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remittances

Migration and Development: Who Bears the Burden of Proof? Justin Sandefur replies to Paul Collier

Duncan Green's picture

Justin Sandefur responds to yesterday’s post by Paul Collier on the impact of migration on developing countries, and you get to vote.

The global diaspora of educated Africans, Asians, and Latin Americans living in the developed world stand accused of undermining the development of their countries of origin.

Paul Collier’s recent book, Exodus, makes the case for strict ceilings on the movement of people from poor countries to rich ones.  My colleague Michael Clemens and I already reviewed the book at length for Foreign Affairs (ungated here), but Duncan asked me to respond to the specific issue Paul raised in his recent post for this blog: that skilled migration from some low-income countries is so high that it undermines the development prospects of people “left behind”.

I suspect many people reading this blog in Europe or North America share Professor Collier’s skepticism about skilled migration. You are not racist or xenophobic.  You are concerned about the plight of the global poor, and you welcome diversity in your community. But you worry that maybe Paul’s right.  Maybe the fate of your university-educated Haitian neighbor down the street, earning a good salary and sending her kids to good schools since moving to the UK, is a distraction from, and maybe even a hindrance to, reducing poverty in Haiti.

How Does Emigration Affect Countries-of-Origin? Paul Collier Kicks Off a Debate on Migration

Duncan Green's picture

Take a seat people, you’re in for a treat. Paul Collier kicks off an exchange with Justin Sandefur on that hottest of hot topics, migration. I’ve asked them to focus on the impact on poor countries, as most of the press debate concentrates on the impact in the North. Justin replies tomorrow and (if I can work the new software) you will then get to vote. Enjoy.

How does emigration affect the people left behind in poor countries? That many countries still provide little hope of even basic prosperity to their citizens is the great global challenge of our century. It is a vital matter that the poorest countries catch up with the rich world, but it will require decades of sustained high growth. To see how emigration might affect this process of convergence we need some understanding of why poor countries have remained poor. Poverty persists in very poor countries because of weak political institutions, dysfunctional social attitudes, and a lack of skills. These all make it difficult to harness economic opportunities. Emigration can either help or hinder convergence depending upon who leaves, how many leave, and for how long they go.

Potentially the most important effect of emigration is on political institutions and social attitudes. There is now solid evidence that emigrants can be influential in their home societies. Students from poor countries who have studied abroad in democracies and then return home bring with them pro-democracy attitudes. They spread these attitudes and are sufficiently influential that they speed up democratization. An astonishingly high proportion of the political leaders of poor countries have studied and worked abroad, and this equips them with both new skills and new attitudes. Even migrants who do not return have some influence with their relatives back home. During elections they give advice and commentary, and they become role models for smaller family size.

Explaining the Recent Decline in Remittances in Bangladesh

Zahid Hussain's picture

Migrant workers sent $6.77 billion home to Bangladesh in July-December, down 8.41% from the same time a year ago. For the first time in recent memory, Bangladesh has experienced a decline in remittances in the first half of the fiscal year.

There are four factors that can potentially account for the decline in remittances: the stock of Bangladeshi migrants abroad, earnings per migrant worker, their average propensity to save, and their average propensity to remit money home out of those savings.

The standard refrain appears to be that the flow of remittance has declined because the stock of Bangladeshi migrants abroad is not growing like it used to. This is because of two reasons. First, Bangladesh is failing to send more workers abroad to traditional markets and exploring new markets. Only 450,000 migrants managed oversees jobs in 2013, down by more than 33% from 680,000 in 2012. Second, the number of migrant workers returning to Bangladesh has also increased because the government could not resolve problems related to the legal status of Bangladeshi migrant labors in Saudi Arabia, the United Arab Emirates and Kuwait through diplomatic channels. Unfortunately, there is no reliable time series on the annual number of migrant returnees from abroad.

Is that the full story?  I doubt it although it is generally assumed that the current migrant workers are sending money home as per their maximum capacities and have little capacity to increase the flow.

Putting $8.7 billion back in the pockets of Asia’s migrants

Massimo Cirasino's picture


Governments and private sector actions can drive down remittance prices for migrants (Credit: DFID-UK, Flickr Creative Commons)
An estimated 215 million people – 3 percent of the world’s population – have emigrated far from home in order to earn enough to support their families. They include workers from Bangladesh who go to Saudi Arabia to work in the construction trade, Afghans who go to Iran to work in the oilfields, and workers from Burkina Faso who go to Cote d’Ivoire to work on the cocoa or coffee harvests.

Toiling far from their loved ones is not their only burden. When migrants send their money home, they are often charged exorbitant fees, which can account for a large portion of the small sums being sent - sometimes upwards of 20 percent – and can inflict a punishing burden on poor migrants.

Longreads: China 2013 Survey, Low Carbon Competitiveness, Pakistan’s Overseas Workers, the Great Chinua Achebe

Donna Barne's picture

Find a good longread on development? Tweet it to @worldbank with the hashtag #longreads.

 

LongreadsChina’s prospects stirred interest as the BRICs met in South Africa and a new survey by the Organization for Economic Co-operation and Development found China on course to become the world’s largest economy by 2016. The OECD study says China has “weathered the global economic and financial crisis of the past five years better than virtually any OECD country” and should be able to continue catching up and improving living standards over the next decade.  While the OECD study says China needs to shift to more environmentally friendly modes of consumption and production, a new Climate Institute/GE Low-Carbon Competitiveness Index finds that France, Japan, China, South Korea and the United Kingdom are “currently best positioned to prosper in the global low-carbon economy.”

Climate Institute/GE Low-Carbon Competitiveness Index
Climate Institute/GE Low-Carbon Competitiveness Index

A flower for Sharon Russell

Dilip Ratha's picture

It was early 2001, I think, when I got a call inquiring about future-flow securitization of remittances. She was preparing for a talk at the UN, the caller said, and she was intrigued by yet another way in which remittances impact the migrants’ country of origin. That was two years before I began my research on remittances. The caller that day was Dr. Sharon Stanton Russell, a pioneer in the field of remittances and migration, a mainstay of migration studies at MIT and the Inter-University Committee on International Migration (IUCIM).

Sharon passed away on February 27, 2013. More than 300 people attended her funeral on March 23.

One additional African migrant creates about USD 2,800 (a year) in additional exports for his/her country of origin

Raju Jan Singh's picture

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.

Turning the post office into a force for financial inclusion

Isabelle Huynh's picture

photo by: Amortize, Flickr Creative Commons

In the old times, the post office was the main connector between cities and villages, moving letters and money to every corner of the country, and contributing towards the territorial consolidation of states under construction.

Nowadays in developing countries, the post office is often seen as an old, inefficient, deficit-making, and outdated public service which has not been able to keep up with the evolving markets. It takes some imagination to see the post office as a potential engine for economic growth and social inclusion.

Get the Conditions Right for Remittances to Matter

Zahid Hussain's picture

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

How Remittances Grease the Wheels of Bangladesh’s Economy

Zahid Hussain's picture

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:


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