Economic and Financial Impacts of The Refugee Crisis On Germany and Strategies to Ameliorate Them

Introduction

1.1 Context of The Study

Between 2015 and 2016 alone, the influx of refugees into the European Union, particularly Germany, exceeded 1.3 million (Hatton, 2016). The influx was mainly associated with the humanitarian crisis in Syria. The Mediterranean and the Aegean seas were the most common routes used by the refugees. However, thousands of refugees are reported by the UN refugee agency (UNHCR) to have drowned (UNHCR, 2015). with the open border policy in place before 2016, most of the immigrants moved to Germany before the country reinstated its border control strategies. Germany took in 890,000 in 2017 alone and received an additional 476,649 formal applications or those seeking political asylum in the country (Grote, 2016). Irregular Immigrants from Turkey were extradited by Greece but these people against moved to Germany despite the 2016 border control reinstatement by Germany (Green, 2019). Integrating a few people into a stable economy like Germany would not be a problem, but integrating millions of refugees is a humanitarian crisis because of the impact the influx of refugees will have on the economy and financial performance of the country.

The people most likely to be affected are the low-income and middle-income people because the refugees come with varying skill levels and qualifications, which mean that the workforce and institutions of higher education would be affected. However, the economic and financial impact of the crisis will be long term despite Germany's integration efforts. While the countries extensive support has been lauded as a noteworthy humanitarian gesture, the integration is both complex, costly and controversial to the Germans. The short-term economic impact of the refugee's crisis will be far outweighing the long-term economic impact on Germany because overall, the regress will solve the long-term economic challenges that are already facing Germany in consideration of the fast-aging population. To examine the economic and financial impacts of the refugee's crisis in Germany, the researcher proposed a theoretical and conceptual framework.

1.2. Theoretical Framework of Refugee Crisis on Germany's Economy

The researcher will study the economic and financial effects of the refugee crisis in Germany in three main dimensions of the German economy. The theory of demand and supply will the overarching theory in this study as the influx of refugees will be too sudden and Germany's economy will not be ready to accommodate the demand for resources such as food, housing, medical care, and other social services.

1. The average price levels such as food housing prices
2. Unemployment and employment for both then refugees and citizens of Germany.
3. Internal migration within Germany- inflows into the regions and outflows into the regions.

Study by Akgunduz, van den Berg, Hassink (2015) which involved fitting a linear difference-in-difference model which involved fixed effects for migration and employment outcomes. This is the same model that the researcher seeks to fit in this study. The researcher theorizes that the influx of refugees will lead to an increase in the prices of food as a result of increased demand for food and housing. In the short run, the demand for food and housing will incomparable to the supply.

The arrival of over a million migrants and refugees in Europe aroused concern as it was perceived to have an impact of draining the economy, especially for the host countries. The past influx of refugees and migrants as studied by economists found that labor market effects are very minimal. Basing on the United States, the net contributor to the public coffers is the average refugee as traced back to eight years after arrival. The refugees and migrants received mainly monetary assistance on arrival which is an investment associated with a positive return. States that discourage the working of asylum applicants are taking such steps to increase their net fiscal burden. The study indicates that the value of what refugee's payback in terms of tax is higher than the benefits they receive.

Research indicates that in the first twenty years the refugees paid about $21,000 tax more in the United States (Fraser, 2019). Some refugees have opened businesses resulting in employment to the native people hence contributing positively to the economy. Studies indicate that in Turkey, Syrian refugees have placed an investment amounting to about $334 million into the Turkish economy with over 10,000 businesses owned by Syrians contributing to an average of 9.4 workers employed (Kirisci & Kolasin, 2019).

Furthermore, evidence shows that native workers always get higher payment and higher-skilled tasks when they are displaced by a new migrant who enters the workforce. The language skills, adapting to displacements to receive higher earnings, and capability to specialize give the native competitive advantage over the migrants. Moreover, it remains within the powers of a hosting country to decide the economic effects of refugees and migrants. Labor market policy is considered as a form of refugee policy especially in a situation where the large flow of migrants exists. For instance, Sweden displayed only 25% of refugees from Somali aged between 25 and 64 years as being employed in the formal economy in 2010 as compared to 57% refugees from Somali residing in the United States who were employed and permitted to operate by a right to work policy.

Research investigating a huge flow of migrants from the Soviet Union shows that there was massive refugee movement to Israel during 1990s, Cuba to Miami during 1980s, Algeria to France during 1962s and Balkans to entire Europe during 1990s. Each of these resulted in an abrupt influx of a comparable scale to the current flows to Europe hence providing a comparison basis of what took place in occupations and jobs where the migrants crowded. The research revealed that in both instances, no effects were recorded on the local labor market that can be associated with the migrant's arrival: The 125,000 Cubans who migrated to Miami registered no employment effect but a minimal increase in average low-skilled wages (Constant, 2019).

The Soviet refugee movement into Israel increased the population by 12% in four years and resulted in a substantial increase in the wages of the regions they crowded. The age groups between 15 and 24 for the female gender are highly affected based on the high number of Syrian employees who have been included in the given category. For the case of the individual between 25 and 6 across the gender, there was a limited effect. Nevertheless, for the young, there is a great effect because it is an age group, which is occupied by a good number of refugees from Syria (Ostrand 2015). It, therefore, follows that the wage for the employees cannot be stable as long as the Syrian refugees have a place in the job system of Germany.

The movement from Algeria to France and Balkan refugees across Europe registered a minimal increase in unemployment of native workers. Refugees normally receive public support in hosting countries and there is a variation among countries concerning what refugees as asked to pay back for the assistance. The rate at which refugees are integrated into the labor market is a determinant of net fiscal. Economic research, therefore, helps one to understand the effects of large migrations.

1.3. Research Questions or Aims

1.3.1 Research Aims

The study aims to determine the economic and financial impact of the refugee's crisis between 2015 and 2019 on Germany.

1.3.2 Research Questions

What is the economic impact of the refugee's crisis in Germany between 2015 and 2019?

What is the financial impact of the refugee crisis in Germany between 2015 and 2019?

How does Germany's refugee policy interact with the increasing influx of refugees into the country?

How does the German government respond to the economic and financial impacts of the refugee's crisis?

Can the government integrate all refugees to Germany between 2015 and 2019?

2. Empirical Methods: Research Methodology

2.1 Empirical model

This chapter will include research design, sample size, target population, and the techniques for sampling that will be obtained from the target population. The autoregressive distributed lag (ARDL) approaches of cointegration bounds model proposed by Pesaran & Shin (1999) and later by Pesaran et al. (2001) will be used. The model establishes a cointegration association from the dynamic error correction models (ECMs). Some of the key econometric advantages why this method is used include its use of both the short-run and the long-run relationship between variables irrespective of the mutual cointegration. The ARDL method is also appropriate for small sample size and can estimate the short term and long-term coefficient of the model following an unrestricted error correction model (UECM).

The model specification will be based on the empirical literature. The researcher will follow the standard log-linear functional specification of the short term and the long-term correlation between the Syrian refugees and the real GDP in Germany. The researcher empirically theorizes that the GDP of Germany wi a function of the output of the country's factor outputs.

GDP=X (factors of production).

If the refugees are taken into consideration, the GDP will be a function of all the other factors as shown below:

GDPt=a+v1Refugees+v2HCt+B3INVt+v4EDUEXPt+v5POPt+v6TOt

GDP, in this case, is the real GDP per capita, the REFUGEES refers to the number of refugees in Germany while the HC is the human capital expressed as a percentage of the population of people between age 15 and 60 who can work. In this project, the INV refers to the investment that the researcher will proxy in terms of gross fixed capital formation and the EDUEX refers to the education expenses as part of the total government expenditure on education (% of GDP). Finally, POP refers to the population growth rate and the TO is the trade openness as a measure of the sum of exports and imports of goods and...