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The economic impact of inbound and outbound labor migration: the case of Jordan (1970-2006)
Ihab Khaled Magableh
Talal Abu Ghazaleh College of Business, The German Jordan University, Amman, Jordan

Inbound and outbound labor 53

Received June 2008 Accepted March 2009

Abdel Baset Athamneh

Faculty of Business, The University of Jordan, Amman, Jordan, and

Maher Almahrouq
Department of Economics, Hashemite University, Zarqa, Jordan
Abstract
Purpose The purpose of this paper is to examine the impact of inbound and outbound labor migration on the Jordanian economy. Design/methodology/approach Using a qualitative analysis subsidized by two econometric models, foreign labor and their remittances and the Jordanian labor abroad and their remittances are examined for their impact on main macroeconomic indicators. Findings The characteristics of foreign labor and the Jordanian labor abroad, in terms of skills and qualications are completely different. Productivity of a local worker is found to be higher than of a foreign worker. Thus, replacement of foreign labor is highly recommended but difcult due to shame culture. Foreign labor deepens unemployment and negatively affects economic growth through their effect on capital account, total reserve, and investment. Outbound labor migration reduced unemployment and speeds economic growth. They induce investment and increase reserves, but they also put an upward pressure on overall price and induce imported ination. Research limitations/implications Best utilization of these remittances can be achieved if they are mainly used for production rather than for consumption purposes. Remittances of foreign labor must be controlled to reduce leakages of the foreign currencies. Scheduled decrease in demand for foreign labor in Jordan is a must. But it must be accompanied by getting rid of the non-reasonable shame culture, encouraging entrepreneurship, and enhancing quality of jobs. Originality/value The paper provides decision and policy makers with informative analysis of the net impact inbound and outbound labor migration. This analysis helps in drafting labor policies and regulations. The households sector is a key player for the success of these policies. Keywords Labour market, Labour mobility, Immigration, Jordan Paper type Research paper

Introduction Since it gained its political independence in 1946, Jordan has been witnessing economic, social, and demographic changes which affect the economic development. These changes are attributed to internal factors, regional and international economic, and political conditions. In such a small country, the economy and the population have a reciprocal relationship. They have been affected by regional economic and political conditions such as the Arab-Israeli dispute in 1948 and 1967, the rst and second Gulf wars, war against terrorism, the American existence in Iraq, and 2006 war between

International Journal of Development Issues Vol. 9 No. 1, 2010 pp. 53-67 q Emerald Group Publishing Limited 1446-8956 DOI 10.1108/14468951011033806

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Lebanon and Israel. These political occurrences have lead to several major waves of labor migration, high population and labor force growth rates, and unemployment. The population of Jordan has increased from 0.5832 million in 1952 to 5.6 million in 2006, at an average annual growth rate of 4.18 percent (Table I). This population growth is extremely high when compared with its counterpart in the developing and developed countries. It also high when compared with the growth rates of resources, infrastructure, and job vacancies. The highest growth rate has been recorded in the 1960s. With regard to labor force, the number of labor force has increased from 0.2995 million in 1970 to 1.2733 million in 2006, at an average annual growth rate of 4.02 percent. Consequently, economic labor force participation rate (LFPR) has increased from 19.83 percent in 1970 to 23.4 percent in 2006. Accordingly, the unemployment rate has witnessed dramatic changes during the period (1970-2006). It increased from 9.9 percent in 1970 to 14 percent in 1972, and then started to decrease to its lowest level of 3.9 percent in 1981, which since then it has started to increase to reach its highest level of 18.8 percent in 1991 and 1993. During the period (1993-2006), the unemployment rate has ranged between 12 and 16 percent to reach 14.3 percent in 2006 (Ministry of Labor (MOL), 2006). The changes discussed above have marked the labor market in Jordan with new characteristics. First, it suffers from low LFPR when compared to developing countries such as India (33.0 percent) or developed countries such as the USA (41.0 percent). The low LFPR is attributed to high ratio of school enrollment, low participation of woman, early retirement and the continuous outbound labor migration (Ameerah, 1991). Another cause of suffering of the labor market is the imbalances in the sector distribution of labor force and structural unemployment. Labor force is concentrated in services sectors at the expense of the commodity producing sectors. The governments services sectors and governmental corporations attract the majority of the economically active labor force. In 2006, an account of 3.6, 15.5 and 73.8 percent of total employment has been created by the agriculture, industrial and services sectors, respectively. Moreover, it suffers from imbalances in the geographical distribution of labor force; 65.9 percent are located in the central region, 25.6 percent in the northern region, and 8.5 percent in the southern region. Furthermore, the labor market is highly responsive to local economic and demographic changes and regional political disturbances. Finally, the labor market has become a provider and recipient of labor due to the existence of mismatch in jobs, skills and location. Since the mid of the 1970s, the Government of Jordan (GOJ) pays great attention toward the expansion of education, vocational training and rehabilitation to qualify the Jordanian labor force for employment in the local and external labor markets. Meanwhile, labor market turned into a recipient of labor in the mid of the 1970s as a result of external demand for highly skilled and trained Jordanian labor. The consequence was an acute
Period 1952-1960 1961-1970 1971-1980 1981-1990 1991-2000 2001-2006 1952-2006 Average annual growth rate (%) 4.8 5.7 3.9 4.4 3.3 2.5 4.18

Table I. Population growth rates (1952-2006)

shortage of domestic supply of labor in a number of professional categories. Meanwhile, there was an increasing demand for foreign labor, particularly from Egypt, Syria, and some low wage Asian countries. Thus, what seem strange and temporal phenomenon in the 1970s has become permanent feature of the labor market. Labor market in has become a strong supplier of Jordanian workers. With the same intensity, it has become a strong recipient of foreign labor. Therefore, it has become obvious that examining the economic impact of inbound and outbound labor migration is a must. Labor remittances have become one of the largest ows of money into the developing countries and have great potential if rationally utilized. The paper aims at presenting the status of inbound and outbound labor migration and examining their economic impact on macroeconomic variables such as private consumption (C), gross xed capital formation, balance of payment (BOP), ination, unemployment and real gross domestic product (GDP). To achieve the fore-mentioned objectives, both qualitative and quantitative analyses have been used to estimate two econometric models using the ordinary least squares (OLS) method of estimation. The rst model aims at determining the role of foreign labor and their remittances in economic growth, while the second aims at estimating the role of the remittances of Jordanian labor abroad. Data were collected through secondary sources such as the Central Bank of Jordan, the Department of Statistic (DOS), the MOL and the Royal Scientic Society. This paper consists of ve sections. Section I presents the literature review. Inbound and outbound labor migration in Jordan is discussed in Sections II and III, respectively. The economic impacts of inbound and outbound labor migration are examined in Section IV. Finally, Section V contains conclusions and policies.

Inbound and outbound labor 55

I. Literature review Among issues of labor economics, labor migration is one of the rich areas of research. Both providers and recipient countries need to examine the impact of this phenomenon on their own economies because of the increasing numbers of voluntary and involuntary migrants world wide. Some researchers Asian Development Bank (2007), Yadav (2006), Wimaladharma et al. (2004), Adams and Page (2003), Orozco (2001), Martin (2001), Taylor (1999), Durand et al. (1996), Johnson (1987), and Stahl and Fred (1986) pointed out the benecial role of outbound labor migration and their remittances in economic development through accelerating investment and consumption. They argued that inbound remittances improve recipients standards of living, provide money for basic needs and provide hard currency for consumer goods. Durand et al. (1996) found that each $1 remitted to Mexico produces an increase of $2.90 in the GDP and an increase of $3.20 in economic output. Jonathan (2006) added that home countries can benet more from inbound remittances than they lose through the brain drain. He argued this situation requires incentives to motivate migrant workers to increase the proportion of their earnings they remit to their families. A complete and up to date analysis of all possible impacts of inbound remittances on the national economy of a recipient country has been presented by Asian Development Bank (2007). This study stated that inbound remittances have signicant economic effects on recipient countries, including appreciation of real exchange rate and increase savings and investment. They also boost aggregate demand and output through increasing consumption and investment expenditures of recipient households and the multiplier effect of these expenditures. On the other hand, large inbound remittances cause appreciation of the real exchange rate,

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lower competitiveness of export-oriented and import-competing sectors, move resources from tradable to non-tradable sectors, reduce exports, increase imports and worsen trade balance. Remittances also promote the development of nancial sector. Households receiving remittances increase their consumption; therefore, private consumption will be positively affected, especially when the marginal propensity to import is too high. Remittances also have positive impact on personal consumption, demand driven GDP growth, growth of imports and government revenues. Other researchers Bhagwati and Hamada (1974), Russell (1986), Martin (1990), and Chami et al. (2003) noted that exporting countries lose since they do not utilize their human resources. They believe that remittances are spent on consumer goods and services rather than on productive activities. There is also a fear that these countries may become strongly dependent on inbound remittances, which could reduce their incentives to invest in domestic income generating activities. Jonathan (2006) argued remittances provide the recipient populations with a higher degree of ownership and control than other forms of capital ows. If remittances are used appropriately, these billions of dollars every year have the potential to become one of the milestones of economic development. The counterpart perspectives concerning the impact of labor migration has induced not only researchers and academics but also governmental and non-governmental local, regional, and international institutions to grant more attention to analyze this issue. However, this is not the case in Jordan. The literature on the economic impact of labor migration in the Arab countries in general and in Jordan in particular is summarized below. Among those who examined the impact of labor migration are The Arab Labor Organization (ALO, 2004), Kandil and Metwally (1992), Glytsos (2002), Zaghloul (1984), Share (1988), Talafha (1990), and Share (1991). In an analytical paper, ALO (2004) presented the possible economic, social, and political impact of labor migration on both exporting and importing countries. In the importing countries, foreign labor enhances economic development and helps achieving best utilization of local natural resources. But, foreign labor increases the burden on governments because more government expenditures on infrastructure are needed and outbound remittances absorb foreign currencies. In the exporting countries, inbound remittances enhance the BOP, investment, foreign reserves and reduce unemployment in specic job categories. But, outbound labor migration leads to imbalances (shortage) in some job categories and to upward pressure on wages and overall price level. Concerning the social impact of labor migration, it leads to imbalances in the demographic structure in both exporting and importing countries. Kandil and Metwally (1992) investigated the determinants of Egyptian labor migration to neighboring Arab oil-producing countries. They found that wage differential between Egypt and the importing countries is among the pull factors, while density of population and high ination rate in Egypt are among the push factors. Glytsos (2002) analyzed how remittances affect economic and social development in some Mediterranean countries. He pointed out remittances must be controlled, efciently, and directed toward high productive activities rather than to consumption in order to maximize their value added. Thus, appropriate polices are needed. Zaghloul (1984) examined the role of remittances of the Jordanian labor abroad in boosting the BOP and total reserves in Jordan and investigated their effects on private consumption expenditures, investment, prices and wages. He found that 1 percent increase in remittances will increase investment by 0.52 percent. The correlation coefcients

between remittances and private consumption and investment are 0.952 and 0.956, respectively. Finally, he pointed out that remittances play an important role in inducing ination. Using a descriptive analysis approach, Share (1991) studied reasons of outbound labor migration of the Jordanian labor and their characteristics. She found that the high unemployment rate and the external demand for the Jordanian labor are key factors for leaving national labor market. Moreover, outbound labor migration plays a vital role in reducing unemployment, but it leads to imbalances in the demographic characteristics of population, shortage in skillful labor and widen the gap between social groups. In terms of foreign labor, Talafha (1990) estimated the effect of foreign labor on the Jordanian economy using Cobb-Douglas production function. He pointed out that the productivity of a JD1 spent on a local worker is higher than the one spent on a foreign worker. Transferring JD1 spent on foreign labor to a Jordanian worker will raise the GDP by JD 0.68. Share (1988) highlighted the economic and social characteristics of foreign labor in Irbid, the second city in Jordan, according to the number of population. She found that 74 percent of jobs lled by foreign labor require no skills, 91 percent of foreign workers are paid less than JD100 monthly and 33 percent of them are illiterate. In summary, previous studies are important and their results are valuable. However, they are mostly descriptive and not up to date. But, many regional economic and political conditions have emerged since the last study reviewed. These conditions have lead to a huge voluntary and involuntary labor migration. In this paper, the researchers are analyzing the issues of labor migration in Jordan. They are continuing the efforts of their former colleagues by covering the period between 1970 and 2006, which has not been studied before. It also uses both qualitative and quantitative methodologies. II. Inbound labor migration in Jordan 1. Foreign labor Jordan has started calling for foreign labor in 1973 at the same time with the rise in national income and local and external demand for the Jordanian labor. During (1973-2006), the ratio of foreign labor to total employment has ranged between 0.11 and 36.96 percent and peaked in 1991. The number of registered foreign labor has increased notably at an average annual growth rate of 19.81 percent. It has increased from 376 workers in 1973 to 79.56 thousand workers in 1980 and 165 thousand in 1990, which since then started to decrease to reach 141.19 thousand workers in 2000 (Figure 1). In 2006, foreign labor has reached 260.36 thousand (MOL, 2006). Table II shows their demographic characteristics. It shows no specic upward or downward trends in their characteristics. But, the majority is males and lls jobs that need low skills and educational levels; about 83 percent of them do not hold any educational degree. Moreover, in order to meet the increasing demand for female workers in the household
300 250 200 150 100 50 0 1970

Inbound and outbound labor 57

1980

1990

2000

2010

Figure 1. Foreign labor (000)

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Category Level of education Below the general secondary certicate General secondary certicates Intermediate diploma certicate holders Bachelor holders Postgraduates Nationality Arabs None-Arabs Gender Male Female Vocational groups Production workers and laborers Workers in agriculture Technicians and specialists workers in services

1973 (%) 60.9 15.7 13.8 8.3 1.3 14.5 85.5 96.8 3.2 33 13.8 21 15.4

2006 (%) 83 0.5 15 1.1 0.4 25 75 84.6 15.4 50.4 27.7 1 20.4

58

Table II. The characteristics of foreign labor

sector, the ratio of female workers has increased from 3.2 to 15.4 percent in 1973 and 2006, respectively. According to their nationalities, the percentage of the non-Arab workers has increased from 14.5 percent in 1973 to 25 percent in 2006. The Egyptian labor has constituted 12.5 and 72.6 percent in 1973 and 2006, respectively. The percentage of Arab labor, excluding the Egyptians and Syrians, has witnessed a sharp decline from 62.2 percent in 1973 to 1.2 percent in 2006. Looking at foreign labor according to their vocational groups indicates that, in 1973, workers in the production and laborers group formed the highest percentage (33 percent), followed by the technicians and specialists group (21 percent), the workers in services sectors group (15.4 percent) and the agriculture workers group (13.8 percent). In 2006, these gures have changed. The production workers and laborers group formed 50.4 percent, followed by the agriculture workers group (27.7 percent), workers in services sectors group (20.4 percent), and technicians and specialists group (1 percent). The distribution of foreign worker according to economic sector indicates that, in 2006, about 26.9, 26.2, and 16.8 percent has worked in agriculture, mining and manufacturing and construction sectors, respectively. Finally, about 71.5 percent of the foreign labor was located in Amman in 1973, but this percentage has decreased to 49.7 percent in 2006 (Department of Statistics (DOS) 2006). In the context of analyzing foreign labor and their effect on the labor market, highlighting the characteristics of the unemployed Jordanians is useful and meaningful. It helps examining the possibility of substituting foreign labor with unemployed local workers and determining whether the origin of unemployment stems from the demand side or supply side or both. First, in 2006, the unemployment rate in the capital Amman was 12 percent. In the meantime, 49.7 percent of the foreign labor has been located in it. Moreover, the unemployment rate among the illiterate Jordanians, those who hold less than secondary school and those hold secondary certicate were 9.3, 13.7, and 11.7 percent, respectively. Furthermore, about 72 percent of the unemployed Jordanians were male. Meanwhile, 84.6 percent of the foreign labor was males. Finally, the agriculture sector has employed 3.1 percent of the employed Jordanians only, while it has

employed 27.7 percent of the foreign labor (DOS, 2007). Accordingly, substituting the foreign labor with local labor is urgent and useful at both the macro and micro levels. 2. Foreign labor remittances Outbound remittances of foreign labor have increased notably during the period under study. They rose from JD6.8 million in 1976 to JD251.1 million in 2006, at an average annual growth rate of 12.02 percent (Figure 2). Remittances per foreign worker ranged between JD175 and JD1,541.2 during the period (1976-2006). It slows down when growth rate of foreign labor is higher than the growth rate of their remittances, vice versa. During the period (1985-1990), the Jordanian dinar has lost about 50 percent of its value. Thus, the GOJ has imposed sharp restrictions on outbound remittances, which lead to a negative annual growth rate of these remittances. Alternatively, during the period (1995-2000), the average annual growth rate of the foreign labor was negative but remittances have increased by 12.5 percent annually (Table III). III. Outbound labor migration in Jordan 1. The Jordanian labor abroad Jordan is one of the main Arab labor exporting countries. The number of the Jordanians abroad in 1961 has reached 62,863, about 79 percent of them were living in Arab countries and 52.1 percent of them were workers (DOS, 1964). As a result of the dramatic rise in the world oil prices and investments expenditures in the oil exporting countries in the mid of the 1970s, the demand for the Jordanian labor has increased remarkably. The gap between wages in the local and external labor markets, in addition to many other factors, have caused outbound labor migration to take place intensively. For example, the average wage rate of a Jordanian worker in Saudi Arabia in the 1980s was three times
300 250 200 150 100 50 0 50 1960 1970 1980 1990 2000 2010

Inbound and outbound labor 59

Figure 2. Foreign labor remittances (Million JD)

Period 1976-1980 1980-1985 1985-1990 1990-1995 1995-2000 2000-2005 1976-2005

Outbound remittances 38.23 14.07 213.73 9.43 12.48 8.89 8.9

Number of foreign labor 71.5 11.72 2.86 10.93 2 17.41 12.12 13.3

Table III. Average annual growth rates of foreign labor and remittances

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the local average wage rate (Talafha, 1985). Other factors include the open door policy, which has been adopted by the GOJ, the urgent need and high demand of the importing countries for the Jordanians labor who have high qualications and skills. For example, in 1975, 78.8 percent of the Jordanian labor in Kuwait was specialists, technicians, and skilled workers (Briks and Sinclair, 1980). The number of the Jordanian labor abroad has increased from 103.5 thousands in 1970 to 300,000 in 2006, at an average annual growth rate of 2.95 percent. However, this number peaked in 1985 (339.3 thousands). Negative relationship between the number of the Jordanian labor abroad and the unemployment rate can be notices (Table IV). Unemployment rates were the lowest in the years that have witnessed considerable increase in the number of Jordanian labor abroad. The percentage of the Jordanian labor abroad to population was 6.9, 12.7, and 5.0 percent in 1970, 1985, and 2006, respectively. This percentage peaked in 1976 (21.2 percent). It is worthy to mention here that data on socio-economic and demographic characteristics of the Jordanian labor abroad are rarely available. 2. Remittances of the Jordanian labor abroad Inbound remittances of the Jordanian labor abroad have increased from 5.54 million in 1970 to 1,788.7 million in 2006, at an average annual growth rate of 16.05 percent. Meanwhile, per worker remittances has also increased dramatically from JD53.5 in 1970 to JD5,942.3 in 2006, at an average annual growth rate of JD13.08 percent (Table IV). Finally, it is useful to mention that remittances of the Jordanian labor abroad were always higher that those of foreign labor in Jordan. The different peaked in 2006 at 1,531.6 million. The developments in the foreign labor and the Jordanian labor abroad and their remittances have been presented. However, more attention must be given to analyze their economic impact. IV. Inbound and outbound labor migration and economic growth Inbound labor migration and economic growth Labor is an important input in addition to capital, land, and entrepreneurship. Economic theory demonstrates that labor increase raise labor supply, especially in the long run through forcing wages and production costs to slow down (Hagen, 1975). During the period under consideration, the ratio of foreign labor to total labor force increased from 0.11 percent in 1973 to 11.4 percent in 2006, while its ratios to the population in the same years were 0.02 and 2.4 percent, respectively. The two previous ratios peaked in 1989 when they reached 37.4 and 6.4 percent, respectively. This can be attributed to mismatch in skills and jobs (the mismatch between the outcomes of the education system and the labor market requirement) and the persistent need for foreign labor to work in the non-preferable economic activities. These activities have not been approached by the Jordanians due to economic and social reasons (shame culture) which add to unemployment among the Jordanians.
Year 1970 103.5 53.5 13.7 1975 198.4 268.4 4.9 1980 305.4 775 3.5 1985 339.3 1187.5 6.0 1990 287.5 1154.1 16.8 1995 275.0 3169.8 14.2 2001 260.6 5472 14.9 2006 300 5942 14.3

Table IV. The Jordanian labor abroad and unemployment rate (1970-2006)

Jordan labor abroad (000) Per-worker remittances ( JD) Unemployment rate (%)

Sources: Ibraim (1989) and MOL (2006)

The macroeconomic theory implies that outbound remittances do have an inverse impact on economy through its impact on the BOP, GNP, and real GDP as follows: . Remittances and BOP. Foreign labor remittances appear as a debt in the service balance in the current account. Any increase in these remittances inversely affects the overall BOP. Years in which remittances increases will witness either a decrease in the surplus or an increase in the decit of the BOP and years in which remittances decreases will witness either an increase in the surplus or a decrease in the decit, other factor remain the same. . Remittances and GNP. GNP has risen from JD235.1 million in 1970 to JD2,015.5 million in 1985 and to JD10,409.1 million in 2006, at an average annual growth rate of 10.52 percent. The ratio of these remittances to GNP has risen from 1.95 percent in 1976 to 4.6 percent in 1985, which since then has decreased to reach 1.5 percent in 1993. This ration has reached 2.4 percent in 2006, while its average during the period (1976-2006) was 2.5 percent. . Remittances and real GDP. The effect of foreign labor on economic growth stems from their contribution to total labor and their remittances. Theoretically, it can be assumed that the productivity of a foreign worker is different from that of a Jordanian worker. This can be interpreted as a result of the differences in wages, level of technology, and responsibilities (Talafha, 1989). To examine the effect of the foreign labor and their remittances on economic growth measured by real GDP growth (Y), a logarithmic model is estimated. Real GDP is the dependent variable. The explanatory variables are labor size excluding foreign labor (Lj), foreign labor (Lf), capital (K), and foreign labor remittances (TRf). The researchers have started from the aggregate Cobb-Douglas production function, but an additional variable that is foreign labor remittances (TRf) has been added for the purpose of the study. This model was estimated using the OLS method of estimation. Results in equation (1) show that 1 percent increase in the Jordanian labor will cause 0.243 percent increase in the real GDP, while 1 percent increase in the foreign labor will cause 0.082 percent increase in the real GDP. This means that the productivity of a Jordanian worker is about three times of the productivity of a foreign worker. This can be attributed to wages differences. Thus, replacing foreign labor with Jordanian labor will increase production and economic growth, other factors remain constant. This kind of substitution will decrease unemployment because the characteristics of the unemployed Jordanians do t the jobs lled by foreign labor. Regarding the effect of outbound remittances (TRf) on economic growth, results show that 1 percent increase in these remittances will decrease the real GDP by 0.127 percent. This is because of the role of remittances in aggravating the chronic decit of the Jordanian BOP, as well as in draining up reserves of foreign currencies. The value of R 2 is high and F-test indicates that the overall model is signicant. Figures in parentheses are t-values[1]. No autocorrelation problem has been detected since the Durban-Watson coefcient is signicant at (a 5 percent). Moreover, the correlation matrix of the dependent and independent variables has showed no probability for the presence of multicolinearity between the independent variables. The correlation coefcients between each of the independent variables and the dependent variable were higher than those between the independent variables themselves:

Inbound and outbound labor 61

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Y 2 7:57 0:243Lj 0:082Lf 1:5K 2 0:127TRf 23:82* 1:99* * * 1:01 4:96* 2:04* * *

R 2 0:982; adj R 2 0:975 DW 1:85; F 123:46

62

Outbound labor migration and economic growth The effect of outbound labor migration can be analyzed by looking at the developments of Jordanians labor abroad and their remittances and how do these developments affect BOP, private consumption expenditures, investment expenditures, overall price level, GNP and real GDP: . Remittances and BOP. Remittances of the Jordanian labor abroad appear as a credit in the service balance in the current account. Any increase in these remittances will positively affect the overall balance. The BOP has witnessed either a decrease in the decit or an increase in the surplus in the years during which these remittances has increased, visa versa. . Remittances and private consumption expenditures. The volume of private consumption increased from JD152.8 million in 1970 to JD1,794.8 million in 1985 and to JD7,854.5 million in 2005, at an average annual growth rate of 15.76 percent. This increase can be attributed to higher demand for goods and services as a result of the high population growth and high income which is partially determined by the inbound remittances of the Jordanian labor abroad. The ratio of these remittances to private consumption expenditures ranged between 3.07 and 33.66 percent and its average was 22.93 percent. It has increased from 3.6 to 22.4 to 26.9 percent in 1970, 1985, and 2005, respectively. In 1996, this percentage has peaked at 33.66 percent reecting the failure of the governmental policies to slow down consumption and help customers rationalize their spending behavior. . Remittances and gross xed capital formation. Investment plays signicant role in economic growth because of its role in accumulation of capital stock, increasing production and the value added, and increasing employment. Inbound remittances play necessary but insufcient role in increasing gross xed capital formation. The volume of gross xed capital formation has increased from JD25.2 million in 1970 to JD385.2 million in 1985 and to JD3,047.9 million in 2005, at an average annual growth rate of 13.7 percent. The ratio of these remittances to gross xed capital formation ranged between 21.98 and 115.4 percent and its average was 68.05 percent. This ratio has risen from 22.0 percent in 1970 to 58.5 percent in 2005, at an average annual growth rate of 62.8 percent. It has peaked in 2001 at a value of 115.4 percent. . Remittances and GNP. Inbound remittances have played an important role in increasing GNP. Taking into consideration the development in these remittances, its ratio to GNP has ranged between 2 and 23.8 percent and has peaked in 1984. The ratio increased from 2.4 percent in 1970 to 17.12 percent in 2006 and its average was 17.36 percent. . Remittances and ination. The increase in the demand for goods and services derived by the increase in the purchasing power of the Jordanian labor abroad and their high marginal propensity to consume have lead to an increase in the aggregate demand. This increase has caused an upward pressure on the overall price level.

Workers abroad usually have high income and their expenditures behavior focus on buying luxury imported goods and services in reasonable amounts which has induced imported ination. Measured by the percentage change in the consumer price index, the ination rate has ranged between 20.21 and 25.64 percent. Comparing the developments in remittances, private consumption and investment may ease understanding the effect of these remittances on ination rates. Remittance and real GDP. Remittances can be considered as a source of economic growth from the supply side. Because of their role in capital accumulation, it can be assumed that remittances are one of the production factors (Jonathan, 2006; Zaghloul, 1984).

Inbound and outbound labor 63

Equation (2) shows the estimation results of the logarithmic formula of the production function, at which the real GDP (Y) is the dependent variable and labor (L), capital stock (K), and remittances of Jordanian labor abroad (TRj) are the explanatory variables. Figures in parentheses are t-values[2]. It shows that 1 percent increase in the inbound remittances will increase the economic growth rate by 0.221 percent. The value of R 2 is high and F-test indicates that the overall model is signicant. No autocorrelation problem has been detected since the Durban-Watson coefcient is signicant at (a 5 percent). Moreover, the correlation matrix of the dependent and independent variables showed no probability for the presence of multicollinearity between the independent variables. The correlation coefcients between each of the independent variables and the dependent variable were higher than their counterparts between the independent variables themselves: Y 2 1:24 0:047L 0:818K 0:221TRj 242 0:28 2:48* * 2:07* * 2

R 2 0:98; adj R 2 0:973; DW 1:7; F 156:36 In order to achieve a complete analysis of the impact of inbound and outbound labor migration on the national economy, two tools are used. First, the correlation coefcients between inbound and outbound remittances and the macroeconomic variables under study such as: BOP, private consumption expenditures, gross investment, GNP, real GDP, and ination rate have been calculated (Table V). These coefcients conrm the strong and positive correlation between inbound remittances and gross investment, GNP, real GDP, and private consumption. They also conrm the expected negative effect of foreign labor remittances on BOP. The weak correlation coefcient between outbound
Variable Gross investment Private consumption BOP Trade balance Ination rate GNP GDP Remittances of Jordanians abroad 0.9104 0.9694 0.3405 2 0.9037 2 0.4722 0.9844 0.9808 Remittances of foreign labor 0.8241 0.4627 20.4627 0.8853 20.4630 0.9351 0.9082

Table V. Correlation coefcients between remittances and macroeconomic indicators

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remittances and both consumption and ination reect the fact that the marginal propensity to consume of foreign labor is low. Second, the average annual growth rates of all variables under study have been calculated for few time intervals. The period under study has been divided into six separate intervals: three of which were in line with the economic and social plans which Jordan launched. Table VI clears the picture about the relationship between foreign labor and their remittances in one side and GNP, real GDP, unemployment, ination on the other side. It also shows the impact of outbound labor migration. Moreover, it compares average annual growth rates of inbound and outbound labor and their remittances. Rates in Table VI accord with the results in Table V. The average unemployment rate has increased in the periods during which the number of Jordanian abroad witnessed a negative average annual growth rates. It has decreased when foreign labor growth rate was negative or decreased. Inbound remittances induced private consumption expenditures notably and created an upward pressure on the overall price level. Inbound remittances induce imported ination because of the Jordanians consumption behaviors that is biased toward the imported luxury goods and services which negatively affect the trade balance. No strong relation between the number of Jordanian labor abroad and foreign labor has been detected. Growth rates during the period (1985-1990) can be attributed to the devaluation of the Jordanian dinar. The GOJ has controlled cash outow including foreign labor remittances during this period by adopting a contractionary monetary policy. The decline in the number of the Jordanians labor abroad was clear in the 1980s. In 1986, more than 5,000 workers have returned to Jordan, and during 1986 and 1987 more than 2,700 have also returned (Hashemite Kingdom of Jordan, 1987). V. Conclusions and policies The productivity of a Jordanian worker has been found to be three times of that of a foreign worker all over the economy. This can be attributed to the differences in wages, work responsibilities, and sectors operation. The characteristics of the unemployed Jordanians are similar to those of foreign labor. Thus, replacing foreign labor with local labor will increase national output and therefore enhance economic growth.
19701975 88.96 na 13.01 45.26 13.18 24.98 12.97 12.92 24.63 10.88 8.9 19751980 71.5 38.23 8.62 29.83 22.94 32.78 19.86 19.65 22.45 2.74 11.67 19801985 11.72 14.07 2.11 10.63 13.14 23.23 10.14 10.51 6.36 4.88 5.41 19851990 2.86 213.73 23.31 23.88 1.92 11.69 3.73 6.74 6.14 10.44 9.58 19901995 10.93 9.43 2 0.88 19.31 7.61 14.03 12.08 9.13 7.06 16.42 4.26 19952000 217.41 12.48 21.07 8.11 10.36 21.98 6.29 6.35 6.35 13.88 2.78 20002005 12.12 8.89 2.81 3.32 9.61 17.61 8.42 8.01 16.1 14.78 2.56

Variable Average annual growth rate (%) Foreign labor Foreign labor remittances Jordanian labor abroad Remittances of Jordanians Private consumption Gross investment GNP GDP Trade balance Average (%) Unemployment rate Ination

Table VI. Inbound and outbound remittances and some macroeconomic indicators

Consequently, wage levels will increase, especially for the Jordanian labor. Results of replacement will be maximized if side by side increase in the gross xed capital formation takes place. However, the dissimilarity between the vocational specializations of the same academic qualication (mismatch in skills) hampered the process of replacement. The shame culture makes the replacement very difcult. Unemployment rate is negatively related with the number of the Jordanian labor abroad and positively with foreign labor. Results also indicate that inbound remittances have positive impact on economic growth, unlike the outbound remittances that have negative effect, whereas the effect of foreign labor on economic growth was positive. Consequently, the open door policy of exporting and importing labor which Jordan has adopted had a positive effect on economic growth. The slight effect of the Jordanian labor abroad on economic growth can be explained. High percentage of their remittances was mainly directed to private consumption expenditures rather than to productive activities because remittances per worker were small. Inbound remittances have added an upward pressure on the overall price level and induced imported ination. They also deepen the trade balance decit. Thus, the government should formulate suitable policies to inform the Jordanian labor abroad about the potential benets of their remittances and should provide valuable investment opportunities to attract more inbound remittances. Policies need to be devised to bring most remittances through formal banking channels. In order to get sustainable level of remittances, the government needs to explore new markets for manpower exports. These policies must be accompanied by complete statistics about the Jordanian labor abroad and their remittances. Maximizing the positive impact of human resources needs the following. First, great attention must be given to training and qualifying the national labor force in order to be able to compete in the labor markets of the importing countries. Second, maximization the inbound remittances must be accompanied with best utilization of them. Minimizing the negative impact of these remittances on ination and trade balance can be achieved by reallocating them from consumption toward investment activities. Better and updated statistics about the Jordanian labor abroad is an urgent need and help interested researchers. Minimizing the negative impact of foreign labor and their outbound remittances can be achieved by organizing foreign labor and gradually replacing them with local unemployed Jordanian when possible. There should be more concentration on vocational education in Jordan than on academic education since the former covers most of Jordans needs of foreign labor, which raises the size of technicians and specialists in the national labor force.
Notes 1. Signicance at *1, * *5, and * * *10 percent levels, respectively. 2. Signicance at *5 percent level. References Adams, R.H. Jr and Page, J. (2003), The impact of international migration and remittances on poverty, paper presented at FDID/World Bank Conference of Migrant Remittances, Poverty Reduction Group World Bank, London, October 9-10. Ameerah, M. (1991), Labor market and unemployment in Jordan, The Structure of Man Power in the Jordanian Labor Market: Nabeel Khouri and Ahmed Qasem, 1st ed., Royal Scientic Society and International Labor Organization, Amman.

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(The) Arab Labor Organization (2004), The Economic Impacts of Labor Migration in the Arab Region, The Arab Labor Organization, Cairo. Asian Development Bank (2007), Remittances of International Migrants and the Financial Sector in Tajikistan, Asian Development Bank, Dushanbe. Bhagwati, J.N. and Hamada, K. (1974), The brain drain, international integration of markets for professional and unemployment: a theoretical analysis, Journal of Development Economics, Vol. 1 No. 1, pp. 19-42. Briks, J. and Sinclair, C. (1980), International Migration and Development in the Arab Region, International Labor Organization, Geneva. Chami, R., Fullenkamp, C. and Jahjah, S. (2003), Are immigrant remittance ows a source of capital for development?, International Monetary Fund Working Papers, WP/03/189, IMF Institute, Washington, DC, September. DOS (1964), The First Population Census 1961, Vol. 1, Department of Statistics, Amman. DOS (2006), Annual Report, Department of Statistics, Amman. DOS (2007), Annual Report of Employment and Unemployment Survey, Department of Statistics, Amman. Durand, J., Parrado, E.A. and Massey, D.S. (1996), Migradollars and development: a reconsideration of the Mexican case, International Migration Review, Vol. 10 No. 2, pp. 423-44. Glytsos, N.P. (2002), The role of migrant remittances in development: evidence from Arab Mediterranean countries, International Migration, Vol. 40 No. 1, pp. 5-26. Hagen, E.E. (1975), The Economics of Development, Richard D. Irwin, Homewood, IL. Hashemite Kingdom of Jordan (1987), Ministry of labor, Journal of Labor, No. 38. Johnson, H.G. (1987), Some economic aspects of brain drain, Pakistan Development Review, Vol. 7, pp. 379-411. Jonathan, K. (2006), A steady rain: the impact of migrant remittances on economic development, Carroll Round Proceedings, Vol. 1, pp. 3-9. Kandil, M. and Metwally, M. (1992), Determinants of Egyptian labor migration, International Migration, Vol. XXX No. 1, pp. 39-59. Martin, P. (1990), Labor Migration and Economic Development, report of the Commission for the Study of International Migration and Cooperative Economic Development, Government Printing Ofce, Washington, DC. Martin, S.F. (2001), Remittance ows and impact, paper presented at Remittances as a Development Tool, Organized by the Multilateral Investment Fund and the Inter-American Development Bank, Washington, DC, 17 May. MOL (2006), Annual Report, Ministry of Labor, Amman. Orozco, M. (2001), Globalization and migration: the impact of family remittances in Latin America, Latin American Politics and Society, Vol. 44 No. 2, pp. 41-66. Russell, S.S. (1986), Remittances from international migration: a review in perspective, World Development, Vol. 14 No. 6, pp. 677-96. Share, M. (1988), Socio-economic characteristics of immigrant workers in Irbid, ABHATH AL-YARMOUK Humanities and Social Sciences Series, Vol. 4 No. 1, pp. 7-20. Share, M. (1991), The Jordanian emigrant labor, Jordanian Labor Market: Development, Characteristics and Policies, Dar Albashir, Amman.

Stahl, C.W. and Fred, A. (1986), Overseas workers remittances in Asian development, International Migration Review, Vol. 20 No. 4, pp. 899-925. Talafha, H. (1985), Emigration and wage differentials facing the Jordanian workers, METU Studies in Development, Vol. 12 Nos 3/4, pp. 317-32. Talafha, H. (1989), Supply of educated labor in Jordan, unpublished PhD dissertation, Syracuse University, Syracuse, NY. Talafha, H. (1990), Labor demand in Jordan, ABHATH AL-YARMOUK Humanities and Social Sciences Series, Vol. 6 No. 4, pp. 35-59. Taylor, J.E. (1999), The new economics of labor migration and the role of remittances in the migration process, International Migration, Vol. 37 No. 1, pp. 63-88. Wimaladharma, J., Pearce, D. and Stanton, D. (2004), Remittances: the new development nance?, Small Enterprise Development Journal, Vol. 15, pp. 12-19. Yadav, S.G. (2006), Remittance income in Nepal: need for economic development, The Journal of Nepalese Business Studies, Vol. III No. 1, pp. 9-17. Zaghloul, I. (1984), Remittances of Jordanians and Their Effects on the Jordanian Economy, Central Bank of Jordan, Amman. Further reading (The) Central Bank of Jordan (2004), Yearly Statistical Series (1964-2003), The Central Bank of Jordan, Amman. (The) Central Bank of Jordan (2007), Annual Statistical Report, The Central Bank of Jordan, Amman. Ibrahim, I. (1989), Studying the Fact and the Future of the Jordanian Labor Market, Vol. 3, The Jordanian Labor Force Database, Royal Scientic Society, Amman. Corresponding author Ihab Khaled Magableh can be contacted at: Ihabmagableh@yahoo.co.uk

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