“To Have and Have Not”: International Migration, Poverty, and Inequality in Algeria

• Author: El Mouhoub Mouhoud,Luis Miotti,Joel Oudinet,David N. Margolis
• Published date: 01 April 2015
• Date: 01 April 2015
• DOI: http://doi.org/10.1111/sjoe.12103

Scand. J. of Economics 117(2), 650–685, 2015

DOI: 10.1111/sjoe.12103

“To Have and Have Not”: International

Migration, Poverty, and Inequality

in Algeria∗

David N. Margolis†

Paris School of Economics, FR-75014 Paris, France

david.n.margolis@gmail.com

Luis Miotti‡

University of Paris 13, FR-93430 Villetaneuse, France

miotti_luis@wanadoo.fr

El Mouhoub Mouhoud

Paris Sciences et Lettres, Paris-Dauphine University, LEDa, DIAL UMR 225,

FR-75016 Paris, France

em.mouhoud@dauphine.fr

Joel Oudinet‡

University of Paris 13, FR-93430 Villetaneuse, France

joel.oudinet@univ-paris13.fr

Abstract

In this paper, using an original survey, we analyze the distributional impact of international

migration across two regions of Algeria. A semi-parametric descriptive analysis is comple-

mented with a parametric model. Remittances do not significantly change the Gini coefficient

in nearly any of the counterfactual scenarios. However, migration reduced poverty by 40 per-

cent, with different effects across regions for extreme poverty. Foreign transfers, especially

foreign pensions, have a strong positive impact on very poor families in one region. Poor

families in the other region suffer from a “double loss”: their migrants do not provide local

income and they do not send much money home.

Keywords: Inequality; migration; pensions; poverty; remittances

JEL classification:F24; O15; O55

∗The authors are grateful to two anonymous referees for their comments and suggestions that

led to significant improvements in this paper. We also thank the participants of the Journ´

ees

de Micro´

economie Appliqu´

ee (Clermont-Ferrand, France, June 2014) and the World Bank,

AFD, University of Lille conference “Migration and Development” (Ifrane, Morocco, May

2013), and Denis Cogneau for their comments. This article is financed in part by FEMISE

Agreement No. FEM33-2.

†CNRS and IZA.

‡Sorbonne Paris Cit´

e, CEPN-CNRS.

CThe editors of The Scandinavian Journal of Economics 2015.

D. Margolis et al. 651

I. Introduction

Migration is one important means by which people from poor countries

seek to improve their living conditions and those of their families. Many

of them send some of the money they earn in the host country back to

their families in their home country. These remittances are quantitatively

enormous: in 2013, remittances to developing countries amounted to 414

billion dollars (World Bank, 2013). Unlike development assistance, remit-

tances are a type of external income that is directly paid to households,

and thereby can have a large impact on welfare for recipient families in

countries still mired in poverty.

The scale of the sums involved has driven a revival in the literature

on the impact of transfers on migrant-sending countries. Among the many

issues debated is the impact of transfers on poverty and the distribution of

income. Although the literature has come to a consensus that remittances

can lead to a reduction in poverty, there is less agreement about the effects

on inequality.

Given the variability of results, it can be helpful to re-situate the effects

of remittances in the context and history of the migration flows that underlie

them. Over time, migration flows lead to the constitution of increasingly

dense networks in receiving countries and better information in the sending

countries, which reduces the cost of future migration and can help reduce

inequality by allowing the poorest households to send migrants abroad

or to other towns. This generates an inverse U-shaped relation between

emigration and inequality, as shown both theoretically and empirically by

McKenzie and Rapoport (2007).

In this paper, we consider the effects of emigration on poverty and

inequality by drawing on an original survey conducted in Algeria.1It is

the first household survey in Algeria that specifically addresses the issues

of migration and remittances,2and provides the information necessary to

evaluate their impacts on poverty and inequality. Furthermore, unlike many

household surveys, this survey also collects information on pensions (a

very important income source) received in the country of origin, based on

overseas work for returning migrants. It focuses on two regions (Kabylia

and Tlemcen), which differ in terms of diaspora organization, migration

history, and regional insertion.

1The survey was conducted in the spring of 2011, interviewing 1,200 households living in

two communes. This survey was carried out in collaboration with the Centre de Recherches

en Economie Appliqu´

ee et D´

eveloppement (CREAD). The authors wish to thank Nacer-

Eddine Hammouda for his role in the successful administration of the survey.

2The survey also collected data on in-kind transfers, but these data were not used because

of valuation issues. As such, in this paper we only consider monetary transfers, although a

preliminary analysis of (likely unreliable) in-kind transfer data suggests that these amounts,

when they exist, are often quantitatively large.

CThe editors of The Scandinavian Journal of Economics 2015.

652 International migration, poverty, and inequality in Algeria

Use of household-level data and black market exchange rates, instead

of official accounts, is critical to assessing accurately the impact of for-

eign transfers on poverty and inequality.3According to some estimates

(Charmes, 2010), informal remittances received in Algeria are two to three

times higher than official remittances received, while conversion of remit-

tances at the black market exchange rate increases their purchasing power

by up to 50 percent.

To estimate the impact of remittances on poverty and inequality, we per-

form a semi-parametric descriptive analysis and we also estimate a para-

metric model, which allows for the simulation of counterfactual household

income and the calculation of the impact of migration on the distribution

of income across households. Several scenarios are examined, in order to

characterize a wide range of potential situations for the counterfactual set-

ting without migration. The analysis decomposes the effects of international

transfers into the parts due to remittances and due to the pensions of retired

migrants. A comparison of the results for the two regions is also carried

out, taking into account their historical features and their differences in

terms of diaspora organization.

In Section II, we provide a brief summary of the migration histories of

the two Algerian regions studied here. In Section III, we summarize the

body of literature that deals with the effects of remittances on poverty and

inequality, in particular that based on household survey data. In Section IV,

we describe the methodology used to generate household income in the

various counterfactual scenarios. In Section V, we present the data and de-

scriptive characteristics of households using the DiNardo–Fortin–Lemieux

(DFL) semi-parametric methodology (DiNardo et al., 1996). In Section

VI, we provide the results of the impact of emigration on poverty and in-

equality, using the counterfactual model based on individual-level Heckman

(1979) selection-corrected estimates. We conclude in Section VII.

The main findings are that remittances, including foreign pensions, do

not significantly change the Gini coefficient in either region. However,

the simulations suggest that migration has reduced poverty by nearly 16

percentage points (40 percent), with the effect in Kabylia (Idjeur) being

twice as large as in Tlemcen (Nedroma) with regards to extreme poverty.

Foreign transfers, especially foreign pensions, have a strong positive impact

on very poor families in Idjeur but much less so in Nedroma, where

poor families suffer from a “double loss” because their migrants do not

provide local income and do not send much money home. This difference

3For example, officially recorded remittances received by Algeria (World Bank annual re-

mittances database) are much lower than in other countries in the region: in 2010, they

represented only 1 percent of GDP (two billion dollars). This compares to an average for

the Middle East and North Africa (MENA) region of 3.1 percent of GDP.

CThe editors of The Scandinavian Journal of Economics 2015.