It’s well known that migrants are more likely to create a business than the native population, with this trend caused by a lack of awareness and opportunities to engage with the traditional labor market coupled with the insights that they bring from their homeland.
It’s perhaps no great surprise, therefore, that research from Bocconi University suggests that the movement of low-skilled workers to higher-income destinations can result in a surge in new business creation.
New business creation
The researchers examined migration across South and Southeast Asia between poorer and richer countries. They found that such is the impact of this form of migration on entrepreneurship rates, that policymakers should factor it in when striving to boost entrepreneurship in their countries.
The researchers examined data from migrants who had recently returned to rural and semi-urban areas in Bangladesh. The aim was to examine how this impacted investment and whether foreign earnings were used to support new business creation or merely for consumption.
The authors highlight that most low-skilled workers in the area work in either services or construction, where they have jobs before they depart, with the work arranged via agencies. The upfront costs associated with such work mean that many migrants take on loans to cover the costs involved, in the hope that the higher wages earned abroad will leave them better off in the long run.
Despite this approach appearing to reduce risks, there remain challenges involved, especially if wages aren’t as high as expected or the conditions are poor. While it can be a high-risk approach, the rewards can be substantial.
Large workforce
The scale of the migrant workforce can be significant. For instance, nearly 8 million Bangladeshis work abroad, with men representing nearly all of this workforce. A similar picture emerges in Egypt, India, Pakistan, and the Philippines.
The available data reveals that the median overall expenditure associated with migration is roughly equivalent to three years’ worth of earnings for a wage worker in Bangladesh, or over two years’ worth of household income. Consequently, a significant portion of migrants find it necessary to acquire loans to fund their migration endeavors.
However, this financial investment proves to be lucrative for many individuals. Astonishingly, they manage to recoup their initial outlay in slightly more than a year, despite the median duration of their stay being 4.7 years.
“A striking feature we see in our data is a strong movement into self-employment after return,” the researchers explain. “Prior to migration, the individuals in our sample have a self-employment rate of around 30%, similar to non-migrants, but it increases to over 60% after return. Many of these are small-scale entrepreneurs, such as shopkeepers or taxi drivers. Still, their earnings exceed those of dependently employed workers, many of whom are informal laborers in agriculture or construction.”
However, it remains a perplexing question as to why workers have the ability to secure loans to cover the expenses associated with emigration, while the same is not readily accessible for self-employment endeavors. Comparable to numerous economically disadvantaged nations, low-skilled Bangladeshis face significant constraints in accessing credit for entrepreneurial pursuits, further exacerbated by exorbitant interest rates.
Conversely, loans designated for migrants are considerably more attainable. Consequently, temporary international migration serves as a crucial catalyst along the path to self-employment. Notably, a significant proportion (approximately 50%) of the capital utilized for self-employment by returnees originates from savings accumulated during their overseas employment.
“Our paper reveals that migration and self-employment influence each other,” the authors conclude concluded. “For instance, the effect of a loan subsidy for self-employment would be strongly overestimated if migration was ignored. The study finds that cutting the lending rate for entrepreneurial loans in half would reduce the emigration rate by 5.4% and shorten migration durations by 6.4%. Hence the implied lower savings repatriation undercuts the intended positive effect of the subsidy on self-employment.”
