In pursuit of successful diaspora policies: Baltic initiatives and experiences from other sending countries

The ambiguous potential of remittances

Migration economics teaches that emigration can in time result in economic and social development in sending countries, partly thanks to remittances sent back by emigrants. Remittances have the potential to increase overall income and maybe even improve living standards (e.g. better education, health care) (De Haas, 2007). This economic and social development may eventually lead to declining population outflows.

A key question is whether or not emigration from the Baltic States leads to increasing remittance flows and thus contributes to economic development and social improvement. All three Baltic States actively try to strengthen ties with their emigrants by developing various policies, in order to “to mobilise the financial resources and human capital of the diaspora” (OECD, 2012). Baltic governments try to maximise the potential positive effects of emigration. According to the OECD (2012), remittances have indeed grown into a substantial source of gross domestic income over the last decade. In Lithuania for example, remittance flows now account for over USD 3 billions (which is almost 5%) of Lithuania’s gross domestic product (GDP). In Estonia and Latvia remittance flows have also grown substantially over the past ten years, and currently amount to 2% and 3% of GDP, respectively. In times of economic crisis, remittances have the potential to partly compensate for the loss of GDP, as in the case of Latvia (cf. Chapter 4).The magnitude of these capital flows as well as their economic and social impact, remain ambiguous, however. The aggregate numbers do not tell us where exactly the remittances are flowing to, how they are invested or how they contribute to national development. De Haas (2007) states that: “Notwithstanding their often considerable blessings for individuals, households and communities, migration and remittances are no panacea for solving more structural development problems.” Consequently, emigration from, and remittances to Baltic States are both strategies to overcome unfavourable economic conditions in the migrants’ country of origin. No doubt, remittances have the potential to grant individuals and households a stable income in times of economic misery. The challenge for the governments of the Baltic States is to channel remittances and mobilise the financial resources of the diaspora for the sake of national development.

So-called “diaspora bonds” are one useful response (Handjiski, 2012). The issuance of these bonds enables countries to tap into the savings of emigrants as a stable and relatively cheap source of finance for structural investments. Baltic States may be able to channel remittances and savings and mobilise the financial resources of the diaspora. The experiences of India and Israel, countries which have raised USD 35-40 billion using these bonds (Ketkar and Ratha, 2007), may be useful.

As long as the political and economic conditions in sending countries remain unfavourable, policies to channel remittances will be difficult to develop. Remittances are in fact a strategy to overcome these unfavourable conditions, which is why individuals tend to support their own family members, rather than invest. The chapters which follow in this publication underline that until governments succeed in improving social and economic conditions, remittances will most likely not be allocated to investment in the Baltic States.

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