However, in Central Asia, the story is more complicated. This is because the region’s poorer countries, Tajikistan and Kyrgyzstan, depend critically on Russia through trade and remittances.
Falling remittances, reflecting the weakness of the Russian Ruble
According to just-released Russian Central Bank data, outward remittances from Russia fell sharply in the first half of the year, in USD terms. In the first six months of 2015 (relative to the same time in 2014) private transfers from Russia to Tajikistan and Kyrgyzstan are reported to have fallen by over 45% and 30% respectively. While less exposed, Uzbekistan has experienced a loss of even greater magnitude: -48%.
When a Moroccan fruit-seller closes his stand each evening at the Porta Palazzo market in Turin, Italy, he thinks about how much money he made that day, how much he can send to his family back in Morocco that week, how much it will cost to send that money, and how many Dirhams his family will receive.
As I mentioned in my previous blog, a renewed focus on Anti Money Laundering and Combatting the Financing of Terrorism (AML-CFT) regulations in Australia, the UK, and in the USA are impacting banks and MTOs.
Three effects on the remittance markets are observed. First, Banks stopped offering low cost remittance services. Second, banks closed accounts of MTOs. Two major banks, the Commonwealth Bank and the National Australia Bank, have closed already the accounts of MTOs in Australia. Recently, Westpac announced that it will close the bank accounts of MTOs serving Somalia by the end of this month. And third, small MTOs also closed since they could not any longer operate without bank accounts.
Remittances to Sub-Saharan Africa (SSA) have increased steadily in recent decades and are estimated to have reached about $32 billion in 2013. Though studies have shown that remittances can affect aggregate financial development in SSA — as measured by the share of deposits or M2 to GDP (Gupta et al. 2009), to my knowledge there is no evidence for this region on the impact of remittances on household financial inclusion defined as the use of financial services. This question is important because there is growing evidence that financial inclusion can have significant beneficial effects for households and individuals. In particular, the literature has found that providing individuals access to savings instruments increases savings, female empowerment, productive investment, and consumption. Furthermore, the topic of financial inclusion has gained importance among international bodies. In May 2013, the UN High-Level Panel presented the recommendations for post-2015 UN Development Goals, which included universal access to financial services as a critical enabler for job creation and equitable growth. In September 2013, the G20 reaffirmed its commitment to financial inclusion as part of its development agenda.
In post conflict countries, those who have made it out of the country are keenly aware that the livelihoods of those left behind vitally depend on remittance transfers. While concerns have been expressed about the possibility that remittances may stoke conflict, the majority view is that Diaspora support from abroad can contribute to democracy. It has been clearly established that private remittances are of central importance for restoring stability by enhancing human security in strife-torn societies. As in much of Sub-Saharan Africa, due to the predominantly informal nature of remittance delivery mechanisms, the magnitude of remittances to the economies of these regions has been under-estimated.
Robots have been a part of our mythology for thousands of years, the emphasis alternating between their positive transformative power over human society and acting as agents of great destruction. Our image of robots has been shaped to a large extent by Hollywood and literature. Celluloid robots in Star Wars, 2001 Space Odyssey, Robocop, Star Trek and many of Isaac Asimov’s novels have become a part of the human story. Off-celluloid, robots have been helping our society in concrete ways (for example police work (bomb disposal), infrastructure projects etc.). However when Watson won Jeopardy it brought artificial intelligence and robotics a new kind of attention. People started to wonder if robots could replace humans. When we think of robots we think of self driven cars, household robots or even warrior robots. However, in our view, the influence of robots and Artificial Intelligence (AI) is more subtle and their presence more ubiquitous than one would think. One such impacted sector is the agriculture sector (in the US) which is on the cusp of a massive transformation, as it moves from mechanization to automation. When rolled out and commercialized (soon) this massive scale of automation will have a significant impact on US farming and on immigration for sure. But does this also impact the development landscape? If so how?
Agricultural robotic systems have been implemented in fruit and vegetable harvesting, greenhouses and nurseries. Harvest Automation, for example, has developed the the HV-100, a 90-pound robot for commercial nurseries that can pick up and rearrange potted plants. There are quite a few silicon valley startups that are contributing to this revolution in the region known as “America’s Salad Bowl”, around Salinas Valley. California, where Salinas Valley is located, produced $1.6 billion dollars worth of lettuce in 2010 and 70%+ of all lettuce grown in America. Lettuce Bot, a new robot developed by Stanford engineers Jorge Peraud and Lee Redden, both from farming families from Peru and Nebraska, can “produce more lettuce plants than doing it any other way” (Yahoo Finance). Lettuce Bot’s innovation is that while attached to a tractor, it takes pictures of passing plants and compares these to a database. When the weed or a lettuce head that is too close to another one is identified, a concentrated dose of fertiliser is sprayed. A close shot of fertilizer kills the errant weed or lettuce head but actually feeds the further off crops at the same time.
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
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: