Economic Implications of Remittances and Migration
Dilip RathaWorld Bank
Global Issues Seminar SeriesOctober 11, 2006
Development implications of migration and remittances
Migration and remittances continue to increase
South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
There is considerable scope for reducing remittance costs faced by poor migrants
Development implications of migration and remittances
Migration and remittances continue to increase
South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
There is considerable scope for reducing remittance costs faced by poor migrants
International migration has increased
Stock of migrants as share of destination countries’ population (%)
2.2
4.3
1.6 1.6
2.9
8.3
1.81.3
World Industrial countries Developingcountries
Developingcountries, excl.
USSR
1970 2000
Source: UN
-25
25
75
125
175
225
275 $ billionPrivate debt and portfolio equity
FDI
ODA
Recordedremittances
Remittances are large, have continued to increase
22 21
18
1312
India China Mexico France Phili-ppines
Top recipients of remittances - 2004
31
27 26 2523
Tonga Moldova Lesotho Haiti Bosnia-Herz.
$ billion % of GDP
39
14 1310
6
U.S.A. SaudiArabia
Switzer-land
Germany Russia
Top sources of remittances, 2004
0.3
0.2
0.7
0.3
Low-income Lowermiddle-income
Uppermiddle-income
High incomeOECD
$ billion% of GDP
Development implications of migration and remittances
Migration and remittances continue to increase
South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
There is considerable scope for reducing remittance costs faced by poor migrants
5148
11
78
91
22
45
29
5
South (Developingcountries)
North (High-IncomeOECD)
North (High-Incomeexcl. OECD)
Number of migrants in millions
1965 1965 19651985 1985 19852005 2005 2005
Migration to the South has been significant
Source: United Nations
Global migrant stocks (millions)
Migrants inSouth North
(HI OECD)North
(HI non-OECD)Total
Migrants from:
South 74 62 20 156
North (HI OECD)
3 25 1.2 30
North (HI non-OECD)
1 4 0.3 5
Total 78 91 22 191
Source: World Bank staff calculations based on migration data from University of Sussex, United Nations, and World Bank
Destinations of migrants from the South
South47%
North (HI-non-OECD)
13%
North (HI-OECD)
40%
0 1 2 3 4
Cuba-USBurkina Faso-Cote
Malaysia-SingaporeIndia-Bangladesh
Vietnam-USChina-USIndia-US
Pakistan-IndiaEgypt-Saudi ArabiaIndia-Saudi Arabia
Algeria-FranceAfghanistan-Iran
Philippines-USIndia-UAE
Turkey-GermanyBangladesh-India
Mexico-US
South-South
South-North
10.4
millions of migrants
Top migration corridors include several South-South corridors (excluding the FSU)
Source: University of Sussex and World Bank
0 1 2 3 4 5
Russia-Kazakhstan
Kazakhstan-Russia
Ukraine-Russia
Russia-Ukraine
millions of migrants
Former Soviet Union corridors are among the largest South-South corridors
South-South remittances were likely between $19 to $53 billion in 2005
Sources of Remittances to developing countries
($ billion, 2005)By migrant
stocksBy migrant stocks and host country
incomes
By migrant stocks, host country incomes, and sending country
incomes
South 53 19 32
North 128 162 149
Total 181 181 181Source: World Bank Staff estimates
Development implications of migration and remittances
Migration and remittances continue to increase
South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
There is considerable scope for reducing remittance costs faced by poor migrants
Remittances reduce poverty
Evidence from a few household surveys shows that remittances reduce poverty
Cross-country evidence shows that a 10% increase in per capita remittances leads to a 3.5% decline in the share of poor people
Remittances also finance education and health expenditures, and ease credit constraints on small businesses
Remittances tend to rise following crisis, natural disaster, or conflict
Remittances as % of private consumption
0.5
1.2
1.7
1.4
2.0 2.0
1.0
2.0
1.8
Indonesia Mexico Thailand
year before
year of crisis
year after
Remittances improve countries’ access to capital
0
100
200
300
400
500
600
700
800
Excluding remittances
Including remittances
Present value of external debt as % of exports of goods, services, and remittances
Large remittance flows may lead to currency appreciation and adverse effects on exports
Remittances may create dependency
Remittance channels may be misused for money laundering and financing of terror
Downside
Development implications of migration and remittances
Migration and remittances continue to increase
South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
There is considerable scope for reducing remittance costs faced by poor migrants
Remittance fees are high, and regressive
16
9
76
5 5
$100 $200 $300 $400 $500 $600
Fee and foreign exchange commission as % of principal
Weighted average of fees of four largest money transfer operators in the U.S.-Mexico corridor
$10
$12
$27
$29
$35
$13
$23
$24
London-Lagos
Cotonou-Lagos
Singapore-Jakarta
Kuala Lumpur-Jakarta
Jakarta-Kuala Lumpur
Los Angeles-Mexico City
Guatemala City-Mexico City
Mexico City-Guatemala City
South-South
North-South
Fee and FX commission $
South-South remittance costs tend to be higher than North-South costs
Policy prioritiesGovernments can provide information
and regulate intermediaries to reduce risks, costs of migration
High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry
Governments should not tax remittances or direct the allocation of expenditures financed by remittances
Policy prioritiesGovernments can provide information
and regulate intermediaries to reduce risks, costs of migration
High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry
Governments should not tax remittances or direct the allocation of expenditures financed by remittances
Policy prioritiesGovernments can provide information
and regulate intermediaries to reduce risks, costs of migration
High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry
Governments should not tax remittances or direct the allocation of expenditures financed by remittances
Future work
Improving bilateral migration data
Understanding impacts (on incomes, inequality, health, gender, and migrant rights)
Better management of migration
Reducing remittance costs
Retail payment systems- Remittance costs- Payment platforms/instruments- Regulation (clearing and settlement, capital
adequacy, exchange controls, AML/CFT, disclosure, cross-border arbitration)
Financial access- Deposit and saving products- Loan products (mortgages,
consumer loans, microfinance)
- Credit history for MFI clients- Insurance products
Monitoring, analysis, projection- Size, corridors, channels- Counter-cyclicality - Effects on poverty, education, health,
investment
Capital market access- Private banks and
corporates (securitization)- Governments (diaspora
bonds)- Sovereign credit rating