The Persian Gulf War focused world attention on the thousands of international workers employed in oil-producing Middle Eastern countries. This crisis also underscored the importance of international remittances--wages and goods sent home by migrants--to the economies of many developing countries. International migration and remittances are particularly important in Egypt, the largest labor-exporting country in the Middle East. In Egypt, official remittances rose from only US$110 million in 1972 to about US$3.5 billion by 1988 (Figure 1). Although recent events have caused a temporary decline in the level of remittances to Egypt, it seems likely that these resource flows will remain a key part of the Egyptian economy for years to come.

Despite their importance, there has been little analysis and even less agreement about the effects of international remittances on the economies of labor-exporting countries. Do households with migrant workers "squander" the money earned abroad on newly desired consumer goods? Are remittances largely earned by the sons of already well-to-do households? Do remittances increase the degree of income inequality between richer and poorer rural households?

In The Effects of International Remittances on Poverty, Inequality, and Development in Plural Egypt, Research Report 86, Richard H. Adams, Jr., examines these issues from the standpoint of a small area of rural Egypt. Adams uses income data from households with and without migrants to determine the effects of remittances on poverty, income distribution, and rural development. The study is based on a survey of 1,000 households conducted in 1 986/87 in three villages in Minya Governorate, a province about 250 kilometers south of Cairo. In a second round of the survey, 150 selected households were interviewed about their spending behavior. Although the research is based on rural Egypt, its findings are relevant for policymakers in other labor-exporting countries.

The rate of international migration in the survey area is high: 339 out of 1,000 surveyed households sent someone to work abroad during 1976-86. Of these households, 235 had a migrant who had returned to Egypt and 104 had a migrant who was still working abroad. Most of the migrants from the surveyed villages went to a neighboring Arab oil-producing country. Seventy-four percent went to Iraq and the rest to Kuwait, Libya, or Saudi Arabia. All of the migrants in the survey were male because cultural considerations in the survey area tend to restrict women from seeking work abroad.

Migration theory hypothesizes that those workers with more education and skills are more likely to migrate. However, 64 percent of the migrants in this survey are peasant farmers or agricultural laborers with little or no education. Of all the occupational groups examined, only one--agricultural laborers--produced a disproportionately high share of migrants. Since agricultural laborers tend to be among the least educated, this finding suggests that education and migration may actually be inversely related in rural Egypt.

In this report, international remittances (which exclude the cost of travel and basic subsistence abroad) account for a substantial share of the incomes of the surveyed households: 12.5 percent of total actual gross income of the 1,000 households surveyed and 30.4 percent of gross total income of the 339 migrant households.

The households are divided into three groups: nonmigrant, once-abroad migrant, and still-abroad migrant. To determine the effects of remittances, the incomes of nonmigrant households are used to estimate (predict) what the incomes of the migrant households would have been if they had not sent a worker abroad.

International remittances are shown to have a small but positive effect on poverty. The number of households living in poverty declined by 9.8 percent when predicted per capita household income (estimated household income divided by the number of household members) included remittances. Remittances accounted for 14.7 percent of the total predicted per capita income of the poor households.

The number of poor households who received international remittances at the time of the survey was small but proportionate. Twenty-eight of 268 households (10.4 percent) classified as poor, based on income before migration, actually received remittances. For the sample as a whole, 104 of 1 ,000 households (10.4 percent) received remittances. That poor households produced exactly their proportionate share of migrants shows that--contrary to general wisdom--poor households do participate in international migration.

Although remittances were helpful in alleviating poverty, paradoxically they also contributed to inequality in the distribution of income. Whereas the lowest income group produced its proportionate share of still-abroad migrants, the second and third income groups had fewer than their share. Moreover, the two highest income groups had more than their share of still-abroad migrants (Figure 2). The data do not indicate that upper-income migrants earned more abroad or stayed abroad longer. Nor did they send a larger share of their earnings home. There were simply more of them. Among the migrants who had already been abroad and returned, however, there were just as many from poor and lower-middle-income households as from households in the upper-income groups. Although the study does not investigate the reasons for these changes in the distribution of migrants, they probably reflect the shifting pattern of demand for labor in the host countries. The longer it takes migrants to find jobs, the more difficult it is for low-income migrants to absorb the costs of international migration.

To evaluate the economic uses of international remittances, the study compares the expenditure patterns of 75 once-abroad migrant households and 75 nonmigrant households. It divides their expenditure and income into three categories: consumption, durables, and investments. Contrary to popular belief, once-abroad migrants do not devote large shares of their remittance earnings to personal consumption (food, clothing, school, medical, pilgrimage, and marriage expenses). Of each additional dollar spent, the data show that once-abroad migrant households spent a smaller share on consumption than did nonmigrant (Figure 3). This suggests that migrant households view their remittance earnings as a temporary stream of income as a one-time opportunity to make long-term investments as opposed to spending on immediate consumption needs.

Once-abroad migrant households in this study spent most of their remittance earnings on housing: 54 percent of actual remittance expenditures on nonrecurring items went to the construction or repair of houses. When expenditures are divided into the three groups, expenditures on housing dominate the category of durables. Rural Egyptians appear to be strongly motivated to replace traditional mud houses with modern red-brick structures.

Once-abroad migrant households in this study also show a higher propensity than nonmigrants to allocate expenditure to investments such as agricultural equipment, vehicles, commercial enterprises (stores), and especially land. This finding contradicts the widespread belief that migrants do not invest their remittance earnings. The expenditure data indicate that the marginal budget shares devoted to investment of once-abroad migrant income groups are consistently higher than those of nonmigrant groups. Approximately 73 percent of total per capita expenditure on investment by once-abroad migrant households went to the purchase of land for farming or building. From the standpoint of the individual migrant, land represents a good investment because its value tends to increase at a rate exceeding that of inflation.

The findings of this study raise two important policy issues. First, since the poor do participate in international migration and international remittances do help alleviate poverty, policymakers may wish to encourage migration of the poor by taking steps such as organizing groups of unskilled migrants and opening offices to provide information about international work opportunities.

The second issue stems from the finding that rural Egyptian migrants do invest a part of their remittance earnings. If the governments of labor exporting countries wish to channel the flow of international remittances into rural investments other than land, they should make sure that private rates of return on key agricultural crops are favorable. Under such conditions, peasant migrants are likely to invest a larger share of their remittances in elements of the new agricultural technology, such as high-yielding seeds, fertilizers, and agricultural equipment.

Investment of remittances in agriculture may well stimulate other sectors of the rural, nonfarm economy. As the incomes of peasant farmers rise, they will probably spend more on health, service, and transport activities. The expansion of these and similar locally based activities could provide a broad economic stimulus for developing the rural economies of Egypt and other labor-exporting countries from the local level up.

In the long run, the flow of international migrants from rural areas of countries such as Egypt is unlikely to slow. In the aftermath of the Persian Gulf War, Iraq and Kuwait will require large numbers of migrant workers to rebuild their countries. Consequently, policymakers must meet the challenge of identifying and implementing policy instruments that make more productive use of remittances.

The full report is available for download in PDF format as an entire document or by chapter.

• Table of Contents, Tables, Foreword, and Acknowledgements
  (PDF 166K)
  
  
• Chapter 1: Summary
  (PDF 113K)
  
  
• Chapter 2: Research Issues, Approach and Methodology
  (PDF 223K)
  
  
• Chapter 3: Who Goes to Work Abroad
  (PDF 595K)
  
  
• Chapter 4: International Remittances and Income Inequality
  (PDF 332K)
  
  
• Chapter 5: International Migration, Remittances, and the Poor
  (PDF 375K)
  
  
• Chapter 6: The Economic Uses of International Remittances
  (PDF 738K)
  
  
• Chapter 7: Conclusions and Policy Recommendations
  (PDF 160K)
  
  
• Appendix: Returns to Education in Rural Egypt
  (PDF 212K)
  
  
• Bibliography
  (PDF 177K)
  
  
• List of Recent Research Reports
  (PDF 90K)