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It has been said that Greece's comparative advantage lies in 'exporting its people': for centuries, propelled by better opportunities abroad and limited resources at home, Greeks have scattered throughout the world. The signing of the Treaty of Rome in 1957 and the association agreement of Greece with the European Common Market marked the beginning of a new era, with the gradual dismantling of tariff barriers and the expansion of intra-European trade. Migration to Europe rose abruptly from 29% of total migration to 57% between 1959 and 1960 and remained in the 60-70% range up to 1972. The major destination of Greek emigrants has been West Germany, to which one million Greeks (11.5% of Greece's 1971 population) emigrated between 1960 and 1984. 150,000 of these emigrants returned home in the same period, so for many, emigration was temporary. The causes and policy implications of such large-scale labour movements between the North and South of Europe are not adequately understood. In Discussion Paper No. 148, Research Fellow Louka Katseli and Nicholas Glytsos analyse the processes of emigration and repatriation as a series of interdependent decisions taken before emigration: when and where to emigrate, the desired length of stay abroad, the allocation of savings between the home and host country, and when or whether to return home. The desired length of emigration depends on the probability of employment abroad and migrants' expectations concerning the additional savings possible while abroad. The expected flow of remittances is determined by expected saving, family commitments at home, interest rates in both countries, the rate of inflation and the expected depreciation of the home currency. Katseli and Glytsos argue that emigration and repatriation are best understood as phases of an intertemporal exchange of a factor of production which is relatively abundant in Greece, namely unskilled labour, for a relatively scarce factor, capital. In other words, Greece exports unskilled labour and receives in return a stream of capital inflows, initially as emigrants' financial remittances, and at the time of repatriation as human capital, in the form of emigrants' enchanced labour skills. Empirical analysis of data for the period 1961-83 supports the authors' conjecture that the probability of emigration is positively associated with the present-value of the expected income differential between the two countries and the probability of employment abroad. Remittances per migrant are positively related to income per capita in Germany and negatively related to income and the real interest rate in Greece. The results also suggest, however, that increases in the German interest rate lead to increased remittances. This is because, although higher German interest rates make it more attractive to hold funds in German deposit accounts, this is outweighed by the increased wealth of immigrant deposit holders, who thus tend to remit more money to Greece. The intertemporal nature of the emigration-repatriation cycle highlights the need for forward-looking policies. Katseli and Glytsos argue that in the 1960s and 1970s, Greek policy should have been designed with the current period of net immigration and reduced remittances in mind. Theoretical and Empirical Determinants of International Labour Mobility: A Greek-German Perspective Louka Katseli and Nicholas Glytsos Discussion Paper No. 148, December 1986 (HR/IT) |