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Preliminary estimates of diaspora savings suggest potential for diaspora bonds

Dilip Ratha's picture

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.

Comments

This is most insightful and invaluable information on Diaspora Bonds, that no doubt will eventually rival the value of the outputs from your extensive work on Remittances over many years, and as evidenced again in the Migration & Remittances Factbook 2011 production. This additional source of virtually untapped funding matches that of Remittances in sheer potential for powering the development of Local Economies in the developing world. In the view of VoxWorld.Coop, in order to complete this mission however what is now most needed is active and visible support for all global initiatives involved in the creation of local Community Hubs that enable the release of local capability and capacity required to then tap/ leverage the full potential of those two great resources for the trading benefit of their local Communities everywhere. The achievement of that goal will I believe require the cross-border (and even cross-continental) collaboration of existing and new Telecentres for enabling mass digital access - including development of local eSkills through availability of a wide variety of ICT education opportunities linked to global services shortages - with that of Co-ops (specifically dotCoop TLD organisations, including Credit Unions) as a vehicle for building their own global E-Communities. While it has been said before that 'a Nation is a network of Communities', Communities themselves are powered by their own Villages within. VoxWorld.Coop calls that end goal, the creation of E-Co Hubs (a creation of the combined efforts of Community Colleges, Co-ops & Corporations) as powered by what would become Smart Villages generating Smart Jobs. When focused on forging interactive Diaspora links, the Community's power to create Local Jobs is immense as they progressively gain reliable and instant access to the rapidly growing Social E-Commerce Marketplace worldwide. The end result is that those Communities who follow that track can essentially create their own jobs, in globally traded-services through personalised online shops, sufficient to meet their life needs and which enables them to also work at home as they so wish. Richard O'Farrell Founder www.voxworld.coop

Submitted by M. A. Khan on
The World Bank Team on Migration and Remittances is really doing a great job and attracts (or would definitely attract - if not now) attention of experts and policy makers. The idea of the Diaspora Bond (DB) is not new, however, for most of the developing countries; especially in South Asia (except India), it appears difficult to succeed in raising sufficient funds. This difficulty can be seen in the backdrop of the following reasons: • The main objective behind sending remittances is to overcome consumption related constraints of the recipients, therefore emigrant may not save in the host country. • No or little awareness regarding available financial facilities that may help emigrants transform their income into incremental income flows in the future. • Little ground work - aimed at gauging the saving norms and potentials of the emigrants - by the countries authorities before launching Diaspora Bond.

Financial Times Alphaville blog has an interesting post by John McDermott, titled "An Egyptian diaspora bond?" See: http://ftalphaville.ft.com/blog/2011/02/24/496541/an-egyptian-diaspora-bond/ John asks two important questions that are worth debating: (1) Given the size of its remittances, would, say, an Egyptian disapora bond be a good idea? (Not that Egypt is short of unsolicited advice these days.) (2) (More cheekily) Would Pimco’s Mohamed El-Erian buy them?

In a recent ABS-CBN News article, Filipino economist Alvin Ang of the University of Santo Tomas cites the estimates of diaspora savings "..as cue for [the Philippines] government to begin ways of luring these funds for investment in view of an estimated BOP deficit of three percent of GDP this year" (see http://www.abs-cbnnews.com/global-filipino/03/09/11/remittances-seen-%E2%80%98people-power-investment%E2%80%99) The news article also describes the experience of Philippines in issuing bonds that were also available to the diaspora for purchase in the past, and perhaps more interestingly, the potential for diaspora bonds to fund local development at the sub-national level: "The Philippine government already tested such investment instrument when the Department of Finance floated “OFW bonds” last year, raising some US$346 million in funds. A fifth of those bonds were offered to retail buyers, i.e. OFWs or OFW relatives. Given such potential, Ang thinks local governments must adjust their areas’ investment climate to accommodate the investment appetite of overseas townmates."

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