Can countries grow richer by exporting people, not goods?

MOST OF THE oil in Kerala is pressed from coconuts. Yet the southern Indian state, famed for idyllic backwaters, fragrant cuisine and an easy-going lifestyle, owes much of its prosperity to barrels of the foul-smelling crude that comes bubbling out of the ground in the Persian Gulf and, normally, is shipped through the Strait of Hormuz. Ever since the Middle East oil boom began half a century ago Keralites have been heading there to work, first as cleaners and construction workers, then as clerks, nurses and salespeople. An estimated 1.7m of them live in the Gulf, equal to 5% of the state’s population and close to 11% of its workforce.

Gulf oil money has transformed Kerala. K.P. Kannan and K.S. Hari of the Centre for Development Studies, an Indian think-tank, calculate that by the mid-2010s remittances from the region were equivalent to about a quarter of the state’s output, and more than both its value added in manufacturing and its public spending. This has lifted living standards. Consumption per person is nearly three-quarters above the Indian average. Multidimensional poverty, an Indian measure of destitution, afflicts around one in ten Indians but is virtually absent in Kerala.

Some economists argue that growing rich by industrialising and exporting industry’s products is harder nowadays than when Europe, Japan, South Korea and, most recently, China pulled it off. For countries like India, seizing a greater export market for manufactured wares in a world already awash with them requires shoving someone else out of the way. When that someone else is China, good luck with that. Could exporting people rather than goods, as Kerala does, provide an alternative path to prosperity?

Many poor places rely on emigrants. The World Bank estimates that remittances they send back home account for over a fifth of national income in Honduras, Lebanon, Nepal and Tajikistan. In low- and middle-income countries as a whole, they make up a third of all capital inflows. In Nepal they may have cut poverty rates by 40% between 2001 and 2011. In Mexico they have reduced infant mortality. Remittances’ effect on economic growth, however, is less clear-cut. One study in 2013 of African, Asian and Latin American migrant-sending countries found that a permanent 10% increase in remittances per citizen was associated with a rise of 0.13% in GDP per person. More recent research from 2022 suggested an only slightly less modest effect of 0.66%.

In a new paper Charles Kenny of the Centre for Global Development, a think-tank in Washington, finds virtually no relationship between the size of a country’s diaspora and its growth in GDP per person. Emigration can, after all, be both the result of weak growth, which pushes people to leave in the first place, and the cause of economic acceleration. Mr Kenny still believes emigrants can, in some circumstances, be an economic stimulant. Everything depends on the nature of emigration’s spillover effects. These can be positive if they raise average human capital in the sending country and this is harnessed domestically. They can also perpetuate the very problems that lead people to leave.