On the global scale as of mid 2020, remittances were expected to drop by 20% compared to the previous year with a disproportionate detrimental impact on the least-developed economies (World Bank 2020). From a macroeconomic perspective, it may be argued that reliance on remittances can erode the competitiveness of the domestic labor market. Steady unconditional financial inflows boosting consumers’ higher purchasing power may easily outweigh the incentives to compete for jobs in the local economies (e.g., Chami et al. 2008). Furthermore, Chami et al. (2018) argue that evidence of remittances’ contribution to small economies’ growth is lacking. Elsewhere, Nissanke (2019), in a recent analysis of structural transformations of small economies in sub-Saharan Africa, argues that diasporas are active participants in development finance. The premise is that diaspora’s first movers are ready take currency or other country risks leading the global investors to the home economy. A steady inflow of remittances may be seen as potentially ushering such tidal change in development finance.

As a high-level take, we construct a diaspora dependent indicator for external financial inflows in a cross-country comparison for CEE/FSU. Figure 2 compares the country’s sum of foreign direct investment (FDI) and remittance inflows per capita to the gross domestic product (GDP) per capita between 2000 and 2018. The results in Fig. 2 show some countries with relatively modest post-transition recovery in GDP per capita but with high inflows of combined external investments (e.g., Croatia, Hungary, and combined Serbia and Montenegro). There are also those with strong per capita income growth but relatively weak external inflows. For the top performers, FDI flows play a much greater role than remittances. To some extent, this observation is also consistent with the fact that countries with smaller income gains (bottom left from the average point) have smaller per capita inflows.

On balance, however, the evidence is mixed. Countries with high diaspora potential seem to be underperforming on the FDI-remittances per capita measure. It appears that those countries have not attracted significant levels of external investment in per capita terms, which raises two concerns.

First, the large-diaspora country’s attractiveness for capital flows is not a given. Becoming involved in global capitalism also means entering global competition for limited financial capital, which is a challenge for emerging markets. Having a large diaspora does not seem to guarantee strong results. Second, the collective “old” and “new” diasporas potential appears to have not been fully sustainably mobilized. The inability to secure sustained external financing either to motivate domestic aggregate demand or longer-term investment projects (via FDI) is a serious deterrent to macroeconomic development models in some of the post-socialist small economies. Elsewhere, another challenge to diaspora might be less where to invest or how to allocate resources in formal terms than the inability to penetrate local markets. Over the three decades since the transition reforms, the evolving local business networks are now competing with potential diaspora capital. For the domestic firms, financial and project-driven investment by expatriates is competition, rather than a national development support. Such dialectical dynamic between the local and diaspora businesses requires a more careful dedicated analysis.

As found in Fig. 1, only a handful of the CEE/FSU countries benefit from high (and consistent) remittance inflows. Furthermore, recent World Bank data (WB 2020) corroborates the dominance of a single source of remittance revenue in most cases (primarily, monetary transfers are initiated by the “new” diaspora, mainly, labor migrants from either Russia for the FSU countries or EU/UK for the CEE). That raises concern about recipient countries’ sustainability and susceptibility to business cycles in senders’ countries.

There is also a question of the spending direction of remittances. Piras et al. (2018), focusing on agricultural changes in Moldova, find that remittances from labor migrants received by rural households gave them only limited flexibility in decisions about farm-related upgrades. Moldova is one of the highest recipients of remittances from labor migrants, as they contribute over 25% of GDP. Most of those transfers seem to fuel consumer markets, rather than going toward productive use, as agriculture is dominated by conglomerates, and small farms lack access to a broader inclusive finance scheme.

In a study on the Philippines, which has one of the most developed systems of labor migration and remittance flows, Licuanan et al. (2015) find that the diaspora’s (read, labor migrants’) financial contributions to the home country rise with migrants’ income earned abroad and the frequency of hate crimes against migrants in the host countries. Some evidence also indicates that money flows to recipient countries with higher emigration, rather than those that are the least developed.

What we learn from these observations is that, from a broad macroeconomic development perspective, diaspora-led financial transfers tend to be altruistic, humanitarian, supporting a specific project but largely aimed at individual household support. This is also consistent with the analysis of the management and business literature on diaspora in Panibratov and Rysakova (2020). Despite their statistical significance for domestic financial flows and consumption expenditure, there is limited evidence that individually motivated, short-term, monetary transfers lead to sustained structural transformation in industrially weaker economies.

As such, there is no lack of initiatives exploring the “beyond remittances” (e.g., Newland and Patrick 2004) multiplier effects from diaspora-led FDI, technology transfers, philanthropy, tourism, political contributions, and cultural influences. Despite limited scale and available data, some evidence suggests that in economies with wide diaspora networks, the “old” diaspora’s active business role has been critical to some macroeconomic gains (e.g., Armenia, Georgia, Poland, and Ukraine). In Armenia, for instance, diaspora business networks are the source of over 60% of recent FDI and multinational enterprises either started by or with influential management representation by diaspora professionals (e.g., GIZ 2011). Yet, Armenia does not score highly on the Fig. 2 composite FDI and remittances index.

For Georgia and Moldova, large-scale migration began with the dissolution of the Soviet Union in 1991, whereas Armenia’s Western diaspora has been in existence since at least the late nineteenth and early twentieth century (see Aslanian 2014 on even earlier Armenian diaspora merchant networks). In contrast to the Armenian diaspora, the Georgian and Moldovan diasporas are relatively small, new, and have not demonstrated the same level of broader economic vibrancy in home-host country engagement (GIZ 2012).

But what type of diaspora-to-home country involvement is adequate for guaranteeing a strong and lasting contribution to the domestic economy in general or any specific sector? A handful of countries (e.g., Armenia, Bulgaria, Georgia, Moldova, Poland, Tajikistan, and Ukraine) have tried to put some of these mechanisms in place (e.g., Gevorkyan 2018; Heleniak 2011; Newland 2010). For example, Armenia and Georgia now have ongoing initiatives in education, humanitarian, philanthropic, and political areas involving individuals from the “old” and the “new” diasporas. Both have adopted a dual citizenship law (joined by Moldova and the Kyrgyz Republic).

Across the region, the practice of “fuzzy citizenship” has evolved, which means a status that grants semi-permanent residence to the diaspora (Skrentny et al. 2007). For example, Poland has established a “card of the Pole” allowing a member of the Polish diaspora to obtain a work permit, establish a business in Poland, gain access to the country’s education system at no charge, and attain other benefits normally unavailable to citizens of other countries (MFA 2015). Other countries either initiate (as in the Polish model) or create the conditions for expatriate entities to engage (e.g., BirthRight and RepatArmenia groups in Armenia) in economic and social activities (for a thorough review of the involvement of each diaspora in its country of origin, see Heleniak [2011]). Elsewhere, some of the smallest economies across the CEE/FSU have launched targeted efforts attracting diaspora’s entrepreneurial capital towards niche technological sectors in the country (e.g., Unity Through Knowledge Fund in Croatia; Georgia’s Innovation & Technology Agency in the Republic of Georgia). In Moldova, a recent Migration and Local Development project implemented by the UNDP has helped channel diaspora’s human and financial resources towards the rural communities’ development.
 

The cumulative evidence so far points to two thoughts. On the one hand, although some social and macroeconomic improvement is undoubtedly due to diaspora actions, the dispersion effect of the scattered, unorganized nature of those efforts might be a net negative disincentivizing and slowing homegrown competitive economic progress. On the other hand, if a country’s fundamental macroeconomic and political environment is relatively predictable (e.g., as in some CEE countries that are European Union member states), dispersion is likely to have a more positive effect. In that case the economy benefits from having a variety of medium- to long-term investment and cultural projects, driven in part by diaspora organizations, often transforming domestic institutional arrangements (the latter point raised by Riddle and Brinkerhoff 2011).

Broadly, the variations observed in the diaspora engagement models can be explained by (1) the geographic distance between the expatriate’s current country of residence and country of origin; (2) the relative significance of the “old” and the “new” diasporas’ motivations; (3) political stability and macroeconomic conditions in the country of origin; (4) the expatriate’s legal status in the host country; and (5) the existence of a functional engagement infrastructure for the diaspora’s involvement in the home economy.

Recent evidence suggests that almost every CEE/FSU country has formally acknowledged some type of relationship with its diaspora through humanitarian projects or diaspora participation in the country’s public life (Heleniak 2011). Yet, on the practical side there is still the lack of systemic, large-scale institutionalized involvement of the diaspora in macroeconomic development of its country of origin. It is at this juncture that the realization of the failure at achieving a common good (as defined by Deneulin 2006) in economic development, despite individual successes at a level of a migrant family, small community, or even isolated industry, becomes a policy challenge.
 

The top horizontal axis measures business and economic development. This first factor accounts for including industrial structure, FDI, and remittance flows, accounting for the diaspora’s entrepreneurial contribution to the country’s industrial policy. Note that the MDB and DP play a role in facilitating strong improvement in this factor. The second factor, at the bottom horizontal axis, measures broad socioeconomic development, including a range of “soft” development categories that are often critical in macroeconomic growth. The left-hand vertical axis measures political and institutional change. The right-hand vertical axis measures the gains from migration. This fourth factor accounts for repatriation and return labor migration. However, the migration index should also capture the actual process of immigration, which would be strongly applicable in the cases of the “old” diaspora. Recall, that for this group, the ancestral country may not have been the actual birthplace for neither the “repatriate” nor their parents. In this case, what often is termed as repatriation, diaspora’s return to the ancestral homeland, is more properly defined as immigration. Hence, the immigrant shock of adjustment in a new place may be stronger than in the case of returning temporary labor migrants.

We focus on two scenarios, illustrated by the two curves deviating from the diagonal in Fig. 3, which represents perfectly equal distribution among all four factors. Over time, the deviations occur for many reasons, including the lack of unity across the diaspora (i.e., dispersion) and lack of systemic engagement infrastructure at home. The connection may be sustained by the diaspora’s latent potential as suggested by the ADOS. For example, the points labeled A and B both represent equal improvement in social, business, and economic involvement but vary significantly on the extent of the diaspora’s political involvement in the home country and degree of repatriation (or physical connection). Similarly, points C and D show the same levels of institutional change and repatriation, though with the opposite level of involvement in the economic structure and social development. Scenarios to represent specific countries could be elaborated.

The current scenarios in Fig. 3 encompass concerns that are immediate and challenging to address through economic theorizing—the role of geography, legacy institutions, and predominant economic structures [e.g., see analysis of small open Caribbean economies by Constantine and Khemraj (2019)]. Those are critical to development success in the small CEE/FSU economies. Many of these countries are either landlocked or distanced from global trade routes and face massive geopolitical risks that also shape domestic institutions. As such, it is tempting to view the diaspora as a possible, yet vaguely defined, push factor in national development models.

As far as the potential scenarios, the model in Fig. 3 is anchored by the common good theme of this paper. The four-dimensional view of the model points to some tangible measurements leveraging diaspora’s effectiveness in development. Harnessing this potential also identifies a clear need for a unifying agent in the diaspora-homeland engagement process. Jointly with diaspora portal and similar mechanisms, the central guiding role may be relegated to a dedicated semi-autonomous agency within the formal governmental structure. The agency can be designed to withstand political cycles maintaining operational capacity despite temporary policy changes while remaining focused on key country specific development issues. Overcoming the dispersion effect, leveraging such transparent engagement infrastructure, diasporas then are able to introduce positive systemic change in their home countries’ development process on a wide scale, ranging from social aspects to industrial policy questions. For a small country in a competitive global economy, capitalizing on the diaspora capacity in a common good framework becomes an essential development milestone.