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Much ado about nothing? The economic impact of refugee ‘invasions’

Reuters/Jamal Saidi - Syrian refugees work to help produce concrete blocks in Bekaa Valley, Lebanon September 21, 2013.

To those European Union citizens who think that the ongoing “refugee invasion” into the EU is quickly becoming economically unsustainable: If the experience of Syria’s neighbors is anything to go by, you may need to think again.

Let’s first put things into perspective. This year up until July the EU received 513,580 applications for asylum (including Syrians and others). Since January 2012 the number has been 1.9 million, which makes the size of the “swarms” and “invasion” of “marauder” asylum seekers equivalent to a mere 0.37 percent of the EU population. Over the same period, Lebanon—a country with many institutional and political challenges of its own—has registered 1.1 million Syrian refugees. Without including the tens of thousands of unregistered refugees, this figure is still a quarter of Lebanon’s population, comparable to the EU taking in 127 million refugees. Even if the EU were to follow Turkey’s example and take in “just” 2.6 percent of its own population as refugees, it would pretty much single-handedly solve the global refugee crisis by absorbing 13 of the 14.4 million refugees registered with United Nations High Commissioner for Refugees (UNHCR).

‘Crushing our economies’

So assume you are in a country that has taken in a quarter, or even 2.6 percent, of your population as refugees fleeing war and prosecution. Would your economy collapse? Last time we checked, that was not quite the case. The Lebanese economy has been growing beyond expectations over the past two years, with the World Bank estimating 2.5 percent growth in real terms this year, the country’s highest growth rate since 2010. That is remarkable considering the hugely negative spillovers of the Syrian war on Lebanon in terms of armed conflict, and tourism and investments declining markedly, especially from Gulf countries. This economic resilience in the face of large inflows of refugees has been the case for Jordan (which has taken 630,000 Syrian refugees or around 10 percent of its population) and Turkey as well, with both economies growing consistently throughout the refugees’ inflow.

In fact, the inflow of refugees has arguably helped the Lebanese economy withstand the negative effect of its neighbor’s civil war. Refugees have been an important source of demand for locally produced services in Lebanon, funded from own savings and labor income, from remittances of relatives abroad and from international aid. In a recent World Bank report we estimate that an additional 1 percent increase in Syrian refugees increases Lebanese service exports by 1.5 percent. And the UNHCR and U.N. Development Program estimate a similar economy-wide impact from the $800 million that the U.N. spends annually on Syrian refugees in Lebanon. These effects are not unique to Syrian refugees. Burundian and Rwandan refugees fleeing war in the 1990s have generated net economic gains for their Tanzanian host communities.

‘Taking our jobs’

While the fear of economic collapse does not withstand serious scrutiny, a more founded concern may be that not everyone in the host economy will benefit from a large influx of refugees. A lot more refugees competing for jobs can reduce employment opportunities and/or wages for the host community’s residents. Again, a closer look at the data dispels most of these fears. Recent research finds that while Syrian refugees in Turkey—the majority of whom have no formal work permits—have displaced unskilled informal and part-time workers, they have also generated more formal non-agricultural jobs and an increase in average wages for Turkish workers. In addition, many of the displaced workers have gone back to school and may well increase their wages once they return to the labor market. This picture is also consistent with the Jordanian case, where unemployment has not increased in areas where Syrians have resettled, as Syrian workers have tended to find employment in low-skill sectors that Jordanians typically avoid. And this evidence is consistent with that on the net impact of migrants on host countries’ labor markets, which is typically small and if anything positive on average.

‘Wasting our tax dollars’

The most persistent economic worriers would probably point to the fiscal burden of ensuring EU-style living standards to a large number of refugees. The experience of Turkey comes in handy once again. Turkey has provided free access to health care and education to all registered refugees and has built camps that have become a “model for the perfect refugee camp.” To provide these services the Turkish government has spent nearly 5.37 billion euros since the refugees first began arriving, entirely funded through its own fiscal resources. While this is undoubtedly a lot of money, there is no indication that this spending has jeopardized the country’s fiscal sustainability. This should be even more the case for the EU, whose economy is 23 times larger than Turkey’s. Moreover if allowed to work, newly arrived migrants can increase their net fiscal contribution to the host economy.

Of course all this does not imply that handling a large influx of foreigners (refugees or otherwise) is not a challenging undertaking for the receiving country. Social, political, and even economic strains associated with the refugees’ inflow have been and continue to be key challenges to Syria’s neighbors. But these neighbors have shown the much richer EU countries that there need not be insurmountable economic (or even social and political) costs associated with fulfilling the moral obligation of helping those fleeing wars and prosecution. With proper planning and goodwill, EU countries would be able to welcome a vastly larger share of refugees than they have been doing so far. This is also what more and more proud EU citizens have been demanding.

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