Dual nationality and remittances

The growing tolerance of dual citizenship has meant that an increasing number of countries are treating their citizens abroad as part of their ‘extended-nation’. By doing so, they hope that their expatriates contribute human capital as well as financial capital in the form of remittances. Worldbank statistics show that migrant remittances have risen from US$1,4 billion in 1970 to US$409 billion in 2017. The IOM estimates that there are currently 257,7 million international migrants representing 3,4% of the total global population.

Western Union booth poster and Ethiopian clothing vendor, during Ethiopian Day Festival in Maryland 2016.

Dual citizenship and quasi-citizenship arrangements are intricately related to the rapid increase of remittances. As noted by David Leblang, ‘expatriates are 10% more likely to remit and 3% more likely to return to those countries that offer dual citizenship rights. At the aggregate level, dual citizenship doubles, and in some cases triples, the dollar amount of remittances received by a home country … [Moreover,] remittances are far more stable than flows of foreign aid, foreign direct, and portfolio investment, and are, to a large extent, countercyclical’. It has also been shown that home country dual citizenship dramatically increases the naturalisation rates of immigrants in their host country and allows them to enter certain sectors of the labour market that are restricted to a country’s citizens. This possibility presents a clear economic incentive to naturalise.

Melissa Siegel has explained that remittances, as expected, have positive effects as they can increase investment in education and may ‘reduce poverty, help smooth household consumption (especially during adverse shocks like crop failure or job loss), ease working capital constraints on farms and small-scale entrepreneurs, and lead to an increase in household expenditure’. Siegel also points to less obvious negative effects. Apart from the ‘brain drain’ that can hinder the home country’s development and the social and emotional costs of family members moving abroad, the sending of remittances may cause moral hazard (meaning that people left behind have less incentive to work and leave the labour market due to the money sent home) and Dutch disease (which happens when new large flows of money enter the country, raising the value of the local currency and making domestic products more expensive to importers, which can lower export competitiveness). Finally, large remittance flows can lead to exchange rate appreciation and lower export competitiveness. Despite these potentially negative effects, global remittances are expected to grow with 3,7% in 2019, according to the Worldbank.

Author: Dr. Olivier Vonk