Migration and Remittances
It is said short absence quickens love, long absence kills it. This is not always true in reality. One case is remittance behavior of long-term migrants. The remittance literature argues that the amount of remittances sent by migrants to their countries of origin declines through time. Reunification of families or breakdown of family ties underpins such behavior. However, the empirical evidence is not all supportive. The passage of time does not significantly influence migrant remittance behavior. Remittances are maintained at high levels over long periods. This allays concern that economies dependent on remittances will face foreign exchange shortages and falling living standards as remittance levels fall because of reduced migration rates and decline in migrants' willingness to remit over time.
What is the Bangladesh experience? One way to judge is to look at the remittance behavior of Bangladesh diaspora abroad. There is no reliable data on the number and location of Bangladeshi diaspora members. A recent ILO report–Reinforcing Ties: Enhancing contributions from Bangladeshi diaspora members--estimates the number of Bangladeshi migrants living permanently in the United States and Europe at around 1.2 million.
How much social mobility is there in South Asia? The intuitive answer is: very little. South Asia is home to the biggest number of poor in the world and key development outcomes – from child mortality to malnutrition – suggest that poverty is entrenched. Absence of mobility is arguably what defines the caste system, in which occupations are essentially set for individuals at birth. Not surprisingly, the prospects for people from disadvantaged backgrounds to prosper are believed to be gloomier in this part of the world.
And yet, our analysis in Addressing Inequality in South Asia, reveals that economic and occupational mobility has become substantial in the region in recent decades. In fact, it could even be comparable to that of very dynamic societies such as the United States and Vietnam. The analysis also suggests that cities support greater mobility than rural areas, and that wage employment – both formal and informal – is one of its main drivers.
When splitting the population into three groups—poor, vulnerable, and middle class—upward mobility within the same generation was considerable for both the poor and the vulnerable. In both Bangladesh and India, a considerable fraction of households moved above the poverty line between 2005 and 2010. Meanwhile, a sizable proportion of the poor and the vulnerable moved into the middle class. In India, households from Scheduled Castes and Scheduled Tribes – considered together – experienced upward mobility comparable to that of the rest of the population.
Watching export growth across South Asia surge in the recent past leads one to ask the obvious but crucial question: Will this trend continue in the longer term and is South Asia on its way to become an export powerhouse, or has it just been a short term, one-off spurt provoked by external forces?
Clearly, the rupee depreciation following tapering talk in May 2013 and the recovery in the US constituted favorable tailwinds; however, our analysis in the fall 2014 edition of the South Asia Economic Focus finds that there are more permanent factors at play as well. South Asia is no exception to the trend across developing countries of increasing importance of exports for economic growth. While starting from a low base, the region saw one of the starkest increases in exports to GDP, pushing from 8.5 percent in 1990 to 23 percent in 2013.
In introductory macroeconomic class, students learn the theory of the multiplier and many interesting counterintuitive notions such as the paradox of thrift and the balanced budget multiplier based on the multiplier process. Essentially, the multiplier multiplies because one person’s expenditure is another person’s income of which they spend a fraction, which in turn becomes another person’s income, of which a fraction is spent and the process eventually converges with subsequent increments to income getting smaller and smaller.
How does the multiplier process work in reality? The Refugee Migration Movement Research Unit (RMMRU) in Bangladesh has recently completed the first phase of a longitudinal research on the impact of external and internal migration on income and poverty in Bangladesh. The research is based on a survey of 5084 external, internal and non-migrant households from 102 villages. Among others, one of the most interesting is their findings on the impact of external migration on local level development through remittances and expenditure behavior of remittance recipients. Note that since the mid-1970s, Bangladesh has participated mostly in the short-term international labor markets of the Gulf and other Arab countries, as well as South East Asian countries. Over the last ten years, an average 500,000 workers have migrated abroad for work each year. Currently, an estimated 8 million Bangladeshi workers are on short-term migration abroad.
In 2013 the short-term international migrant (STIM) households on average received Tk 251,400 (over $3100) as remittance. The maximum amount received was Tk 4,400,000 and the minimum was Tk 6000. The study found international migration plays a significant role in reducing poverty. Only 13 percent of the STIM households were below the poverty line, compared with 40 percent of the non-migrant households. The survey particularly covered those groups that were either below poverty line, experienced occasional deficits, or ‘break-even’ situations at the time of their first international migration.
The Bangladesh Bureau of Statistics (BBS) has just released a Survey on the Use of Remittances. The survey provides interesting update on the demographic and economic characteristics of the 8.6 million Bangladeshi workers currently working abroad. Conducted during 12-23 June 2013, the survey enumerated 9,961 Remittance Receiving Households (RRHs) from all the seven divisions of the country.
Overall, the survey mostly reaffirms findings from previous surveys and studies about migration and remittance behavior of Bangladeshis.
Who are the migrants?
The overwhelming majority (97.4 percent) of migrants are males, married (67.1 percent), Muslims (97.8 percent) most of whom (78.2 percent) are less than 39 years old with majority (61.5 percent) having less than ten years of education.
The majority (over 57 percent) of the migrants have been staying abroad for over 5 years and a significant (22.3 percent) proportion (largely from Sylhet) have been staying abroad for over ten years. Most (91 percent) work as blue colored labor in Saudi Arabia, UAE, Malaysia, Oman, Kuwait, South Korea and Singapore. Most of them (87.8 percent) received no formal training before leaving the country.
Guest workers have played an integral role in the Gulf since the 1970s where the demographic changes accompanying these labor flows occurred at an extraordinarily rapid pace. The region’s aggregate population has increased more than tenfold in a little over half a century, but in no other region of the world do citizens comprise such a small proportion of the population. While this ‘demographic imbalance’ makes the Gulf unique, what differentiates it is not its economic and demographic expansion through migration but the degree to which the region’s governments have excluded foreign workers from being integrated into the national polity. This exclusion of foreign workers is a result of a conscious policy.
Labor migration to Gulf Cooperation Council (GCC) countries are mostly governed under a sponsorship system known as Kafala. Migrant workers require a national sponsor (called Kafeel) and are only allowed to work for the visa sponsoring firm. The workers must obtain a no-objection certificate from the sponsor to resign and have to leave the country upon termination of the usual 2 to 3 years’ contract before being allowed to commence a new contract under a new sponsor. Tied to the sponsor, the migrants become immobile within the internal labor market for the duration of the contract. Consequently the sponsors benefit from non-competitive environments where they extract substantial economic rents from migrant workers at the expense of inducing significant inefficiencies in production.
The Kafeels pay workers an income above the wage in their country of origin and obtain economic rents equal to the difference between such earnings and the net marginal return from employing the migrant worker. Migrant workers are paid the initial nominal wage throughout the entire contractual period. They are even made to accept lower wages than contracted initially. Immobilized by labor restrictions, workers cannot command a higher wage even when there is demand for their services by rival firms willing to hire them in order to avoid the cost of hiring from abroad. Kafeels have also found other ways of extracting rents in recent decades by indulging in visa trading. They allow their names to be used to sponsor foreign workers in exchange for monetary gains.
Arguably, rents per-se should not directly create adverse effects because they are essentially redistributive transfers. Earnings paid to migrants are sufficient to motivate them to migrate. The migrants do not leave. But this view is over-simplistic. The combination of short contracts, flat wages, and lack of internal mobility kills the incentives for migrant workers to exercise higher effort levels in production and engage in activities that enhance their human capital. Any productivity gain would go to the sponsor in the form of rents. The system provides incentives to entrepreneurs to concentrate on low-skills, labor-intensive activities where the extraction of economic rents is easier. Such sponsor-worker behavior explains for instance why despite the massive investments in Dubai, the economy-wide efficiency levels (average labor productivity) have not improved in the last two decades while in Hong Kong, they doubled and in Singapore quadrupled.
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