Source: Carnegie

Originally published June 9 2002 in the Financial Times

Lucio Garcia, a gardener in Merrifield, Virginia, speaks daily to his family in a remote town in Bolivia using a prepaid phonecard that costs him a few cents a minute. Edie Baron Levi, a Mexican congressman, commutes weekly from Mexico City to Los Angeles, where he and his constituents reside. Iqbal Farouqi, a Pakistani waiter working in Milan, has used the money he earns to purchase two small trucks in Karachi that he rents to relatives and manages via the internet.

This is not your parents' diaspora. Globalisation has greatly expanded the means through which people in one country can remain involved in another country's cultural, economic and political life. Money transfers, travel and communications, networks and associations of nationals living abroad - these and other opportunities for expatriates to live in one country even as they reside in another, may be creating a powerful new source of prosperity for developing countries.

In the old days, the main methods for communities of migrants to keep in touch with their homelands and their cultures were through language, cooking recipes and the occasional letter or visit to their countries of origin. Now, cheaper travel allows more frequent visits and enables more friends and family to reciprocate. Trade liberalisation and export promotion mean that more goods from the old countries are available in the new ones.

Migrants can sip their morning coffee while reading online newspapers from their homeland or even listening to the radio station they left behind. In the evening, satellite dishes allow immigrants to catch the day's local news of their native countries. Phone calls home are a fraction of their cost a decade ago, fuelling a fivefold increase in the number of minutes billed to prepaid phone cards since 1997 and making such cards a $4bn-a-year market in the US alone. And none of these privileges is necessarily limited to the well-to-do.

Moreover, the deregulation of international financial markets, coupled with new technologies, has made sending money home safer, easier and cheaper. Last year, people residing abroad sent home more than $100bn. For many families, the money sent by relatives overseas spells the difference between relative poverty and total indigence.

The same is true for many countries, too. Worker remittances account for 24 per cent of Nicaragua's gross domestic product, 14.5 per cent of Uganda's and 7 per cent of Bangladesh's. In Mexico, remittances are the third largest source of foreign exchange, after oil exports and tourism. And in Turkey they are four times larger than the country's inflows of foreign direct investment. In most developing countries, remittances are far larger than funds received through foreign portfolio investment or official development assistance.

But the impact of these economic ties goes well beyond supporting individual relatives or helping to rebuild a local school. Surveys show that about 10 per cent of Hispanic immigrants in the US also trade with their home countries. Indeed, the engagement of immigrants in international trade can have a significant economic impact. As James Rauch of the University of California, San Diego, has noted*, over time a 10 per cent increase in immigrants to the US will increase US exports to the country of origin by 4.7 per cent and US imports from the country of origin by 8.3 per cent. Prof Rauch also reports that in Canada a 10 per cent increase in immigrants from a given country eventually increases Canadian exports to that country by 1.3 per cent and imports from there by 3.3 per cent.

Successful entrepreneurs who are foreign-born often become important investors in their home countries. They bring back not just money but also an infusion of entrepreneurial spirit and skills that their home countries often sorely lack. A survey by the Public Policy Institute of California has found that foreign-born (particularly Chinese and Indian) highly skilled immigrants in Silicon Valley have successfully adopted both the technological capability and the venture-financed, high-growth business model that distinguishes many US companies in the high- technology sectors. Half the respondents to this survey have set up subsidiaries, joint ventures, subcontracting operations or other businesses in their native countries.

This trend surely challenges the traditional idea of the brain drain. Whereas the talented engineers, scientists and managers who migrated abroad used to maintain few ties to their home countries, today a new pattern is being established: a brain gain that provides opportunities for trade and foreign investment as well as a powerful fount of entrepreneurial energy. As the Public Policy Institutes study notes, the brain drain (in the case of the Chinese and Indian professionals it surveyed) has been replaced by brain circulation, meaning a variety of two-way flows of highly skilled workers between the technologically advanced countries where they reside and the less developed countries where they were born.

Politicians and governments have increasingly focused on tapping the money and political power of this new breed of expatriates. Jairo Martinez, one of many Colombians living in Miami, recently won a seat in the Colombian Congress representing his compatriots living abroad. Mexican politicians routinely campaign and raise funds in Los Angeles, Houston and other US cities.

But tapping the wealth of resources and talents contained in immigrant communities largely for political gain seems a wasted opportunity. Just as governments have made it a national priority to entice multinational corporations and international fund managers to invest in their countries, so they should make the seduction of the new diaspora central to their strategies for development.

Creating as many opportunities as possible for expatriates to live in their own country even while residing abroad - facilitating money transfers, travel and communications, for example - ought to figure highly in the list of urgent tasks of governments everywhere.