Standard trade literature tends to view migration and trade as substitutes. In that framework, either workers migrate to satisfy foreign demand or foreign demand is satisfied by trading goods and services. There is a growing literature, however, emphasizing that migrant networks facilitate bilateral economic transactions by disseminating their preferences for goods from their country of origin and/or by removing informational and cultural barriers between hosts and origin countries. In this case, migration would reduce transaction costs associated with trade and may be a complement rather than a substitute to trade.
Since I’ve had three emails in one week asking me about this issue, I figured I might as well blog about it and have something to refer people to instead. The questions have all been variants of:
· Are women better remitters than men?
· Does having mothers migrate result in worse outcomes for kids than having their fathers migrate?
Recent evidence suggests that remittances have a positive impact on economic growth. This post will examine evidence based on an international panel data set that captures the surge in migration and remittances observed during 2006-09. The dataset includes 70 countries spanning from 1990 to 2009. This to our knowledge is the most recent data set that has been used in empirical remittance work. The recent effort of countries to decrease money laundering, use of improved technology and decrease in transaction costs is leading to a decrease in the unofficial portion of remittances. There has also been a surge in migration and remittances in the last half of the past decade. Thus this dataset should more comprehensively capture the growth impact of remittances compared to previous studies. Different models used to calculate the impact of remittances on growth are detailed in the report titled Bangladesh: Towards Accelerated, Inclusive and Sustainable Growth—Opportunities and Challenges, Volume II, Main Report, published in June 2012.
The impact of remittances on per capita GDP growth is economically significant
I have a UN Laissez Passe. I have a German Passport. I have a US Passport. And, I am enrolled in the Global Entry trusted traveler program in the US. Yet, for the second time in a row, and perhaps the third or fourth time over the past couple of years, I have had the pleasure of extra screening upon exiting Dulles International Airport in Washington, DC. I am shepherded to a separate and over-crowded room. I show my passport and Global Entry customs declaration form. The officer takes these from me and asks me to have a seat and wait until I am called.
What impact do remittances have on stimulating overall economic growth? Remittances can be used for consumption and investment which further stimulates demand for goods and services, as well as contribute to financial development. On the other hand, they can create dependence in recipients and cause real exchange-rate appreciation which adversely affects domestic production.
The answer is an empirical one which we can answer using available data. Our findings echo recent economic research which shows that remittances, even when not invested directly, can have an important multiplier effect.
In our study, we focused only on the magnitude of the impact of remittances on aggregate demand in Bangladesh and calculated the traditional Keynesian multiplier effect, that is how much income is generated from every remittance dollar, following the approach adopted by Nicholas Glytsos by estimating a consumption function, an investment function, and an imports function. To estimate the parameters we used data from the Bangladesh Bureau of Statistics national accounts covering the period 1981-2010. We ran simple Ordinary Least Squares regressions to estimate the structural parameters. Here is a summary of our results:
Why do migrants send money back home? Distinguishing the different motives helps us understand the role these transfers play in influencing the behavior of households, and the policy implications of alternative motives can be very different.
I tried answering this question using micro survey data from Bangladesh on possible motivations, using a multivariate regression model.
The results were a little unexpected. Overall, the evidence contradicts the argument that remittance-receiving countries have little scope for policy intervention. The analysis shows that remittances are not driven exclusively by the need for family support but also by the migrants’ skill and education level and motivation to transfer their savings as investment in their home country. Thus, contrary to conventional wisdom, remittances play a vital role in not only supporting consumption but also in serving as an important source of investment funding. The extent to which remittances contribute to investment depends on the supportiveness of government policies and whether the economic environment is conducive to investment activity.
Surprisingly, none of the demand side variables—the existence of a surviving parent or spouse—seem to matter. Among the supply side variables, education and skill matter most.
Even as the US media is in a frenzy about comprehensive immigration reforms - long overdue, but in terms of detail, still more forest than trees - there is another sense of urgency about how might migration feature in the post-2015 development goals (see my earlier blog).
Migrant workers, earning money in jobs far from home, sent more than $400 billion to their families back home in 2012. Such remittances remain a vital source of income for millions of people in developing countries: Food, housing, education, health care and more are paid for every day by workers who earn money abroad. Through a simple and repetitive transaction – sending money home – those workers are really sending heart-warming feelings like hope for a better future and love of family.
Remittances sent by migrant workers have emerged as a key driver of poverty reduction in many developing countries. Bangladesh has caught up with growing migration trends since the mid-70s when only 6,000 Bangladeshis were working abroad. Today, there are about 8 million. Migration has now become a major source of gainful employment for Bangladesh’s growing number of unemployed and under-employed labor force. The sharpest increase in the level of manpower exports occurred during 2006--2009. Remittances have grown at a rapid pace, particularly since 2004.
So, what are the key correlates of aggregate remittance inflows in Bangladesh? What does the data tell us about Bangladesh? Many researchers have used aggregate data to analyze the macro-economic factors affecting the behavior of remitters. For example, Barua et al (2007) show that income differentials between host and home country and devaluation of home country currency positively and high inflation rate in home country negatively affect workers’ remittances1. Hasan (2008) finds remittances respond positively to home interest rate and incomes in host countries2. Ordinary Least Squares estimation is frequently used to characterize the statistical relationships between aggregate remittance inflows and their proximate macro correlates.
The key finding is that a limited number of macroeconomic factors are important in predicting the behavior of aggregate remittances.
Preparations are underway for the 6th International Conference on Migration and Development, which will be held in Morocco on May 18-19, 2013.
A call for papers is now open, with a January 31, 2013 deadline.