GLOBALIZATION: Migrants send $300 billion home each year

A recent World Bank study led by Dilip Ratha says that global remittances--the money that migrants send home--exceeds $300 billion per year. Jason DeParle of The New York Times covered the study, "World Banker and His Cash Return Home":

India ($27 billion), China ($26 billion) and Mexico ($25 billion) are the leading beneficiaries. But in relative terms, small countries gain the most, with some increasing their national incomes by more than 20 percent. Egypt gets more from remittances than it does from the Suez Canal.

More on Ratha’s pioneering work (also view an audio slide show, "Return to Sindhekela"):

When Mr. Ratha reached the World Bank in the early 1990s, most economists saw remittances as small private sums that were irrelevant to development. After years of sending money home, he took a closer look.

Given the scorekeeping at central banks, it was an exercise in forensic accounting.

The International Monetary Fund said the Philippines received $122 million. Mr. Ratha produced an estimate 51 times higher: $6.2 billion. His tallies, first published in 2003, showed that remittances, once dismissed as the equivalent of a rounding error, were nearly three times greater than the world’s combined foreign aid.

“That was a bombshell,” said Kathleen Newland, a founder of the Migration Policy Institute, a Washington research group. “Putting it in that context made people see there was this enormous flow of money into the developing world. Dilip really is the person who put remittances on the map.”

Phil Izzo has more at the WSJ blog Real Time Economics (which also cites Ratha):

The U.S., which was the top immigration country in 2005 with 38.4 million immigrants, is by far the largest source of outflows, with $42 billion in recorded outward flows in 2006. Saudi Arabia ranks as the second largest, followed by Switzerland and Germany. The Mexico-U.S. corridor is the largest migration corridor in the world, the Worlds Bank said, accounting for 10.4 million migrants by 2005.

However, there has been plenty of criticism of remittances. From the Times:

When officials from more 150 countries met in Brussels last summer, remittances figured high on the agenda. Skeptics smell a fad.

“Remittances: the New Development Mantra?” asked an article by Devesh Kapur of the University of Pennsylvania. He sees the money as a palliative that, while at times helpful in easing poverty symptoms, leaves underlying structures unchanged. “If I ask can you name a single country that has developed through remittances, the answer is no — there’s none,” he said.

Some critics fear the focus on remittances obscures broader concerns about migration, including the potential costs to children left behind. “Behind every remittance, there’s a separated family,” said Elizabeth Gibbons, a senior official at Unicef.

Some see the money as a pittance that deflects attention from migrant exploitation. “It tends to justify the way the world economy is being restructured for the benefit of a small elite,” said Raul Delgado Wise of the University of Zacatecas in Mexico.

According to the article, most of the money remitted is spent on consumption and does not necessarily impact development. Critics have argued that if remittances brought development, Mexico would be Switzerland. But Ratha, who has supported his family and relatives and built a school in his hometown, believes otherwise.

Mulling a leap from thinker to doer, he has drafted plans for an “International Remittances Institute,” to provide cheaper ways to send money — fees often exceed 10 percent — and more options for investing it. Easier access to banks, for example, might improve migrants’ savings rates and expand local lending pools.

However, Ratha himself is ambivalent about his decision to leave India, and the utility of the money he sends back home.

If he is enthusiastic about migration, he has lived it on especially favorable terms. He has never crossed borders illegally or worked with dirty hands. He commands a salary 100 times higher than he would if he had never left home. With it, he has educated two younger siblings, paid for a nephew’s life-saving operation, and built a big house for his father.

Yet a visit to Sindhekela [his hometown] last month also suggests the limits of long-distance giving and the migrants’ psychological strains. Old friends want money. A younger brother has squandered his help. An effort to upgrade the local high school has met with ambiguous results.

His father, at 78, worries about dying alone. His older sister frets that he eats with a fork. Both speak Sambalpuri, meaning his Venezuelan wife and his American sons, all English speakers, cannot talk to them.

Globe-trotting technocrat, village boy made good, Mr. Ratha is like many migrants torn between two worlds and fully at home in neither. “On bad days, I do feel lonely in a way that I can’t explain,” he said.

Download and read the Ratha study in PDF. Full title: " Migration and Development Brief 3
Development Prospects Group, Migration and Remittances Team
November 29, 2007
Remittance Trends 2007
Dilip Ratha, Sanket Mohapatra, K. M. Vijayalakshmi, Zhimei Xul

And here's Ratha's personal site.

Post your comments below.

Previously on SAJAforum:

• BANGLADESH: Migration and Its Impact on All Things Bangla

Comments

[sushma joshi]

here's an interesting article about remittances in South Asia...

Nepal: Contribution of remittances in poverty alleviation and employment
Prof. Sridhar K. Khatri
Executive Director, South Asia Centre for Policy Studies (SACEPS)
http://www.telegraphnepal.com/news_det.php?news_id=2933

A study done by UNFPA in 2006 looked at 74 low and middle income developing countries and found that there is statistically significant correlation between remittances and decline in poverty. It noted that 10 percent increase in the share of remittance in a country’s GDP can lead to a 1.2 percent reduction in poverty. Moreover, a 10 percent increase of migrant flow from the sending country will lead to 1.6 percent decline in the share of people living on less than $1 a day. Although the methodology used in reaching the findings in the study is somewhat controversial, the positive impact of remittance on employment and poverty alleviation is widely accepted.
Remittances and poverty alleviation
Comparable data on the relationship between migrant remittance and poverty alleviation for South Asia are not available, but the World Bank Global Economic Perspective Report, 2006, points out that remittance inflow has made it possible for Bangladesh to cut poverty by 6 percent. In Nepal, official statistics show that migrant remittances led to 11 percent poverty reduction at the national level.
Remittances impact on poverty reduction in a small country like Nepal can be even higher than the average impact for 74 countries indicated by the UNFPA study. There are two reasons why this can happen: first the country is poor and the per capita income is low; and second productivity is also low. For example, a study done by Nepal Living Standard Survey on the contribution of remittances in reducing poverty between 1996 and 2003 was 11 percent. The other contributors were the increase in agricultural wage, increase in non-farm activities and some decline in the dependency ratio. But the major contribution was from remittances sent from abroad. In the same period, the households receiving remittances increased from 23 to 33 percent in the same period, and the share of remittance in total household income increased from 26 to 35 percent during the same period.
In Nepal, there are data that indicate there was substantial reduction in poverty despite the internal conflict. The Demographic and Health Survey (DHS) and the census data show drastic improvement in the socio-economic indicators such as in the areas as infant mortality, life expectancy, maternal mortality, health services, etc. This was happening when the development indicators showed the country at a standstill. One of the factor key responsible for improving the status of the people was remittances coming from abroad.
Remittances not only help to reduce poverty, but also to reduce the depth and severity of poverty in Nepal, and other countries. The money that is available to families improves human development of the country since resources can be used to provide education for children and look after the overall health of the family members.
An important issue on use of remittances is: Do migrant workers channel international remittances into productive investments at home, or do they use such monies merely for consumption of consumer goods? There are not many studies on this salient issue, but one study on Pakistan found that remittances have a positive and significant effect on the accumulation of two assets in rural Pakistan: irrigated and rain-fed land. This is a significant finding since it suggests that instead of squandering their money on increased consumption remittances can and do lead to rural asset accumulation. The study found that in rural Pakistan migrants have higher propensities to invest than their non-migrant counterparts. And as a rule, migrants in Pakistan avoid investing in areas that they do not know (such as business) in favor of committing their resources to what they know best (namely land).
Other empirical studies on Pakistan indicate that remittances improve the recipients’ standard of living. On the average, Pakistani migrant workers received five to eight times higher income abroad than they received in their home country, and remitted on average 78 percent of their earnings. A reduction in the flow remittances can have dual impact on poverty: it can reduce the impact of trade liberalization by limiting the inflow of imports; and it can reduce the income, as well as consumption of the households.
Similarly, studies on savings and investment patterns in Bangladesh show that there is higher saving rates for remittance receiving household than for the non-receiving households. The largest share of their disposable income from remittances is spent on land, home construction and home improvements.
Migration and inequality
General theory of migration holds that the poorest of the poor do not migrate. It is only those who have access to resources and information that migrate. First generation migrants are therefore always from a relatively richer, or well do, background. Only when they go through their social network then some poorer people migrate. International migration incurs some costs and it will always be a limited to better off families who have access to social resource will be the one to migrate. The new generation theory of migration based on social network focuses on information. The theory suggests that whoever has information will migrate, while money becomes secondary.
It is generally accepted that ‘inequality is clearly a major driver of migration.’ International migration is a powerful symbol of inequality where millions of workers and their families move each year across borders and continents seeking to improve the gap in their own position with those perceived to be economically better off. The real debate is not about the effect of inequality on migration, but the effect of migration on inequality. Examples can be found of migration both increasing and decreasing inequality in various part of the world. The final conclusion usually depends on the criteria that are used to evaluate the impact on migration on inequality. They could depend on the scale of analysis since circumstances that affect equality within the household, may be different between within a village, region or between countries. Location is another important factor since in destination countries migrants may not have equal access to rights compared to local workers; or in places of origin the selectivity of migrants, the sending of remittances and the social change that is brought about might affect socio-economic inequality. The time period is another significant factor since inequality is likely to change over time, because of the effect of networks which reduce the costs of migration and so extend the opportunity to migrate to a wide group of people. And finally, type of inequality one has in mind could also be significant since other than economic inequality (income and wealth levels) there are other types of inequality involved: between men and women; between generations; or between different ethnic and cast groups.
Analysis of the impact of migration at the village level in Bangladesh indicates that there is a multidimensional aspect to migration and inequality. A study of movement labourers from Talukpur, a village in Sylhet district, to the UK found that international migration can increase inequalities within villages of origin since well-to-do individuals and villages that have better access to long-distance migration improves their position in relation to the poor. Migration becomes the pole around which inequalities are clustered since it brings not only economic inequalities, but also broader social and cultural cleavages. On the other hand, the study also shows that although inequality has increased between the well-to-do households and the very poor, it has decreased inequality between the traditionally rich people in the village and the many poorer households who have now had opportunities to earn money abroad. In Talukpur, migration has not only just brought money to the community but also brought considerable changes in landownership and altered the political, social and economic power base of the area.
When examining the relationship between migration and inequality the key words to keep in mind are access and opportunity. Where poor people have greater choice in terms of migration, the net effect on inequality is likely to positive. Similarly, the more opportunities there are for migrants, the more beneficial the results. In fact, restrictions on migration can increase inequality, as has been the case of the unskilled female migrants from Bangladesh who have been forced to use ‘illegal’ methods to migrate and thus become vulnerable to exploitation and subjected to gender income inequality.
Use of remittances: some paradox
There is an additional paradox on how remittances are used. A study on Nepal which looked at the correlation between economic status, destination and remittances discovered that it is not only that the poor do not benefit directly, but that the rather well-off migrants who go abroad to get more lucrative salaries do not send money back home. The poor usually stay home since they do not have network, access to information or resources to go even to India. For those that go to India, they do not usually get the jobs they are seeking but have to buy the job through networks in India. The group going to the Gulf States and Malaysia are the ones that remit the money back home since they cannot keep the money there indefinitely. They are the ones that sustain Nepal’s economy since they send back home 100 percent of the money they save. Those going to UK, USA, Canada, or Australia do not usually remit the money to Nepal. They earn money and invest it in their country of residence, or use it to take family members to their new country of residence. As such it was found that it is not the people who are well-off but the less well to do labour migrants in the Gulf States and Southeast Asia who sustain the Nepalese economy.
An independent study on Nepal suggests that there is a vast discrepancy in the earning of the migrant workers and the money they actually send back home. In 2001, out of 1,154,576 persons who the study estimated were abroad as migrant workers, 900,000 were in India, 170,000 in the gulf States and 40,000 in the West (Europe, US, Japan, Australia). Nepali workers in India remit on average only NRs 9,000 per year, while the migrants from the West send on an average NRs 450,000 per year, with those from the Gulf States accounting for an average of NRs. 90,000 per years. Remittances from the West and Gulf States (mostly the latter) accounted for 75 percent, while the amount coming from India accounted for less than 20 percent even though 77 percent of the migrant head across the border.
Looking only at geographical distribution of migrants within their own country and household distribution of remittances do not provide the full picture on the poverty reduction with remittances hypotheses. Sri Lanka’s and Nepal’s experience illustrates that even though large numbers of migrants going abroad are from the richest districts, and not the poorer ones, poverty reduction has taken place. In the case of Sri Lanka, 27 percent of the migrants were found to be from the Western province, which produces over 50 percent of the GDP of the country. Monaragala district where the poverty indices are the worst has only one percent of migrant workers. There are only 15 percent of migrants from the entire North and Eastern provinces, while only small percentage of workers have migrated from tsunami affected areas.
In Nepal also the poorest of the poor (20 percent of the population) are not in a position to migrate. Labour migration has taken place from areas that are relatively richer, because it also requires investment.
However, the utilization pattern of remittances by recipients suggests that it can not only make the lives of the migrant workers less vulnerable but can also uplift them from poverty. One study on Sri Lanka suggests that out of the total income, remittance recipient families spend 56 percent on foods and 18 percent on education, which meets the basic needs of the families trying to move out of poverty. The utilization pattern of savings in real estates (44 percent), to clear indebtedness (13 percent) and education of children supports the poverty reduction hypothesis.
(Courtesy: Paper presented by the author at a Seminar jointly organized by South Asia Centre for Policy Studies and Friedrich Ebert Stiftung)
2008-02-20 08:11:12

[K]

Another reason why America's immigration policy is stupid. The more
money immigrants sent home, the more "imported" American products
their relatives can buy with it back home.

[Najia Alavi]

An article I'd written in 2004 for Pakistan's DAWN on blue-collar workers in Dubai and how remittances are a double-edge sword. A separate section at the end on remittances.

The Sweat, The Blood, The Returns
By Najia Alavi

Pakistani workers are living the “Dubai Dream” on velvety carpets and 24-hour air-conditioning, bringing home bags full of goodies. Dubai looks like a vast desert building site interspersed with magnificent high-rises and luxurious grasslands. The situation is win-win all around. Or is it? Najia Alavi reports

As deceptive as appearances can be, the glitz of Dubai may not be all that it seems. Pakistan’s increasing dependence on remittances may or may not be that great a thing. The “Dubai Dream” is just that — a fantasy, a dream that closes its eyes on the grueling 12-hour work day outdoors in the sweltering nine-month-summer heat. With construction continuing round the clock every day, the building site is all too quickly transforming into opulence, but vacant towers prompt analysts to declare that the bust in the booming construction industry may be just around the corner.

Read the rest here:
http://www.dawn.com/weekly/review/archive/040325/review7.htm

________________________________________

Remittances: A high price to pay?

The workers’ remittances (portion of earnings that workers send back home) shot to $3.10 billion in the fiscal year July-March 2002-03 up by nearly 100 per cent from $1.54 billion in the corresponding period of 2001-02. UAE was the second biggest contributor, after the US. Pakistani government officials are ecstatic. Recognizing the boost remittances can give to foreign reserves, they are looking at new and better ways of exporting cheap Pakistani labour to foreign lands.

Read the rest here (scroll to the bottom):
http://www.dawn.com/weekly/review/archive/040325/review7.htm

— N. A.

[kds]

Nepalis, and America’s Seasonal Workforce

...According to the US Embassy in Nepal, 229 Nepalis were given H2B visas in 2006 (Mexico topped with 79,992, Jamaica followed with 13,129, and Guatemala with 4,961). Nepal's number dropped to 171 in 2007, but this year it has already reached 313.

... In the last several years, Nepal's economy has grown increasingly dependent on remittance funds sent home by Nepalis working in foreign countries. A majority of this workforce is based in the Gulf region, or in countries like Malaysia, but not in the US. "There isn't any official data as such on just how much money comes into Nepal through remittance," explains Kiran Nepal, who covers finance for Himal Khabarpatrika, "And the data that is there show a very low figure. But we estimate it to be as much as Rs.125 billion."

However, Nepalis in the US have shown to be a relatively minimal contributor to this process, mainly because a majority of them come as students or Diversity Visa (DV) lottery winners, eventually settling down as permanent residents to the US. The trend is to establish themselves as residents, unlike the seasonal workers who go to the Gulf region and other countries with an intention to return.