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Newly released data from nine countries underscore the resilience of remittances

Dilip Ratha's picture

Contributions also made by Sanket

Earlier this week, several countries reported monthly data for December 2008. As shown in figure 1, these data are in line with our expectations for 2008 (outlined in Migration and Development Brief 8). For five Latin American countries together, remittances have remained almost flat. The growth of remittances to all nine countries in figure 1 taken together is exactly the same as that estimated in the brief (19.7 percent versus 20 percent).

Figure 1: Growth of remittances in 2008 for countries that report monthly data

* Actual data for Philippines and Kenya for January-November 2008; Dominican Republic for Jan-September 2008, and staff estimates for remaining months.
Source: Central banks of the respective countries and DECPG Migration and Remittances team.

Mexico

Remittance flows to Mexico dropped 10 percent year-on-year in December 2008, bringing the 2008 12-month total to $25 billion, a 3.6 percent decline compared to $26 billion registered in 2007. This decline is much smaller than the 8 percent decline projected by Mexico in August 2008.

The newly-released data also show a significant upward revision in the historical data going back to 2003. (The revision is mainly due to the inclusion of data from some new reporting intermediaries.) The upward revision in data is $100-$200 million per month, or $1.2-2.0 billion per year (figure 2 first panel). If we used the original data series, the year-on-year decline in remittances in December is only 3.2 percent. The 3-month moving average of monthly data shows that the slow down in the growth of remittances may be bottoming out (figure 2 second panel).

Figure 2: Remittance inflows to Mexico higher after revision

Source: Banxico, December 2008 (for pre-revision data) and January 27, 2009 (for post-revision data).

Mexico’s data may be overstating the impact of the financial crisis on remittance flows. Although recorded remittances to Mexico show a decline, the true size of remittances including those through informal channels are likely to be growing at a modest pace. As immigration enforcements have been tightened and workers have lost their documented status, it is likely that they are increasingly using informal remittance channels.

Resilience

Remittance flows to developing countries are expected to remain resilient compared to private flows which are expected to fall by 40-50 percent in 2009. There are several reasons for the resilience of remittance flows during economic downturns in remittance-source countries:

  • Remittances are sent by the cumulated flows of migrants over the years, not only by the new migrants of the last year or two. This makes remittances persistent over time. There is little evidence that migrant stocks are being affected, although new flows may be falling. In the past, these flows have represented some 2 percent of migrant stocks in the United States, 4 percent in the EU15 countries and about 5 percent in Gulf Cooperation Council countries. 
  • Remittances are a small part of migrants’ incomes, and migrants typically continue to send remittances when hit by income shocks – drawing down their savings, working longer hours, and even cutting into consumption in order to send remittances.
  • Because of a rise in rise in anti-immigration sentiments and tighter border controls, especially in the U.S and also in Europe, the duration of migration appears to have increased. Those staying back are likely to continue to send remittances.
  • If migrants do indeed return, they are likely to take back accumulated savings. This may have been the case in India during the Gulf war of 1990-91 which forced a large number of Indian workers in the Gulf to return home. Also the “safe haven” factor or “home-bias” can cause remittances for investment purposes to return home during an economic down turn in the host country.
  • Several high-income OECD remittance source countries are likely to undertake large fiscal stimulus packages in response to the financial crisis. This increase in public expenditure, if directed to public infrastructure projects, will increase demand for both native and migrant workers.  Also documented migrants are likely to send more remittances to their families, to make up for a fall in remittances by undocumented migrants.

Many countries have tightened immigration controls in response to the current financial crisis and domestic labor market pressures. However, employers facing a profit squeeze require more flexibility in hiring, not less. Migrants are typically highly flexible in terms of willingness to work for lower wages or move to other sectors and locations in response to changes in labor market conditions. Tighter controls on hiring foreign workers will segment labor markets and reduce the ability of employers to adjust to the effects of the financial crisis. 

Comments

Submitted by Ryan Hahn on
Hi Dilip - thanks for this interesting post. This is a small bit of welcome news in a generally negative environment. But let me play the devil's advocate for a second. You state that "If migrants do indeed return, they are likely to take back accumulated savings." If this is the case, then the flatlining or small increases in remittances (rather than a drop) is just a blip before remittances fall, as migrants return to their home country. To what extent do you think this is the case for any of the countries for which there are data? Thanks, Ryan

Submitted by Dilip on
Ryan - Good point. What we saw in the case of the return of Indian migrants during the 1990-91 Gulf war was actually an increase in remittances for a short period - because of the savings brought back - followed by a reversion to the trend level that existed before the war. When the destination countries recover from crisis and their job markets firm up, the migrants who had returned would be the first ones to go back and the flow of remittances would resume. We are/will be tracking this closely. Thanks for bringing this up.

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