Potential positive consequences of international migration for the development of the domestic economy

Potential concerns with International migration

Widespread international migration of high-skilled labor from the domestic economy to foreign countries is a concern for any nation. The fiscal cost of such migration may be specifically high, particularly so if higher education is subsidized in the nation using taxpayer's money, and those benefitting from such subsidies do not contribute back to the tax system of the nation (Bhagwati and Hamada, 1974). Additionally, the widespread migration of high-skilled labor in the form of professionals such as doctors and academics, deprives the domestic economy of essential services such as healthcare and education, due to a shortage of skilled labor within the country. 

Why International Migration can be a boon in disguise for Developing Economies

As international migration of skilled labor increases, education levels in the domestic economy are also seen to rise. Defoort (2008) finds that the education level of the home workforce increases at a rate similar to that of tertiary-educated migrants from the country, essentially implying over time that the migration is substituted with domestic skilled labor over time. This would mean that in the long run, not all those who choose to increase their education because of the chance they may migrate, actually end up migrating. Hence, providing more opportunities to skilled professionals from the domestic economy to work abroad might not deplete supplies of medical workers at home, but could raise them by increasing the incentives for people in the domestic economy to gain skills and education. Additionally, for nations like India, international migration has had great positive implications for the nation, resulting in the reverse flow in income, investment and expertise from the global Indian diaspora. 

International Migration: A Boon or Bane? 

International migration is a complex policy question that makes any economist or policy-maker think twice. According to Theories of International trade, two nations with unequal resource endowments can enjoy a bilateral increase in economic well-being by freely exchanging capital, goods, and labor (Martin and Richards, 1980). Permitting free exchange, therefore, increases the output available to both nations. However, theory differs from practice in the distinction that countries place greater concern on the welfare of their own citizens, while theory treats the welfare of all equally. International migration benefits migrants and their employers but may force citizens of the foreign country to compete with migrants for jobs, housing, and public goods. Therefore, even if total output in both nations increases, migration is mutually beneficial only if its effects on each country's income distribution are relatively small. Hence, there is no right or wrong answer to the question if international migration is a boon or a bane. 

Roses from Kenya: How Kenya is becoming the world’s flower Capital

Background

Flowers are an inherent part of cultures across the world. Flowers have been integrated into societal norms of many cultures for decades as decoration and as displays of affection. However, flowers are no longer straightforward goods produced in close quarters in this globalized world. Many flowers placed in supermarkets of major global cities travel over half the planet to get there, from countries like Kenya. 

Source: Kenya National Bureau of Statistics

This paper attempts to explain how Kenya, one of the latest entrants into this market, has become the third-largest exporter of flowers, with clear comparative advantages alongside all necessary factors required for success in the global flower market. I begin by setting context as to when and how Kenya entered the market and the optimal conditions for Kenya’s success, the paper goes on to then explain that these factors can fit into the Heckscher-Ohlin model of international trade and explain Kenya’s success in floriculture. It concludes by looking at how the rise of the floriculture industry in Kenya has also had its adverse effects despite being a success story. 

Where It All Started

The international flower trade market began at the Royal Flora Holland auction house at Aalsmeer in the Netherlands. The Dutch continued to have a near-monopoly over the global flower trade for over 100 years and are still very prominent players in the market, with over 80% reaching European and North American markets via the Netherlands. However, starting from the early 2000s, the global flower market has seen a significant shift in production. The Netherlands no longer holds a monopoly, and new players have emerged. Countries like Kenya, Ecuador and Colombia have captured a major market share of the flourishing global market due to their comparative advantages in production. 

Today the global flower market is worth over 54 Billion US Dollars (2020) and has been growing at a rapid pace. Kenya has been riding this particular wave of growth with a CAGR of over 18% per annum since 2010. This is attributed to its comparative advantages in production, compounded by trade policy and geographical closeness. Before we get into the specific factors contributing to this high growth, it would help to look into how Kenya grew into a floriculture tycoon. 

Kenya started exporting flowers for the first time in the 1970s alongside its horticulture exports, due to the similar growing conditions and perishable nature of both goods. However well into the 1980s, the market was still characterized as low value with no defined cultivation areas. The late 1980s was when full-fledged commercial floriculture began in Kenya, with high-value flowers being grown in greenhouses by exporters. Jenson (2005) reports that the total land area used in floriculture increased by 250% from 1990 to 2000. The industry also attracted large amounts of foreign investment in its early years, from the formerly dominant flower producer the Netherlands, who were seeking alternatives to Europe-based flower production. This was also supported by the European Economic Community development grants and import preferences alongside encouragement from the Kenyan government. Experts believe that this early investment led to upgradation of the nation’s technology and market know-how. 

Early research suggests that the flower cluster in Lake Naivasha benefitted from existing clusters of horticulture and tourism. Horticulture being a similar industry provided the critical mass to develop training and research institutions in the agricultural business domain. Additionally, due to the similar nature of goods, floriculture was able to benefit from the horticulture industry’s distribution channels. Kenya’s vibrant tourism industry results in flights arriving from many European countries, with spare capacity on flights back from Kenya. This had initially provided cargo capacity for cut flower exports to Europe. As the sector expanded, however, the industry has secured chartered cargo carriers for transportation. The slow growth before the 1980s is attributed to the absence of a value chain that could handle the logistical complexities of transporting highly-perishable produce. A culmination of these factors were responsible for Kenya’s entrance into floriculture. 

Kenya’s Comparative Advantage in Production

Kenya’s horticulture industry, dominated by floriculture, is the second-largest contributor to the country’s foreign exchange earnings, accounting for around 14% of Kenya’s total exports(Ksoll, Macchiavello and Morjaria 2009). Kenya’s comparative advantage is driven by many factors. We go into each one in-depth in this section. 

1. Market Composition

Kenya is a developing economy with a growing young population and hence is home to cheap labor. The availability of both inexpensive skilled and unskilled labor has been a large boon for the floriculture industry in Kenya. While unskilled labor pre-existed prior to the boom of the sector, skilled labor with technical knowledge was a result of the setting up of educational and research institutions with government investment. Institutes like the Kenya Agricultural Research Institute and the Jomo Kenyatta University Of Agriculture And Technology have created a skilled workforce with advanced technological knowledge of the sector. 

The availability of a skilled workforce, functional quality control and regulatory authority and other government incentives have fostered the rapid growth rate experienced in the industry. Experts have shown that sectors like floriculture and horticulture do not require direct intervention from the government; rather, the government should recognize the need for a robust private sector as the engine of commercial growth. This is something that Kenya seems to have done correctly. While the government provides necessary support through providing infrastructure, support to attract investment and setting up of research institutions to improve the skill of the workforce, the government does not directly involve in production and takes a hands-off approach. This gives room for robust private sector participation in the cut flower industry in Kenya. 

2. Organized Air Freight Capacity and Logistics Management

As mentioned earlier, superior air freight and logistics management is one of the major factors that enabled Kenya’s entrance and early growth in the floriculture industry. Air freight though initially was a by-product of the tourism industry has now emerged as a separate support industry to Kenyan horticulture and floriculture exports. Over 90% of Kenyan flower exports are today handled by four specialized air freight forwarders, three of which are owned or linked to top flower exporters. The industry is well organized and is able to aggregate all perishable horticultural produce effectively and are in turn able to secure good air freight purchasing parity. Additionally, larger exporters also have a great logistical infrastructure for distribution to the mass market retailers, post exporting. With the current trend in the flower market, retailers are looking to sell cut flowers with customer labels and codes already in place. Kenyan exporters have kept up with trends of the European markets by adapting to them. This is something that newer entrants of the market will have a hard time cracking and currently provides Kenyan exporters with an advantage over exports from other nations. 

3. Natural Resources

Kenya’s cut-flower industry is situated mainly around Lake Naivasha, a freshwater lake to the northwest of Nairobi. Flower cultivation is a water-intensive process, and the location provides ample water for the irrigation of flowers. Additionally, flower cultivation requires large inhabited land with good quality alluvial soil, available around Lake Naivasha. To top it all off, the area is also home to optimum climatic and rainfall conditions, making it well suited for growing high-value flowers like roses, which Kenya is known for producing.  

The abundance of good climate all year round due to proximity to the equator is one of Kenya’s biggest plus points. While the former masters of the floriculture industry in Europe required high energy requirements to maintain their greenhouses, the Kenyan floriculture market has a clear advantage of lesser energy and infrastructural requirements due to its climatic conditions which are adequate for the production of high-value flowers. This reduction in environmental modification cost is one of the key drivers of Kenya’s floriculture market. 

4. Trade Relationships 

Kenya’s major flower export destination is the European Union. This is not a pure coincidence but a result of the trade deals and geopolitical closeness of the EU with Kenya. Under the reciprocal EPA signed between EU and African nations, which allow tariff-free international trade for certain commodities, including roses. This gives the country a clear advantage over some of its competitors. 

Additionally, as mentioned earlier 

Another factor that assisted Kenyan floriculture was the expulsion of the Asian community (majority Indians, due to Indophobic sentiments) from Uganda in 1972, many of whom emigrated to, and established import businesses in, the United Kingdom. This helped with penetrating supermarkets because many Kenyan Asians in the fruit and vegetable trade had familial and social connections with those expelled from Uganda.

Heckscher-Ohlin Model of International Trade

Relative differences in countries’ resource endowments are critical to the standard version of the Heckscher-Ohlin theory of international trade. It states that a country will export the good which requires the intensive use of the country’s relatively abundant (and therefore cheap) factor for its production and import the good, which requires the intensive use of the country’s relatively scarce (and therefore expensive) factor for its production.

In this case, Kenya is relatively resource endowed predominantly with cheap labor compared to the European nations and UK it exports to. On the other hand, Kenya exports most of its cars from European countries like the UK and Germany, which are relatively highly resource endowed. 

Additionally, the climatic conditions lower the cost of production due to lower energy requirements than European countries. Hence, the Heckscher-Ohlin Principles explain that Kenya has a strong comparative advantage in the production of Roses to its primary competitor Netherlands among others. This is demonstrated by Figure 2. 

Figure 2

Policy Implications

Agriculture is a major contributor to Kenya's GDP and the majority of citizens depend on it partially or completely for income and employment. The agricultural sector contributes about 33% of Kenya’s total GDP and contributes an additional 27% through interdependence with other sectors such as distribution and services. It employs more than 40% of the total population of which a majority are women. Hence, Kenya is a predominantly agrarian country. In a century where most nations are shifting their concentration from agriculture to manufacturing and service sectors, Kenya seems to have found success in agricultural exports. However, experts suggest that Labour productivity in agriculture in 30 Sub-Saharan African countries including Kenya is only 28% of non-agricultural labour productivity, so moving resources from agriculture to manufacturing and service sectors will help aggregate productivity change. This has numerous implications for the economy and the future of Kenyans.

While over the last two decades, Kenya has made a mark with its service sector exports, agriculture remains one of the top priorities of the Kenyan government. In Kenya’s development programme titled Kenya Vision 2030, launched to help transform Kenya into a "newly industrializing, middle-income country providing a high quality of life to all its citizens by 2030”, agriculture still plays an important role. While the government has diverted considerable resources into development of the service sector, particularly the IT and Telecom sector, agriculture still ranks among the goals of Kenya Vision 2030. However, with a reformed goal; to increase the value of agriculture. 

One major reason for the government to still invest in agriculture is because Kenya is a country still grappling with a food security crisis. While a majority of the country is employed in agriculture and agricultural exports, the country still struggles to ensure nutritional security to all. The Kenyan Government has recently also developed the Agricultural Sector Transformation and Growth Strategy (ASTGS; 2019-2029) as a move towards sustainable agricultural transformation and food security in Kenya.  ASTGS focuses on the modernisation of own farm production, shifting production towards value addition, creating a revitalised system of strategic and commercial food stock management and increasing the local rice production through the Kenya National Trading Corporation (KNTC). I strongly believe that improving the efficiency and productivity of agriculture is crucial to Kenya’s welfare. However, this does not necessarily mean that other sectors like the service sector should be neglected. 

Kenya was quick to realise that the service sector was the best way for the nation’s economic growth, and has quickly risen to becoming a prominent player providing IT, Telecom and Financial services to most Sub Saharan African nations, and has been nicknamed the Silicone Savannah. The government has been actively looking at ways to boost the service sector in the country and move its large workforce into the service sector by investing heavily in education. Hence, the growth of floriculture and other agriculture related businesses has resulted in an increase in value of the industry but has not particularly stagnated the service sector as expected. 

One important implication of the boom of floriculture and horticulture exports in Kenya is shift in labor force composition. While most nations around the world have pulled out a significant portion of the agricultural workforce towards other sectors, Kenya witnessed a reverse trend in the early 2000s when the agricultural exports grew multifold. This puts the economy at an extremely precarious situation where the country became dependent on multiple uncontrollable factors such as climate and rainfall for the sustenance of more than half the population. Post the early 2005, however, there has been a fall in the percentage of the labour force employed in agriculture. This can be attributed to the rise of the service sector, and improvements in efficiency of agriculture due to better technology, making it less labor intensive.  

Employment in Agriculture as a Percentage of Total Employment, Modelled on ILO estimates 

Source: World Bank

Challenges Ahead

1. Trade Policy

Kenya currently trades cut flowers with the European Union under a trade agreement termed the European Union’s market access regulation. The policy allows Kenyan flowers, among other exports, a tariff-free entry into the EU. This has been widely contested at the WTO, as it violates WTO’s guidelines, by giving preferential status to Kenyan exports over exports from nations not part of this trade deal. 

Removal of this preferential status will be precarious to Kenya’s booming flower economy, as many of its close competitors such as Ethiopia, which qualifies as a Least Developed Country under the Everything But Arms special arrangement of the European Union is eligible to a duty-free entry into EU. 

The EU has been negotiating the EU-EAC (East-African Community) trade deals since 2014. The EPA forces African countries to open up to 80% of their markets to European imports. In exchange, participating East African states receive tariff-free access to the European market. However, Kenya is the only nation that has ratified the deal. Other member nations are not eager to sign as they all qualify as Least Developed Countries, and already have preferential tariff-free access to European markets. These countries have comparatively less developed economies than Kenya and are worried that European imports will flood the local economy, competing with domestic goods. 

Currently, Kenyan floriculture corporations continue to export under the EU’s Generalised System of Preferences regime until the reinstatement process is over. The failure to have the EAC-EU agreement would result in a catastrophic loss for the Kenyan floriculture industry, as over 90% of its exports are to the EU, and pose a significant challenge to the Kenyan floriculture industry. 

2)Social Concerns

Kenyan floriculture is largely dependant on female labor participation, with over 75% of those employed in the horticulture sector identifying as women. There have been many reports of human rights violations, and workers not receiving even a subsistence wage, compounded with poor working conditions, excessive overtime, sexual harassment and employment insecurity among others. 

3)Environmental degradation

Latest reports suggest that due to intense floriculture around Lake Naivasha, the flower farms may be killing the lake. Experts say that the farms have used water from the lake for irrigation purposes in return dump pesticide waste back into the lake. Long-ignored by policymakers, the situation has recently reached taken light due to thousands of fish and other freshwater organisms perishing in the lake. This points to the lack of environmental policy neccessary for sustainable growth. 

Conclusion

We find that there are a multitude of factors responsible for the success of Kenya’s floriculture industry ranging from historical trade relationships to good governance. Kenya's initial plunge into floriculture was driven not just by its optimal growing conditions, similar to many of its competitors. It was complemented by the interests of Dutch capitalists, who heavily funded the industry in its initial years as well as the existing tourism industry in Kenya that provided for organised air freight and logistical capacity. We also find that success of an agricultural business like floriculture, poses hurdles to Kenya’s service sector growth, however, the nation has been fairly successful in finding a balance between both sectors. The nation is attempting to maximise its efficiency in the agricultural sector and has been slowly moving its agri-dependant labor force towards the service sector. We conclude by looking at the environmental and social costs of cut-flower trade in Kenya. Through the course of this paper we examine how a good, as simple as cut-flowers, journey from field to consumer is a long and complex one. We believe the next big step for Kenya will be finding robust social and environmental solutions to make sure it’s floriculture success is sustainable. 

Bibliography

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6. Hance, Jeremy. “Flower Farms May Be Killing Kenya's Lake Naivasha.” Mongabay Environmental News. Mongabay, March 10, 2010. https://news.mongabay.com/2010/03/flower-farms-may-be-killing-kenyas-lake-naivasha/#:~:text=Heavily%20polluted%20and%20shrinking%2C%20Lake,cause%20is%20clear%3A%20flower%20farms.&text=If%20it%20turns%20out%20that,government%20could%20revoke%20farm%20licenses. 

7. Moulds, Josephine. “EU Trade Agreements Threaten to Crush Kenya's Blooming Flower Trade.” The Guardian. Guardian News and Media, January 16, 2015. https://www.theguardian.com/sustainable-business/2015/jan/16/kenya-flower-trade-eu-pressure.

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The RCT Revolution and Anti-Poverty Policies

Though first carried out in medical studies to assess the effectiveness of a new drug, RCTs are now a popular impact evaluation strategy in the social sciences. Through this paper, we begin by introducing what an RCT is and why RCTs are essential to poverty reduction policies. We then go on to access the existing literature on the ongoing RCT revolution, emphasizing anti-poverty policies and concluding with the limitations and way ahead for RCTs. 

What are RCTs? 

RCTs or Randomized Control Trials follow an evidence-based approach where a form of impact evaluation in which the population receiving the policy intervention is chosen randomly from the eligible population. The control group is also chosen at random. It tests the extent to which specific, planned impacts are being achieved (UNICEF). 

RCTs have revolutionized Developmental Economics and poverty reduction policies over the last few decades and are promoted as the global standard of impact evaluation by their proponents like Nobel-winning economists Esther Duflo and Abhijith Bannerjee. These evaluations have been on topics as diverse as the effect of school inputs on learning or vaccination incentives, have attempted to answer critical policy questions. As it involves randomization, it is nearly free of human biases and can estimate the most unbiased impact of any policy. It has revolutionized chiefly the field as it offers quantification of the effect of various policies so that funds can be allocated as efficiently as possible, making them the preferred tool of policymakers in many parts of the world. Key actors of poverty reduction have adopted results from RCTs, both public agencies (e.g., UNICEF) and private donors (e.g., Bill and Melinda Gates Foundation).

Literature Review

Any attempt at drawing a causal inference question such as “What is the causal effect of education on contraceptive usage?” requires answering essentially counterfactual questions: How would those who were not exposed to the program have fared in the presence of the program? We can not directly answer this question, as the participant was either exposed or not exposed to a particular treatment then. Duflo, Glennerster and Kremer tell us that RCTs solve exactly this and claim that when a randomized trial is correctly designed and implemented, it provides an unbiased estimate of a program’s impact and that this estimate is also internally valid.  

Advocates for RCTs like Ben Goldacre (2013) argue that the method is free of ideology, political stances and even theoretical assumptions about the nature of poverty and can estimate a statistically unbiased impact, unlike other methods of impact evaluation. This means that RCTs can identify exactly which program is responsible for which outcome and efficiently utilize funds and resources. Deaton and Cartwright (2017) point out that RCTs do not only ascertain whether a program works or not; they also provide a quantification of its impact. This allows making several programs tackling the same issue comparable, by their cost-effectiveness ratios and has wide-ranging impacts on public policy.

While RCTs seem to have revolutionized the field of Developmental economics, they are not without critics. Concerns arising from RCTs range from ethical concerns of assigning randomization, the production of collateral damages for a greater good, and the instrumentalization of people. Barrett and Carter (2010) provide an insightful and methodologically-oriented discussion on these ethical concerns involved. They claim that the enhanced agency an experimenter enjoys randomizing one or more feature(s) of subjects’ world heightens the opportunity to harm subjects. They point out that researchers seem not to recognize that subjects’ informed consent does not absolve RCTs to steer away from any injury subjects suffer as a direct result of an intervention. 

Bédécarrats, Guérin and Roubaud (2015) think that RCTs are not as unbiased as they claim to be and are subject to various sampling errors. They claim that field partners may refuse to randomly sample beneficiaries for ethical reasons, thereby forcing research teams to opt for selection methods like alphabetical sampling. Yet this could potentially generate an additional bias as many resources are also allocated alphabetically (Deaton, 2010). Quentin & Guérin (2013) who conducted a micro health insurance project in Cambodia, find similar biases. Participants for the randomized trial were drawn from a lottery at a village meeting. They quickly realized that there is a high chance that the people who attend village meetings are more curious and open to innovation, closer to the village leader, more socially integrated, in poorer health, etc. Such uncontrolled factors could have potentially biased the results of randomized trials. 

One of the major concerns critics raise is the lack of external validity of RCTs. Scholars like Peter Dorman (2019) point out that the literature on experimentally designed conditional income transfers, for instance, where every new study, with a new location or time period, seems to alter the bottom line of what works and how. Deaton and Cartwright (2017) seem to be of a similar opinion that RCTs are “not automatically simply generalizable”. Similarly, prominent RCT skeptic, Angus Deaton argues that there is no compelling evidence to prefer unbiasedness championed in RCT over other statistical qualities, particularly, precision. 

However, despite the controversies surrounding it, RCTs have been claimed as the best way to evaluate the impact of a poverty-reduction program in major development institutions. It strives to create anti-poverty policies through standardization, which may be at the cost of diversity of interventions, claims Abdelghafour (2017). 

Upon analyzing the literature surrounding Randomized controlled trials and their impact on anti-poverty policies there is no doubt if they have transformed public policy implementation around poverty. It provides the most unbiased statistical results through randomization and is truly the golden standard that impact evaluation requires. It ensures that only policy with maximum cost-effectiveness is implemented, allowing policymakers to efficiently utilize funds between poverty eradication policies. However, it is a little worrisome that RCTs have been claimed to become too pervasive, rather than being one good tool in a toolbox. Critics of RCTS see using RCTs as steering economists towards asking small questions instead of big ones, like the root causes of poverty. This is a critical misunderstanding that needs to be cleared among economists alike. While RCTs may be helpful tools, they also face concerns such as external validity, their results need to be replicated using other impact evaluation methods in other locations, before implementation of the policy. 

Bibliography

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2. Piper, K. (2019, December 11). The Nobel went to economists who changed how we help the poor. but some critics oppose their big idea. Vox. Retrieved December 18, 2021, from https://www.vox.com/future-perfect/2019/12/11/20938915/nobel-prize-economics-banerjee-duflo-kremer-rcts 

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