October 9, 2019
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For countries in Europe and Central Asia, policies on labor mobility can help mitigate demographic trends and support economic growth and poverty reduction.
Growth in the emerging and developing countries of Europe and Central Asia is expected to slow to 1.8 percent in 2019 (down from 3.2 percent in 2018), a four-year low. Aggregate growth figures mask the diversity of performance across the region, however.
Regional growth was hindered by marked weakness in Turkey, which suffered from substantial financial market stress, as well as sluggish activity in the Russian Federation amid oil production cuts. But there was robust growth in other parts of the region, such as Central Europe and Central Asia, as well as the South Caucasus.
Regional growth is expected to pick up in 2020–21, as Turkey recovers from its sharp growth slowdown and Russia strengthens. But there are significant downside risks to this outlook, chief among them a sharper than expected slowdown in the region’s most important trading partner, the euro area, as well as the escalation of global policy uncertainty.
In Central Asia and Eastern Europe, slowing activity in Russia could reduce remittances, which account for an important portion of income in countries including the Kyrgyz Republic, Moldova, Tajikistan, and Ukraine.
Countries with large current account deficits, heavy reliance on capital flows, or sizable foreign currency–denominated debt—such as Turkey and Ukraine—may be subject to sudden shifts in investor sentiment. Sharp fluctuations in energy prices also represent a downside risk, particularly for the region’s energy exporters, such as Azerbaijan, Kazakhstan, and Russia.
The region faces many long-run challenges to development, including the need to improve governance, complete the transition to competitive and inclusive markets, strengthen the environment for private investment and innovation, and mitigate and adapt to climate change. Worsening demographics, including a shrinking working-age population, add to these challenges.
Migrants can help ease demographic pressures by increasing the size of the labor force, raising productivity and boosting growth in the region. Policies on labor mobility can mitigate demographic trends and produce significant growth and poverty reduction benefits for the region.
The share of immigrants in Western and Eastern Europe has increased rapidly over the past four decades. Today, one of every three migrants in the world goes to Europe. Furthermore, intraregional migration is especially high within Europe and Central Asia, with 80 percent of the region’s emigrants choosing to move to other countries in the region.
Easing immigration restrictions is one of the most effective tools for ending poverty and reducing inequality across the globe. However, the benefits of immigration tend to be longer term and diffused, while the costs are immediate and concentrated among certain groups.
These short-term costs need to be addressed. Policy makers can assist workers in destination countries by designing programs to retrain them and adjusting education systems for young people, so that they are not competing with lower-skilled immigrants. Governments can provide relocation assistance for workers who need to change occupations, cities, or sectors of employment.
There are also widespread concerns about brain drain in the migrant-sending countries of Eastern Europe, the Western Balkans, and Central Asia.
For origin countries that experience extended periods of loss of scarce human capital, emigration of skilled labor represents a serious concern. Such persistent patterns are often a symptom rather than the cause of an underlying problem, therefore improving governance quality and strengthening institutions in origin countries are long-term policies that can address the root causes of persistent emigration.
Policies to retain skilled labor include promoting private sector and job creation, investing in higher education, and increasing opportunities for women in the economy. Greater connectivity is also an important aspect of increasing engagement with a country’s diaspora; even if it facilitates emigration, emigrants who stay connected are more likely to invest and return.
Over time, skilled migration may increasingly involve shorter durations and circular paths, thanks to greater global integration, lower transportation and communication costs, and rising standards of living outside the traditional advanced economies. Increasing the potential benefits of remaining in countries of origin is more likely to deter outward migration than pursuing policies that restrict the benefits abroad.
The Office of the Chief Economist publishes a Regional Economic Update every year in both spring and autumn. Each update includes an outlook for economic growth and analysis of a special topic important to the region.
Regional flagship reports analyze trends and key issues in the region and are targeted to a broad audience.
Working papers share researchers’ findings from work in progress to encourage the exchange of ideas about development issues.