One of the bright spots in the financial crisis so far has been the resilience of remittance flows to developing countries. While other forms of private finance fled developing countries when the international financial system came under stress, migrants kept sending money home. The latest Migration and Development Brief from the World Bank contains the relevant details: remittances to developing countries rose 15 percent between 2007 and 2008.
The curious question is why, considering that employment of migrants in many recipient countries has been hit hard. The Economist offers an explanation:
...returns do matter. For example, the combination of a weak rupee and higher interest rates in India compared with rich countries, may go a long way towards explaining last year’s vastly increased flow of remittances from Indians abroad.
In other words, migrants are also amateur currency speculators. However, it looks like the Economist didn't quite come up with this conclusion on its own. Compare the explanation provided in the Migration and Development Brief:
...flows to some South Asian and East Asian countries increased sharply in 2008 partly because depreciating currencies against the US dollar made assets in the home country more attractive, with a “sale effect” resulting in a shift in remittances being sent for consumption motives to investment motives.
(On a side note, I have started to wonder how much of the Economist is just a Cliffs Notes version of reports put out by the World Bank, IMF, etc.) The explanation proffered by the Bank (and the Economist) is clearly plausible, but it relies on an implicit theory rather than empirical evidence. The theoretical assumption is that the supply of remittances is elastic with respect to exchange rates because migrants are trying to maximize the value of their money - in plain English, they think like currency traders. But other factors may be at play.
Foremost among these is the possiblity that the recipients of remittances in developing countries have suffered an even worse blow to their income than the sender of remittances. This seems to me at least as likely as currency speculation, though I don't know of any evidence to back this up. (Of course, both factors may be at play.)
Another possibility, considered only tangentially in both the Economist and in the Brief, is that some part of the migrant population is liquidating its accumulated savings prior to returning home. Rising anti-immigration sentiment could make this a real possibility. What a shame it would be for developed and developing countries alike.
Update: On another side note, anyone thinking about sending remittances to a developing country may want to check first with the handy World Bank Remittance Prices database. The website allows you to compare the cost charged by a range of companies to send $200 or $500 to a number of developing countries.
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