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Review & Outlook - 03/31/2005

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Armenian News Network / Groong
March 31, 2005

By Njdeh Melkonian

In the upcoming days, the Armenian parliament will be discussing a
bill that proposes to permanently lift the constitutional ban on dual
citizenship in Armenia. This would seem like a perfectly logical thing
to do in the Armenian context, something that would finally unite the
divided nation in the wake of the 90th anniversary of the Armenian
Genocide. A noble thing to do, indeed, if only the bill were not
doomed to fail in the parliamentary vote. We look at the story behind
this bill and review the economic and political economy aspects
surrounding it.

Here is how the main players in the Armenian Parliament are likely to
react to the introduction of the bill. The senior member of the
governing coalition, the Republican Party, clandestinely opposes the
bill, while one of the two junior partners, the Orinats Yerkir, has
never been a big Diaspora fan. Finally, those who control the
parliamentary vote of the third coalition partner, the ARF
Dashnaktsutiun, have similar reasons for not wanting to allow dual
citizenship in Armenia. Why should, as the argument goes, those in
Glendale be allowed to vote on issues of importance for residents of
Armenia. After all, they know little about what's right and what's
wrong in terms of everyday life, economic development, and national
security of the people residing in Armenia.

The sad truth is that the `Glendale residents', meaning former Armenia
residents now living in the Diaspora, and Diasporans who preferred not
to repatriate to Armenia while moving to other countries, have
effectively voted with their feet. They did not like what they saw
taking place in Armenia. Therefore, it is no surprise that the
Armenian government does not want to see their votes counted again,
and this time explicitly, once these `Glendale residents' are granted
dual citizenship.

While it is true that with a Diaspora population outnumbering the
residents of Armenia by a factor of 2 to 1 according to some
estimates, Armenia is a special case, possibly meriting separate
research and innovative approaches when it comes to dual citizenship.
But absence of any attempts by the Armenian government (e.g., to
commission studies that look at the experience of nations with large
and active Diasporas as a starting point) is alarming in itself. Might
looking into this reveal a number of active modes of engagement
between other sovereigns and their respective Diasporas, - Israel,
Ireland, and Croatia come to mind, - that may not suit Armenia's
leadership for political reasons? Some of these countries, after all,
went through great lengths to accommodate their Diasporas and make
them an active participant in the economic development and political
life of their ancestral homelands.

But let us abstract ourselves from the political economy aspects of
this issue and look at the pure economics of it. Does it make any
economic sense to allow dual citizenship or any other active mode of
engagement for the Diaspora, in the Armenian context? The answer is
overwhelmingly: yes. The history of, and the empirical literature
behind, economic development shows that it is all about governance and
human capital [1]. While in theory the physical capital should flow to
countries with lower level of capital per capita no matter what the
underlying conditions are (i.e., from rich to poor countries, thus
bridging the gap between poor and rich economies), the empirical
literature does not support this hypothesis. Instead, in practice,
capital flows to countries where labor is more educated and
market-friendly, and business environment is fair and more developed.

This phenomenon was coined as the `Lucas paradox' after Robert Lucas'
(1990) classical paper that looked at returns to capital in the US and
India [2]. A recent working paper by Laura Alfaro from Harvard
Business School and her colleagues Sebnem Kalemli-Ozcan and Vadym
Volosovych from the University of Houston [3] provides solid evidence
of the importance of institutions and business environment, while
citing references that also demonstrate the importance of human
capital in explaining the `Lucas paradox,' that also includes Lucas'
original article.

While 15 years ago Armenia arguably had the highest levels of human
capital and best educated/trained labor force in the former Soviet
Union, very few would venture to make the same claim these days. The
reasons for this decline are twofold: (1) emigration, which erodes the
human capital because the best workers are also the most competitive
outside of Armenia, and (2) depreciation of skills, which has the same
impact because of years of unemployment or underemployment. Despite
recent rather rosy ratings put up by the Wall Street Journal and
Heritage Foundation, which place Armenia's de jure business
environment on a par with the likes of France and Singapore, the real
state of affairs on the ground in terms of enforcement and
implementation of existing laws and regulations remains rather
gruesome. Therefore, the message is clear: in order to attract
sufficient amounts of capital flows to reduce poverty and sustain
growth, which would not be possible in the medium term with the amount
of savings generated by the economy of Armenia in its current state,
Armenia has to do better in terms of its institutions and business
environment, as well as human capital development. And for those who
still think that opening the border with Turkey is the panacea against
the economic hardship in Armenia, the cross-country findings of Dani
Rodrik and Francesco Trebbi of Harvard University and Arvind
Subramanian of the International Monetary Fund should serve as solid
evidence of the irrelevance of trade for determining income levels [4].

One may wonder, what does dual citizenship have to do with human
capital and business environment in Armenia? There is a direct link
here and a potentially strong one too. Once actively drawn into the
economic and political life of Armenia, the future dual citizens
(i.e., current Diasporans) would be a valuable addition for the
Armenian labor market with their right market skills, but much more
importantly with their life experiences in countries with better
governance and stronger civil societies than those in Armenia. The
more actively Diaspora Armenians become engaged in the reform effort
in their ancestral homeland, the greater the transfer of skills,
know-how, and subsequently physical capital to Armenia from all around
the world. Engaging them through a variant of dual citizenship would
create more jobs, provide access to new markets and empower civil
society in Armenia. That is, of course, on top of hard-to-measure
emotional effect to be felt by the second, third, and fourth
generations of Diaspora Armenians from owning and feeling themselves a
true part of Armenia's present and future.

Still, the opponents of dual citizenship cite problems with potential
large-scale immigration to Armenia (especially from low-income
countries of the Middle East and former Soviet Union) if dual
citizenship is introduced. The good news is that even under some of
the most restrictive assumptions (e.g., when incoming
migrants/repatriates have lesser skills than the population of the
host country on average, or they bring in less physical capital than
the host country's existing capital per capita, etc.) the empirical
literature from a wide range of countries and episodes provides ample
evidence of the welfare-enhancing impact of immigration/repatriation
[5, the text box on pp. 11-12].

The Declaration of Independence, adopted by the Supreme Soviet of the
Armenian SSR in 1990 and signed by its chairman, Levon Ter-Petrosyan,
states that `Armenians of the Diaspora have the right of citizenship
of Armenia.' This promise, as we all know, did not materialize during
Ter-Petrosyan's tenure as the President of Armenia in 1992-97, after
Armenia's independence. Since then, President Kocharian's own rhetoric
too has been pro-dual-citizenship. Yet, not only has he done little to
support the introduction of dual citizenship, but for years he
effectively blocked the application for Armenian citizenship of a
Diaspora-born political rival, thus sending a strong signal about his
true position as well as possible reasons for not wanting to support
the idea of dual citizenship in Armenia.

But what about the 10-year residency permit? Isn't that enough for one
to get involved with the country and contribute as much as he/she
wants? Unfortunately, the 10-year residency permit (or travel passport,
as it is commonly referred to) is not an `active mode of engagement,' one
that allows for indiscriminate and permanent rights and obligations,
(relative to those carried by the current citizens of Armenia) for
anyone in the Diaspora who wishes to accept them. It is simply a paper
that says: `Fellow Diasporans, please come to Armenia, spend your
money, invest and even buy land if you want to, but if you misbehave,
we may revoke your status (or consider not renewing it upon expiration)
and with it, also the right to the land you might have bought.' Any
status that contains barriers for Diaspora Armenians to live in
Armenia (as long or as short as they wish), pay taxes, complete
military service, vote, and be elected into public office falls
short of the promise of equal rights for all Armenians expressed in
the spirit and the letter of the 1990 Declaration of Independence, and
cannot be considered an active mode of engagement.

In summary, the introduction of the bill lifting the ban on dual
citizenship is thus a very solid test of the seriousness of the
Armenian government to deliver on its long-time promise and take a
tangible step towards full-fledged reforms in the country. Diaspora
groups should make a point of educating the Armenian government about
this issue and encouraging the government to make credible steps
towards securing dual citizenship for Diaspora Armenians and, through
that, better prospects for the Armenian economy and people. As the
debate in the Armenian parliament unfolds, Diaspora Armenians will be
watching closely for signals from Armenia on whether their ideas,
experience, political views, and physical presence are as welcome in
Armenia as their money.  The 90th anniversary of the Genocide might be
a good time to rethink these issues.


[1] In economic literature, human capital is typically proxied by
average years of schooling across a population group or high school
enrollment ratios, and measures the sophistication of the labor force.

[2] Lucas, Robert, 1990. `Why doesn't Capital Flow from Rich to Poor
Countries?', American Economic Review, 80, 92-96.

[3] Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych, 2003.
`Why doesn't Capital Flow from Rich to Poor Countries? An Empirical
Investigation,' University of Houston, Department of Economics working
paper, December.

[4] Rodrik, Dani, Arvind Subramanian, and Francesco Trebbi, 2002,
`Institutions Rule: The Primacy of Institutions over Integration and
Geography in Development', Working Paper No. 02/189.

[5] Gevorkyan, Aleksander and David Grigorian, 2003. `Armenia and Its
Diaspora: Is there Scope for a Stronger Economic Link?' Armenian
Forum: A Journal of Contemporary Affairs, vol. 3, no. 2.

[6] Section 2, paragraph 4.

Njdeh Melkonian is an Indiana-based economist who works on a wide
range of economic and developmental issues, including those facing the
economies of transition.

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