia | 0.2 | 0.6 | 1.4 | 1.6 | 1.9 | 0.8 | 1.6 | 1.2 | 0.8 | 0.6 | 0.2 | 0.9 | 0.5 | 0 | 0.7 | 0.8 |
| Total Aid Recipients | 2.9 | 4.9 | 6.0 | 4.9 | 4.9 | 3.6 | 3.5 | 3.2 | 2.8 | 1.9 | 1.6 | 1.1 | 1.2 | 0.9 | 0.6 | 2.3 |
Table 13.6 Intraregional Arab Capital Flows Official and Private, 1973–1987
b. Private unrequited transfers as a percentage of GNP of Arab and recipient countries, 1973–87
|
|
1973 | 1974 | 1975 | 1976 | 1977 | 1978 | 1979 | 1980 | 1981 | 1982 | 1983 | 1984 | 1985 | 1986 | 1987 | Cum ulative |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Arab Middle East | 3.3 | 5.3 | 4.7 | 5.3 | 4.7 | 3.9 | 6.1 | 5.6 | 4.8 | 3.1 | 2.7 | 2 .1 | 1.8 | 1.7 | 1.1 | 3.3 |
| Bahrain | 6.1 | 20.1 | 20.2 | 39.6 | 10.9 | 7.4 | 10.1 | 5.3 | 4.6 | 3.4 | 7.3 | 7.0 | 3.6 | 4.8 | -0.1 | 5.9 |
| Iraq | 0.1 | 0.0 | 0.2 | 0.0 | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.7 | 0.5 | 0.1 | 0.1 | 0.1 | 0 | 0.1 |
| Jordan | 13.8 | 26.8 | 28.9 | 32.2 | 17.3 | 16.6 | 47.5 | 35.5 | 29.3 | 2 0.1 | 18.4 | 17.2 | 12.2 | 10.5 | 8.2 | 20.6 |
| Lebanon | 0.1 | 3.9 | 0.3 | 0.5 | 2.1 | 5.2 | 1.9 | 4.9 | 9.6 | 3.1 | 0.3 | 0.0 | 0.6 | 0.1 | 0.8 | 2.5 |
| Oman | 3.2 | 10.7 | 3.4 | 6.1 | 8.3 | 2.1 | 6.1 | 4.9 | 3.4 | 1.3 | 0.6 | 0.7 | 0.7 | 0.9 | -0.3 | 2.2 |
| Syria | 8.9 | 11.0 | 9.6 | 6.3 | 9.8 | 8.1 | 16.1 | 12.1 | 9.7 | 5.6 | 4.6 | 3.8 | 3.6 | 3.5 | 2.5 | 6.7 |
| Yemen Arab Republic | 3.2 | 12.8 | 15.9 | 17.1 | 12.8 | 10.6 | 6.1 | 10.4 | 8.8 | 5.3 | 4.5 | 4.0 | 3.5 | 2.6 | 1.8 | 6.2 |
| Yemen, P.D.R. | 4.3 | 9.2 | 15.2 | 35.6 | 22.2 | 9.5 | 4.6 | 9.1 | 3.9 | 14.1 | 3.5 | 5.3 | 4.9 | 0.1 | 4.7 | 8.1 |
| Arab Africa | 2.8 | 4.6 | 6.9 | 4.7 | 5.0 | 3.3 | 1.6 | 1.5 | 1.4 | 0.9 | 0.7 | 0.3 | 0.8 | 0.3 | 0.2 | 1.7 |
| Algeria | 0.8 | 0.1 | 0.7 | 0.1 | 0.9 | 0.2 | 0.1 | 0.1 | 0.1 | -0.5 | 0.0 | -0.1 | 0.1 | 0 | 0 | 0.1 |
| Egypt | 7.4 | 14.5 | 22.6 | 11.9 | 11.5 | 9.9 | 1.2 | 0.0 | -0.1 | -0.1 | -0.3 | -0.1 | -0.1 | 0.2 | 0.2 | 3 |
| Mauritania | 10.7 | 17.7 | 4.7 | 40. 5 | 21.1 | 30.1 | 13.2 | 22.7 | 15.4 | 16.7 | 10.3 | 9.9 | 10.9 | 8.4 | -0.2 | 14.6 |
| Morocco | 0.0 | 0.2 | 1.2 | 1.2 | 5.3 | 2.3 | 1.8 | 3.8 | 6.4 | 4.1 | 1.1 | 0.6 | 4.6 | 0.6 | -0.2 | 2.4 |
| Somalia | 3.0 | 13.9 | 14.7 | 5.4 | 13.2 | 10.5 | 9.2 | 8.7 | 3.2 | 6.9 | 3.8 | 0.6 | 1.3 | -0.2 | 0.1 | 4.8 |
| Sudan | 0.6 | 6.9 | 4.6 | 6.9 | 3.2 | 2.2 | 5.5 | 4.4 | 2.4 | 2.8 | 5.9 | 1.3 | 3.5 | 2 | 1.8 | 3.4 |
| Tunisia | 0.2 | 0.6 | 1.4 | 1.6 | 1.9 | 0.8 | 1.6 | 1.2 | 0.8 | 0.6 | 0.2 | 0.9 | 0.5 | 0 | 0.7 | 0.8 |
| Total Aid Recipients | 2.9 | 4.9 | 6.0 | 4.9 | 4.9 | 3.6 | 3.5 | 3.2 | 2.8 | 1.9 | 1.6 | 1.1 | 1.2 | 0.9 | 0.6 | 2.3 |
Comprehensive data on other private capital flows, such as Arab investment in other Arab countries, are not available. Data from Egypt on the nationality of private investors under Law 43, the investment promotion legislation, give some indication of the importance of such flows. On average, Arab investors contributed one–half of all foreign investment in both inland and free zone projects under Law 43 between 1977 and 1989 (Isfahani 1990). The remaining foreign investment came from the European Union, the United States, and other countries. Arab investors were obviously the most important foreign investors in Egypt, but were fairly small compared to Egyptian investors who contributed more than 60 percent of total capital under Law 43 projects between 1977 and 1989. More importantly, the levels of private capital flows from the richer to the poor states in the region are a very small fraction of their total assets held abroad. This reflects the low expected return on regional investments because of risk and the economic policies of the poorer states in the region.
Remittance levels have far exceeded official aid in recent years. In 1987, private unrequited transfers were five times greater than intra–Arab official aid flows. This is largely the result of the reductions in aid after the collapse in oil prices in 1986. Remittances from labor migration are now the largest source of capital flows in the region.
Labor. Labor has been migrating in the Arab world for centuries, but the oil boom of the 1970s triggered a manifold increase in the scale of the phenomenon. In 1975, there were an estimated 1.6 million migrant workers in the labor–importing countries of Bahrain, Kuwait, Libya, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. About 1.1 million of those workers were of Arab origin (Serageldin et al. 1983). Projections by Serageldin et al (1983) indicated that the number of migrant workers would double to about 3.5 million by 1985. Subsequent estimates of the actual number of migrants in 1985 are closer to 8 million, implying a fivefold increase since 1975 (Klinov 1991). By the mid–1980s, migrants constituted more than 70 percent of the labor force in the Gulf economies.
It is difficult to assess the scale and composition of labor migration in the 1980s and 1990s because of the absence of comprehensive data. In earlier periods, major studies of migration were conducted by Birks and Sinclair in conjunction with the Economic Commission for West Africa conference on migration in the Arab world in 1981, and later by the World Bank project on Manpower and International Labor Migration in the Middle East in 1983. Since then, numerous national studies of emigration have become available, but no comprehensive data for the region is available for the 1980s and 1990s.
A recent survey of the available evidence on migration patterns during the 1980s found that, despite the collapse of oil prices and the recession in the region, aggregate migration levels did not fall, although there was a redistribution of labor across the region (Feiler 1991). Many of the migrant workers were in essential sectors and were retained despite the collapse in oil prices. Remittance levels did not decrease; in many labor–exporting countries they actually increased. The major change in the 1980s was the emergence of Iraq as a major labor importer. With much of its male labor force in uniform during its war with Iran, Iraq became especially important as a destination for Egyptian workers. There were at least 1.25 million Egyptian workers in Iraq alone. This Iraqi demand was particularly timely as the growth of labor demand in the Gulf slowed after the oil price collapse in 1986 and as Asian labor increasingly substituted for Arab labor there. About one in every three Egyptian migrants went to Iraq in the 1980s. There was also some increase in demand for low skilled Egyptian workers from Jordan, which was experiencing a construction boom fueled by the remittances of its own higher–skilled migrants in the Gulf.
Fears that Asian labor would supplant Arab labor during the 1980s appear to have been unwarranted in the aggregate. Although Asian labor is often paid less and is less politically threatening to labor–importing countries, the share of Arab labor has remained fairly stable since 1975 at about 55 percent. The explanation again lies in Iraq, which tended to import mainly Arab labor, particularly Egyptians. This demand from Iraq appears to have offset the rise in the share of Asian labor in the Gulf.
Political reasons as well as wage differentials have played an important role in determining both the level and the composition of labor migration. The level of migrant workers relative to the indigenous workforce has long preoccupied the governments of the labor–importing countries. The proportion of foreigners in the labor force during the 1980s was about 80 percent in Kuwait, 60 percent in Saudi Arabia, 70 percent in the United Arab Emirates, and 80 percent in Bahrain (Feiler 1991). The increasing importance of Asian labor was clearly a response to fears about long–term Arab migrants demanding greater political rights. Moreover, shifting political alliances in the region have affected whether Egyptian, Iranian, Jordanian, or Palestinian workers were welcome in the Gulf, Iraq, or Libya.
The Gulf War has also fundamentally altered migration patterns in the region. As a result of the war, about two million people—including more than two–thirds of Kuwait’s citizens and more than a million foreign workers—were displaced from Kuwait, Iraq, and Saudi Arabia (Russell 1992). Particularly hard hit were the Palestinian residents in the Gulf, most of whom fled to Jordan, and the 750,000 Yemeni workers expelled by Saudi Arabia in retaliation for their government’s support for Iraq during the war. After the war, migrant workers returned to Kuwait and numbered about 500,000 by early 1992 (Russell 1992). But the composition of migrant labor will change further: Arabs, particularly Palestinians, are likely to be a much smaller proportion of the Kuwaiti workforce as Asians are increasingly favored for jobs that do not require Arabic language skills. Migrants from countries that supported Iraq during the Gulf war (Palestinians, Jordanians, Yemenis, and Sudanese) are particularly unlikely to be offered job opportunities in the Gulf in the near term. In the case of Iraq, prewar migration levels are unlikely to be restored anytime in the near future, and the Egyptian government has begun to look toward Libya to absorb some of the country’s surplus labor.
Why This Pattern of Integration in the Middle East?
The pattern of regional integration that exists in the Middle East is quite unusual. In most parts of the world extensive trade in goods acts as the engine for regional integration. This was certainly the case with the European Union, East Asia, and the North American Free Trade Agreement. The extensive movement of goods across borders increases the benefits of coordinated policies on tariffs and non–tariff barriers as well as standards and other policies that govern economic relationships. Labor movement is usually the final, and often the most controversial, feature of regional integration.
In the Middle East, labor flows, and the remittances of capital associated with migration have been the most important feature of regional integration. The explanation lies in the extreme differences in factor endowments across the region and, perhaps more importantly, in the development policies adopted by both the labor–importing and –exporting countries.
The distinction between tradable and nontradable goods and services is crucial in explaining the role of factor endowments. Many of the oil–exporting, capital–surplus economies are characterized by structural labor shortages. In the case of tradable goods, these shortages are not problematic because local demand can be met through imports from world markets. In the case of nontradable goods and services, such as construction, education, health, government, and domestic services, there is no alternative but to import labor if local demand is to be met. Thus it is not surprising that the vast majority of migrant workers in the oil–exporting countries are employed in the nontradable sectors of the economy.
But why were the oil exporters not importing tradable goods from their neighbors? The explanation lies in the trade orientation of the region’s regimes described above. In general, the oil exporters adopted very outward–oriented trade policies in order to meet local demand for tradable goods through the world market. In contrast, the labor–surplus economies that could have been meeting the regional demand for food and manufactures adopted inward–oriented import substitution policies that discouraged the production of tradable goods. Because these import substitution policies tended to favor capital–intensive production (through interest rate subsidies, favorable tariffs on capital goods imports, overvalued exchange rates, and skewed public investment programs), unemployment and underemployment were persistent problems. Thus the migration of labor became a convenient mechanism for labor surplus economies to export their unemployment problems. Remittances were also important for the balance of payments, which was the Achilles heel of import substitution strategies that produced little that would generate foreign exchange from export markets.
Increased regional trade in goods was also undermined by the selective protection policies that made some tradable sectors de facto nontradables. Few regional migrants worked in the tradable sectors, but where they did, there were substantial inefficiencies. The case of Saudi Arabian agriculture, which was highly subsidized through a system of input subsidies and price supports to meet food self–sufficiency goals, provides an example of the disincentives to trade. The incentives provided by the Saudi government ensured that it was more advantageous for landowners to import labor to tend wheatfields in Saudi Arabia than it was to import Egyptian wheat, even though Saudi Arabian wheat cost five times the world market price to produce and that wheat was sold domestically for less than the world price for much of the period. Of course because of the low procurement prices offered to farmers in Egypt, there was no wheat for the country to export. The beneficiaries of Egypt’s food pricing policies were urban consumers, who were more likely to threaten the regime than a dispersed and disorganized peasantry. This convoluted set of incentives ensured that Egyptian farmers continued to migrate to produce, often less efficiently, in Saudi Arabia or in Iraq. Those who received rents from the status quo—urban wheat consumers in Egypt and rural landholders in Saudi Arabia—would oppose any moves to achieve a more economically rational distribution of production that might also result in greater regional trade.
In contrast, the obstacles to labor mobility were far fewer than those governing trade in goods. Most of the labor surplus economies in the region actively encouraged migration through a variety of mechanisms. In Egypt, emigration became a constitutional right in 1971, exit visas were abolished in 1973, and a Ministry of Emigrant Affairs was established to address the needs of Egyptians abroad. The officially tolerated "own exchange" market provided a channel through which remittances could enter the country at the parallel exchange rate. The government also exempted migrants from paying taxes on income earned abroad and abolished a law requiring migrants to transfer a minimum of 10 percent of earnings to Egypt at the overvalued official exchange rate (Ibrahim 1982). In Jordan, the government allowed migrants to postpone their military service until the age of 37 if they obtained a work permit from another country (Feiler 1991).
The policies of the labor importers were intended to reduce the long–run dependence on migrant labor, but were generally unsuccessful. A number of policies have been put into place to reduce the dependence on foreign workers, including the use of more capital–intensive technology, expenditures on training, requirements that nationals be in senior positions in all sectors of the economy, and, in some cases, encouraging women to enter the workforce. Despite these efforts, foreigners still constitute the vast majority of the labor force in these economies. Recognizing the limits of indigenous labor substitution, the oil economies also severely restrict the duration of a migrant worker’s stay through visas, work contracts, and other policies that prevent foreign workers from becoming permanent residents. These policies also insure that migrants do not become eligible for the benefits, such as housing, education, and health care, associated with nationality.
Because the obstacles to trade in goods have been greater than the obstacles to labor movements in the Middle East, labor has been the first, and most successful, element of regional economic integration. Labor mobility and its associated capital flows has been the most important mechanism through which the benefits of the oil windfall have been spread to the poorer states of the region. Labor migration has not been a substitute for regional trade where nontradable goods are concerned because there are few alternatives for meeting demand. In the case of tradable goods, sectors in which far fewer migrants are employed, the role of labor migration has been more complex. Those few migrants employed in the tradable sectors could have been more efficient producing at home and exporting to the oil economies. This was especially the case where there are strong externalities associated with domestic production, many of which are not exploited in the oil economies where labor turnover is rapid. But few of the labor–exporting countries were characterized by policy regimes that would have produced such tradable goods, so the migrant workers were generally better off being employed abroad than being unemployed at home.
Is this pattern of integration in the Arab world desirable? It is necessary to distinguish between private and social interests. Migration obviously benefits the individuals involved—migrants earn higher wages and their employers benefit from access to low–cost labor whose training costs they usually do not incur. At the societal level, the assessment is necessarily more complex. Labor–importing countries benefit from the production of migrants but they incur costs in terms of political and social stability as well as questions about the long–run sustainability of their dependence on foreign workers. Labor exporters benefit from less unemployment and from remittances, some of which is invested in the home economy, but often suffer from selective skill shortages and the loss of the external benefits associated with having workers producing domestically. Moreover, the evidence on whether migrants gain new skills abroad that enhance their human capital is mixed and depends very much on the relative skill content of their job at home versus abroad. In some countries, migration has had socially damaging effects—as in Sudan, where much of the scarce human capital of that country is working abroad. But for countries such as Egypt, Jordan, and Yemen, migration was, given the policy regime and the large labor surplus, a benefit to society.
Perhaps the most potentially damaging effect of migration for labor exporters is that it provides a safety valve enabling governments to postpone economic reforms that are more likely to create jobs at home over the long term. Unemployment in Egypt can be blamed in part on an import substitution strategy that failed to produce sufficient gains in labor productivity. In Jordan, which exports skilled labor while simultaneously importing unskilled labor, close integration with regional labor markets has been an effective policy, given the country’s endowment of human capital. But Jordan’s inability to adequately employ its skilled labor force reflects a low rate of investment, especially in the private sector, which is indicative of an incentive regime that does not promote capital formation. For Yemen, the existence of a high–wage neighbor with a large demand for imported labor has allowed the government to postpone needed reforms to promote labor–intensive growth. In effect, high levels of remittances have resulted in "Dutch disease" effects (whereby a commodity price boom results in a real appreciation of the exchange rate), with losses in competitiveness and disproportionate gains in the nontradable sectors.
Faini and Venturini (1993) have argued that protectionist policies in Europe, especially with respect to agriculture and textiles, will tend to increase migratory flows into Europe to achieve greater factor price equalization. Thus industrial countries cannot hope to succeed at restricting developing countries’ access to both their goods and labor markets. In the Middle East, an analogous argument can be made with respect to labor–exporting countries. Protectionist policies in labor–exporting, developing countries will tend to increase out–migration because insufficient jobs tend to be created at home. Since commodity trade and factor mobility are substitutes, Middle Eastern countries with fairly closed trade regimes will tend to have higher out–migration.
In general, labor migration has not been a substitute for greater regional trade because it has been concentrated in nontradable sectors. Given the existing policy regime of economics in the Middle East, immigration has also been somewhat of a stepping stone to greater regional integration by providing a mutually beneficial mechanism for sharing the oil wealth across the region, while taking advantage of underutilized human resources. The evidence on income distribution indicates that, contrary to the popular perception, incomes across the Middle East have become more equal. Figure 13.1 shows Lorenz curves for the region for 1970, 1981, and 1989 indicating that the distribution of income across the Middle East has moved toward the 45 degree line of equality. This tendency toward convergence of per capita incomes has held in years of oil booms (1981) and in periods of low oil prices (1970) and moderate oil prices (1989). The Lorenz curves say nothing about income distribution within countries, about which the data are very poor in the Middle East. Nevertheless, migration has obviously played an important and effective role in spreading the region’s wealth across countries.
Figure 13.1: Labor Migration–Stepping Stone or Substitute for Regional Integration?
But migration may not be the most desirable stepping stone toward integration. The macroeconomic policies of the Middle Eastern countries reduced the scope for greater integration of trade and investment flows. Greater trade in goods may be especially important for taking advantage of dynamic gains from greater competition and learning by doing. Migration may also be a weak stepping stone, especially when the political sensitivities of the oil economies as well as the substantial scope for substituting Arab labor with other nationalities are considered. It seems clear that, without efforts to solidify regional economic ties on the basis of efficiency and mutual self–interest, the integration that results from labor migration will remain an anomaly in an otherwise fragmented region.
Acknowledgment
An earlier version of this chapter was published in Ismail Sirageldin and Eqbal Al–Rahmani (eds.), Population and Development Transformations in the Arab World (London: Jai Press, 1996).
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