Globalization and International Development: Critical Issues of the 21st Century

Ch 3 - International Migration, Remittances, and Economic Development

37 3 International Migration, Remittances, and Economic Development Susan Pozo Western Michigan University Ask almost anyone today whether we live in a more globalized economy and you will likely hear, “Of course we do, the world is ‘smaller’ today than a century ago.” While I agree that countries interact much more than in the past, many do not appreciate the history of that process, tending to characterize the increased globalization through trade, finance, and migration as novel. I begin this chapter by discussing economic history for a number of countries, over different time periods, and concerning different facets of globalization. My goal is to convey three basic points concerning the world economy . The first is that globalization—sometimes referred to as economic integration—is not so new. If we look more carefully at the evidence surrounding us we find that the intermingling of people located in different corners of the globe along with their economic interactions is not unique to the present period. People and goods have crisscrossed the globe for centuries, leaving behind changes in commerce, technology, culture, and know-how. The second point is that while the globalization process has been taking place for some time, it does in several respects manifest itself differently today. Facets of globalization and economic integration that we observe today do differ in important ways from what we observed in the past. These differences are due in part to dramatic technological advances that have taken place with respect to transportation and communication . These advances have drastically reduced prices and have expanded in many dimensions the modes that can be availed of to transport people, goods, and information. 38 Pozo The third point is with respect to globalization’s impact on economic development. While it is often claimed that globalization disadvantages the less fortunate, causing labor dislocations and increasing income disparities around the globe, it is also the case that globalization through migration can be a powerful force with the potential to significantly improve the lot for out-migration communities in many areas of the globe (Goldberg and Pavcnik 2007). It is this facet of globalization —the spread of international migration—upon which this chapter ultimately focuses. GLOBALIzATION Is NOT sO NEW Countries interact with each other in a number of ways—through trade in goods and services, by borrowing and lending financial assets, and by migration. While this chapter focuses on international migration as it relates to globalization and economic development, it begins with a detour into more familiar and established territory for most readers. I first present data on globalization as measured by the share of international trade in GDP—an openness index. This particular index or one of its close variants is what researchers usually cite when making the case that the world is much more integrated today, that economies today interact substantially more with each other relative to the past. The notion that globalization is of recent vintage probably originates from the analysis of an openness index relative to its value 50 or 60 years ago. For example, take the case of the United States. Figure 3.1 shows the ratio of U.S. international trade flows (U.S. exports plus U.S. imports) to U.S. national income (GDP) since 1945. The graph clearly suggests that international trade (as a share of GDP) was relatively level to 1970 and then consistently grew. Diagrams such as the one plotted in Figure 3.1 are the basis of the general perception that the U.S. economy was fairly closed economically with respect to the rest of the world until fairly recently. By contrast, an examination of Figure 3.2, where this same series is plotted from 1870 to the present, provides us with an entirely different impression. What emerges from this broader timeline of U.S. economic history is that today’s relatively high fraction of trade in U.S. GDP is International Migration, Remittances, and Economic Development 39 neither unique nor new. In 1916 merchandise trade as a share of GDP was 19.7 percent, exceeding the 18.9 percent share observed in 2001. The plot suggests that the argument that globalization is new is generally derived from an examination of data since World War II. But if we instead peer further back, a totally different picture emerges. We observe relatively low trade flows during and surrounding the interwar period (World War I through World War II). The...