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Political impact of remittances

Posted in democracy, elections, labour, political economy, politics by jrahman on July 12, 2017

Along with the garments industry and the NGOs, there is a broad consensus that remittances have played a key role in Bangladesh’s economic development over the past decades.  Notwithstanding that broad consensus, the economic impact of remittances may be more nuanced than one might think, as I conjectured a long time ago:

Well, how about a stylised, and very speculative, story along this line — while RMG has meant women entering the formal workforce, migrant worker boom has sent a lot of risk-taking men overseas; aided by the NGOs and microcredit, households have smoothed consumption and invested in human capital of their children; but they have not invested in physical capital, avoided entrepreneurial activities, and have not pushed for a more investment-friendly polity.

We would want to explore this story further. We would also want to explore the income side of GDP, and tie it into a political economy analysis.

The remittance boom, for example, should see the labour share of the economy rise. Of course, the question is, what happens to the money that is remitted back? It’s reasonable to assume that unskilled labourers are from the poorer parts of the society. So, in the first instance, any remittance back to the villages is a good thing in that it reduces the direst type of poverty — that is it stops things like famine or malnutrition. But what happens after that? My tentative hunch is that a lot of remittance has been saved but not invested in a productive way, rather they ended up fuelling land/stock prices —this is an area that needs to be explored in detail.

Needless to say, I have not followed up on these questions.  But at least the economic impact of remittances is something people have thought about.  What about the political impacts?  That’s the question Shafiqur Rahman of Oregon University explores.*

Shafiq builds on work done by Abel Escriba-Folch (Pompeu), Covadonga Mesegur (LSE) and Joseph Wright (Penn State).**  These authors start out with making a distinction between non-democracies that are ‘dominant party-based’ where the incumbent party uses its power over state machinery to dole out patronage across a broad section of society to stay in power from other regimes that rely on a smaller coterie of ethnic or personality cult loyalists.  In these dominant party regimes, there are opposition parties that contest occasional if less-than-free/fair elections.  The authors’ conjecture is that remittances would weaken the incumbent’s grip on power in such regimes through three channels: by reducing the people’s dependence on state patronage; by providing funds for opposition politicians; and through social networks (not necessarily of the digital kind) that popularise opposition ideologies.  Their detailed econometric analysis of regime changes across 91 countries over the past four decades, they do find statistically significant evidence that remittances support democratisation in dominant-party regimes.

Shafiq explores whether this result holds in today’s Bangladesh, which can be characterised as a dominant party-regime.  Specifically, using the data from the first three (of five — the latter two being heavily rigged) rounds of the 2014 upazilla elections, he test the hypothesis:  Local government elections in Bangladesh will show higher turnover of incumbent party in areas with higher emigration and higher remittance income when controlled for party preference, income, unemployment rate and education level.

He does find some evidence supporting this hypothesis — that is, remittance might be fuelling anti-incumbency sentiment, at least at the local level.  But the evidence is not robust.  I guess one way Shafiq’s analysis can be extended is by including the municipal and city council elections of the past few years, many of which (though by no means all) are considered to have been relatively free.

More generally, it is exciting to see solid empirical, fact-based analysis of matters related to Bangladesh — the author must be commended for that.

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*Does remittance affect local democracy in developing countries?  Evidence form local elections in Bangladesh.  Working paper.  March 2017.

Recent Political Economy studies have found evidences that higher level of international immigration and remittance income have causal effects in local democracy of the sending country. Political theorists have said that positive effects of remittance in democratization should be more pronounced in countries with ‘dominant party’ regimes. Outward emigration and remittance income have become two of the main drivers of socio-economic change in Bangladesh in the last few decades. We argue that monopolization of state resources and practice of widespread clientelism by the ruling party, have made Bangladeshi regimes analogous to the dominant party paradigm and thus amenable to the democratizing effects of emigration and remittance. Using the elections results of the first three phases of 2014 Upzila Elections, we ran Probit Regressions to estimate the probable effects of emigration and remittance on anti-incumbency of Upzila electorates. We found that, controlling for party preference, an upward increase in quartile rank of emigration and remittance level increases the probability of incumbent turnover. The effect remains same but less significant when additional control of poverty level and educational attainment are introduced.

**Remittances and democratisation, International Studies Quarterly, 2015.

Do remittances stabilize autocracies? Remittances—money sent by foreign workers to individuals in their home country—differ from other sources of external non-tax revenue, such as foreign aid, because they accrue directly to individuals and thus raise the incomes of households. We argue that remittances increase the likelihood of democratic transition by undermining electoral support for autocratic incumbents in party-based regimes. Remittances therefore make voters less dependent on state transfers. As a result, autocracies that rely heavily on the broad-based distribution of spoils for their survival, namely party-based regimes, should prove especially vulnerable to increases in remittances. Evidence consistent with this argument suggests that remittances promote democratization in some dictatorships.

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