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July 15, 2014

Recommended on Medium: Migration as a Strategy for Household Finance

By Laura Freschi

As part of our ongoing effort to bring the worlds of research and practice closer together, we are experimenting with making academic work more readable and accessible by publishing and disseminating it in new formats. We’ve just released a paper by Michael Clemens and Tim Ogden on Medium, which we like so far for its clean, visually appealing, picture-heavy layout, and the way it allows readers to leave comments on specific paragraphs.  Of course, in the world of the “3 minute read” this is admittedly a slightly longer haul.

The paper proposes a fundamental reframing of the research agenda on remittances, payments and development. When a household’s choice to send a migrant abroad migration is seen as an investment in human capital, and the physical location of the migrant as an asset to be acquired, then remittances are properly viewed as returns on investment rather than windfall income.  

Here Michael and Tim illustrate why physical location should be viewed as an asset with an example from the ballet:

What is the human capital of a Russian professional ballerina? Her human capital is much more than the classes she has taken. It is true that her earning potential is lower if she has not studied formal techniques….but her earning potential is also lower if she has rarely performed publicly, if she knows no ballet directors, if she is obese, or if she lives in Krasnoyarsk, Siberia. That is, her income is directly affected by her knowledge, experience, connections, physical condition, and location—all traits of her person, and all changeable. She can improve all of these traits now, durably, and at a cost, to raise the value of her time and labor next year. Any traits like this are human capital. They include knowledge and formal training, but are not limited to it. One of the best investments she could make in her human capital would be to pay the cost of changing her location—to Novosibirsk or Moscow. In fact, without that investment in changing her location, her investments in other personal attributes might be nearly worthless.

Migrants bear large costs and risks up front for large gains tomorrow. The vast majority choose individually to pay this cost, without the direction of any state, in expectation of future benefits. This describes an entrepreneur and a stockholder just as it describes a migrant. In every sense, a costly change of location for future economic benefit is an investment.

Go ahead and read the whole paper on Medium here. If you’ve got an account already, you can recommend it to others, or tell us what you think of our experiment in the comments below. Then again, if you prefer your academic papers in good old-fashioned pdf form, we’ve got that too.

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