It has often been said that the diaspora of developing countries possess considerable wealth that can be tapped – via issuance of diaspora bonds – for the origin countries’ development. We have just released a Migration and Development Brief where we present some preliminary estimates of the annual savings of the global diaspora from developing countries.
As outlined in chart 1, there are three broad elements to estimating savings of the diaspora from developing countries: (a) the size of the diaspora stocks in the different host countries, (b) the average income of the diaspora members, and (c) their propensity to save. However, lack of comparable data on migration and migrants’ income across host countries, the undocumented status of many migrants, and differences in the concepts used for income and savings across countries make this exercise especially challenging.
|Chart 1: Diaspora savings and potential market for Diaspora bonds.|
|Click here to see a larger version of this chart.|
Based on recent data on bilateral migrant stocks (see Migration and Remittances Factbook 2011) and some assumptions about incomes and the propensity to save of migrants, we estimate the savings of the diaspora of developing countries. These estimates are based on the assumptions that members of the diaspora with college degree earn the average income of their host countries, the migrants without tertiary education earn a third of the average household incomes of the host countries, and both skilled and unskilled migrants have the same personal savings rates as in their home countries.
These estimates suggest that annual diaspora savings of developing countries could be in the range of $400 billion, of which $34 billion is attributable to the diaspora of low income countries. Understandably, savings are higher for the countries that have more migrants in the high-income OECD countries. But diaspora saving as a share of GDP is estimated to be 2.3 percent in middle-income countries and as high as 9 percent in low-income countries.
While there are many caveats to these necessarily rough estimates (see the Brief), they provide a sense of the order of magnitude of the potential financial resources available with the diaspora of developing countries. These savings are currently mostly invested in the host countries of the diaspora. It is plausible that a fraction of these savings could be attracted as investment in both middle income and poor countries if proper instruments and incentives (e.g., diaspora bonds) can be designed by these countries.