Migration into resource-rich Gulf economies

Halvor Mehlum and Gry Østenstad, University of Oslo

The Gulf countries have the highest proportion of migrant workers in the world. The immigrants send a large amount if remittances back home, ranking the Gulf countries in the world top of remittance-sending countries. The 4 mill Indians in the Gulf, for example, remit some 20 b USD pr year. This labour inflow combined with forex outflow has major implications for the labor markets and the economy in general in the Gulf economies.

Our main concern is the political economy of migration policies. We focus on two policy dimensions: a) the number of migrants allowed into the country and b) the degree of assimilation and thus the amount of remittances. We discuss how the migration policy depends on the structure of the economy and on the political influence of various groups. We develop a two goods macro model with traded and non-traded goods with two types of individuals, citizens and migrants. Citizens earn income from wages, profits and oil rents and spend their income on traded and non-traded goods domestically. Migrants earn wage income and spend some of it domestically and remit the rest.

The first and obvious effect of migration is that wages drop, hence citizens depending solely on wages will lose. Profit earners and oil rent earners will benefit as the price of non-traded goods drop. The effect of migrant workers’ remittances is that the value of a given forex rent increases when forex of it is remitted out of the economy.

This is to the benefit of oil rent earners. Profit earners and wage earners, however, lose from more remittances. These conflicts of interest between the various groups have several implications. Hence, the migration policy will go in the direction of a large number of guest workers with strong ties to their country of origin (high remittances) if the oil rent earners, e.g. sheiks, dominate the policy. The policy will go in the direction of large number of guest workers with weak ties (low remittances) if the profit earners, e.g. bourgeoisie, dominates.

The policy will go in the direction of few migrants if workers dominate the policy.

These results may explain the differences in migration policy between different Gulf economies, in particular depending on the sharing of oil rents and on political influence of the working class. The results also contain predictions with regards to expected policy changes if and when the Gulf economies go in more democratic directions. If democratization implies that citizens workers get to decide migrants may be expelled. If democratization implies equal sharing of oil rents, however, migrants may be invited in even larger numbers. Lastly, if democratization implies that the bourgeoisie middleclass will be the dominating group then migrants may be invited to settle down, lowering remittances and stimulating the domestic economy. Democratization of the Gulf economies will therefore most likely have important effects for migrant sending countries like India. It is however, not obvious what the effects will be. In one scenario immigrant works will be returning home, in another immigrants will be assimilated in the Gulf economies. It all depends on what “democratization” in fact will mean for distribution and political voice in the Gulf economies.

Halvor Mehlum is professor at Department of Economics, University of Oslo.
Gry Østenstad is research fellow at Department of Economics, University of Oslo.