The return of Yugoslavian refugees from Germany in the 1990s explains the stronger performance of exports to the rest of the world in industries where they were employed while abroad
In his book, The elusive quest for growth, Bill Easterly (2001) tells the fascinating story behind the emergence and rapid growth of the garment industry in Bangladesh (see also Rhee and Belot 1990). Between 1980 and 1986, the share of garments in Bangladesh’s total exports rose from 0.5% to 28.3%. The unprecedented take-off of the garment export sector is often attributed to 130 Bangladeshi workers, only four of whom were in management positions, who spent eight months in 1979 working and being trained in South Korea as part of an agreement between their company, Desh of Bangladesh, and the South Korean firm Daewoo. The knowhow acquired by these workers seems to have been crucial in making Desh a highly successful exporter firm. Yet, perhaps more importantly, such knowhow eventually spilled over as workers moved to other firms or created new ones, contributing to the massive success of garment exports.
Beyond the effect of migration on labour markets: A new angle on gains from migration
While most of the economic debate on immigration has focused on its short-term labour market and fiscal effects, only recently has an increasing amount of attention been given to other growth-enhancing outcomes of migration. In our recent work (Bahar et al. 2019), we explore a novel angle exploring gains from migration: the role that returning migrants play in shaping industrial development and more generally contributing to the development of their home country.
Our study focuses on the early 1990s, when about 700,000 citizens of the former Yugoslavia fled to Germany to escape war. Most of the Yugoslavian migrants in the first half of the 1990s were given a temporary legal status, known as Duldung (German for “toleration”), which allowed them to stay and work in Germany. Duldung status was valid for six months, and was automatically renewed as long as war was ongoing. In 1995 the Dayton peace agreements were signed, putting an end to the war in the former Yugoslavia. This led to Germany halting the renewing of the Duldung status of the Yugoslavian refugees, starting an enforced repatriation process. By 2000, the majority of Yugoslavian refugees had been repatriated back to their home country or to other territories of the dissolved Yugoslavia.
Figure 1 shows how the number of Yugoslavians changed during this episode. The stock of Yugoslavians in Germany, which was stable until the late 1980s, started to grow at a rate of 25,000 per year, until the year 1990. This rate skyrocketed to 168,000, 250,000, and 165,000 during 1991, 1992, and 1993, respectively. The sharp increase in the net inflow of migrants was fuelled by refugees escaping war. We also see a sharp increase in asylum requests from Yugoslavian citizens during the same years. After the Dayton treaty was signed, the number of Yugoslavians in Germany sharply declines starting in 1996. By 2000 close to 350,000 Yugoslavians had left the country. While some of them left to a third country, it has been estimated that the majority of them returned to countries of the (by then) former Yugoslavia.
Figure 1 Stock and net inflow of Yugoslavian refugees into Germany
Within this context, our study uses confidential administrative social security data from Germany that allow us to identify Yugoslavian refugees who had arrived to Germany during the Balkan refugee crisis and returned home after the war following 1995. In particular, we compute the number of these refugees who had worked in each one of the almost 800 four-digit tradable industries in Germany during that period (our ‘treatment’). We link this information to industry-level Yugoslavian export data. We estimate changes in export values from Yugoslavian countries to the rest of the world as a result of returning refugees who were employed in those same sectors in Germany.
Returning refugees develop new and existing industries that export to the rest of the world
The main result of our paper is summarised in Figure 2 which visualises and compares industries with and without returning refugees in every five-year period before and after their return, which happens between 1995 to 2000. The upper panel shows the evolution of the expected value of exports by five-year periods for ‘treated’ and ‘untreated’ industries (i.e. industries with significant returning refugees versus industries with none, respectively). The lower panel shows the mean difference between these two categories. It can be seen how the effect becomes positive and statistically significant starting in the period where the refugees start returning, 1995 to 1999. Note that before their return, there is no differential pattern between those industries with and without returning refugees.
Our main analytical results indicate that industries with a 10% higher number of returning workers have a larger level of exports to the rest of the world from 0.8% to 2.4% between the pre and post-war periods. As shown in Figure 2, these positive effects remain stable and keep increasing as time goes by.
Figure 2 Event study (five-year periods)
Our study rules out many explanations that could be driving the results, such as convergence, the inflow of investment linked to migration, or a decrease in information costs linked to international trade due to migrant networks. We also focus on the specific case of Bosnia, for which we are able to investigate economic outcomes beyond exports. We find that Bosnian refugees explain more firms and employment in the same sectors where they worked while in Germany.
Who are the refugees driving improved export performance?
In order to grasp a better understanding of the mechanisms of the documented patterns, we exploit characteristics of the returning refugees in terms of their wages, skills and occupations, as well as characteristics of their employers. Figure 3 summarises our results presenting the estimated marginal effect of one additional returning refugee on exports, by type of migrant. The first bar replicates the main results using the total number of returnees per industry, for comparison purposes, while other bars present marginal effects for each type of worker.
The marginal effect of each €1,000 in salary for a worker is large and statistically significant (wageKsm1). The figure also shows that the marginal effect for workers with higher educational attainment (eduhig) is infinitely larger than for those with low educational attainment. Similarly, workers in occupations intensive in analytical tasks (taskanalytical) are about 23 times more ‘effective’ than those in occupations intensive in manual tasks. Workers in occupations that are considered skilled (bf2highskill) are about 35 times more effective than those in occupations considered unskilled. Workers who were employed by the top 25% paying firms are, similarly to the educational attainment category, infinitely more effective than those who worked in the bottom 75%.
All in all, these results suggest that the size of the effect we document depends on who the workers are in terms of their skills, the characteristics of occupations, as well as who they worked for and how successful in their jobs they were while abroad.
These characteristics, common to managerial roles, make our results consistent with the growing literature emphasising the role of management as a crucial determinant of productivity (e.g. Bloom et al. 2013, 2018, Bloom and Van Reenen 2007, Bloom et al. 2012).
Figure 3 Marginal effect by type of migrant
Policy implications: The importance of integrating refugees while in exile
Given that productivity is an underlying determinant of exports, we interpret these results as supporting the idea of migrants being drivers of knowhow and technology transfers between countries. This interpretation is backed by the fact that our results are particularly driven by industries that are knowledge intensive. They are also stronger when returnees are skilled and in occupations intensive in analytical and cognitive tasks.
A lesson to draw from our results is the importance of integrating refugees in their host economies’ labour markets, as this can really play a significant role in the post-conflict reconstruction of their home countries upon their return.
Bahar, D, A Hauptmann, C Özgüzel and H Rapoport (2019), “Migration and post-conflict reconstruction: The effect of returning refugees on export performance in the former Yugoslavia”, IZA Discussion Paper Series (12412).
Bloom, N, B Eifert, A Mahajan, D McKenzie, J Roberts (2013), “Does managment matter? Evidence from India”, The Quarterly Journal of Economics, 128(1): 1–51.
Bloom, N, K Manova, J Van Reenen, S Sun, Z Yu (2018), “Managing trade: Evidence from China and the US”, NBER Working Paper Series.
Bloom, N and J Van Reenen (2007), “Measuring and explaining management practices across firms and countries”, Quarterly Journal of Economics CXXII(November): 1351–1408.
Bloom, N, R Sadun and J Van Reenen (2012), “Americans do it better: US multinationals and the productivity miracle”, American Economic Review, 102(1): 167–201.
Easterly, W (2001), The elusive quest for growth, MIT Press
Rhee, Y and T Belot (1990), Export catalysts in low-income countries, The World Bank.