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GTAP Resource #2088

"Labour Migration and Remittances: Some Implications of Turkish “Guest Workers” in Germany"
by McDonald, Scott, Yontem Sonmez and Jonathan Perraton

There is little evidence to suggest that the expansion of membership of the European Union (EU) will soon stop. Despite only recently completing the (challenging) fifth enlargement process, which saw the EU grow to 25 members, the EU has already embarked upon negotiations about Turkey’s possible accession to the EU; indeed in December 2004 agreement was reached between Turkey and the EU for entry talks to begin in October 2005. The possibility of Turkish accession to the EU has reignited fears in the ‘old’ EU about labour migration as a result of eastern enlargement. But labour migration is already a significant phenomenon for both existing EU members and for Turkey with potentially substantial implications for both partners.

This paper reports an analysis of the economy wide effects of changes in both labour migrations from Turkey to EU and labour remittances to Turkey by migrant workers. Due to the past migration patterns and volumes of Turkish Gastarbeiter , the analyses focus on labour migration to Germany and the economic implications for Turkey and Germany. The analyses reported here are part of a wider study into labour migration and EU expansion.

The first phase of Turkish labour migration to Western Europe, especially to Germany, started in the early 1960s when Turkish workers migrated to Western Europe as Gastarbeiter. This Turkish labour migration accelerated, following the workforce agreement with Germany and the Association Agreement with the EC. Since then, over a million Turkish workers have migrated to the Western Europe for employment, with almost 70% migrating to Germany.
The use of Turkish migrant workers was conceived by the German government as a temporary measure to deal with the chronic labour shortage, providing cheap and flexible labour. However, over time these temporary arrangements developed into permanent ones. The initial phase was followed by the second one, encompassing family reunification, politically motivated migration and (inevitable) illegal labour migration. Hence, the Gastarbeiter never went back and more followed; Gastarbeiter developed into the Inlander auslandischer Herkunft .

Since 1964 remittances by Turkish emigrants have grown so that by 2000 they formed 20% of total exports and 2% of Turkish GDP in the year 2000. The process of labour migration and remittances was encouraged by successive Turkish governments as it was perceived to help ease an unemployment problem and to improve the balance of payments with higher inflows of workers remittances. A number of policies (such as special interest rates for foreign currency accounts, special exchange rates for remittances, etc.) have been implemented by the Turkish government in order to encourage migrants’ remittances.

The analyses are carried out using a 10-region, 25-sector and 4-factor global computable general equilibrium model that is implemented in GAMS (see McDonald et al, 2005) and is calibrated using GTAP data. But the GTAP database does not incorporate explicit estimates of labour remittances because of the parsimonious treatment of the external accounts of regions. Hence, for this study a method for augmenting the GTAP database using additional IMF data on inter-regional transactions (McDonald and Sonmez, 2004) has been implemented as an extension to a global representation of the GTAP database (McDonald and Thierfielder, 2004). Since the data on inter regional transfers are not bilateral, an additional region, called “globe”, is defined as the recipient of all transfer expenditures and the source of all transfer incomes; this treatment is analogous to the treatment of trade in margin services found in the standard GTAP database.

The policy experiments examine three key scenarios;
• a change in the size of labour flow from Turkey to Germany;
• a change in the size of labour remittances from Germany to Turkey; and
• changes in both labour flows and remittances

The results shed light on the relationships between the magnitudes of labour migration and remittances and their macroeconomic effects on both the receiving and sending countries. The initial results indicate that the migration of Turkish labour force from Turkey to EU, especially to Germany, has mixed effects with a positive effect being generated by increases in remittances and a negative effect due to the reduction in the supply of skilled labour; the precise balance between the two is sensitive to both closure rules and the scale of migration and the volume of remittances. From the German perspective the results are also mixed; an increased supply of labour serves to relax a capacity constraint while simultaneously reducing the price of (unskilled) labour in Germany. The remittances are insufficiently large as to have a substantive negative effect of the German economy, but they do have ‘Dutch disease’ type effects for Turkey.

Future work will include endogenising the migration decision and extending the analyses to other eastern European economies, and evaluating the implications for migration and remittances of a taxes harmonisation process in the EU.

Resource Details (Export Citation) GTAP Keywords
Category: 2006 Conference Paper
Status: Published
By/In: Presented at the 9th Annual Conference on Global Economic Analysis, Addis Ababa, Ethiopia
Date: 2006
Version: 1
Created: Sonmez, Y. (5/1/2006)
Updated: Sonmez, Y. (2/27/2007)
Visits: 4,785
No keywords have been specified.

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