ASIA
26 March 2014
Asia's migrants remittances
In 2012, Asia's overseas migrants sent home to their families more than $220 billion in remittances. What are the remittances worth to Asia's developing economies?
The decision to migrate to another country is usually made in response to a combination of "push" and "pull" factors. The push of bad conditions at home, and the pull of opportunity abroad. And one of the big opportunities of migration is to send money back home to families and friends.
In 2012, East Asian developing countries received $114 billion from migrants' remittances sent back home, while South Asia received $109 billion. Thus developing Asia accounts for more than half the global figure for migrants's remittances to developing countries, of $406 billion. The true size of remittance flows, including unrecorded flows through formal and informal channels, is believed to be significantly larger.
These remittances to developing countries have grown exponentially. From a mere $55 billion in 1995 and $81 billion in the year 2000, they accelerated to $316 billion in 2008, and now to over $400 billion. Even after the global financial crisis struck in 2008, they only slipped back a little. The World Bank projects that as early as the year 2015, migrants' remittances to developing countries could amount to $534 billion.
Individual Asian countries were among the developing world’s major recipients of remittances in 2012: India ($70 billion), China ($66 billion), Philippines ($24 billion), Mexico ($24 billion), Nigeria ($21 billion), Egypt ($18 billion), Pakistan ($14 billion), Bangladesh ($14 billion), Vietnam ($9 billion), and Lebanon ($7 billion). In terms of GDP, a number of smaller countries dominate the recipient list: Tajikistan (47%), Liberia (31%), Kyrgyz Republic (29%), and Lesotho (27%).
The US is the largest recipient of migrants from developing countries as well as the largest sender of remittances. Migrant employment in the US has picked up considerably – and faster than employment of native workers – since 2009 and has recovered to the pre-crisis level.
This recovery, however, has favored higher-skilled occupations in healthcare and technical services more than lower-skilled occupations in construction. Interestingly, native employment in the construction sector has fallen more than that for unskilled migrants, and has actually increased for naturalized foreign-born individuals. Migrants have responded to a shrinking construction sector by moving to other services and trade sectors.
Migrants’ remittances to developing countries have grown to around three times the size of official development assistance. In 2011, the donor countries from the OECD gave $134 billion to developing countries.
To what extent could migrants' remittances become a motor for economic development?
The evidence shows that migrants’ remittances can reduce poverty for the individuals that receive them, by improving their access to food, clothing, shelter and health services. It also shows that recipients often use remittances to invest in the education of their children, a potential positive for development. Interestingly, remittances are transforming power relations as the economic status of migrant women is now improving in their households, and they buy land and property.
At the same time, there is growing evidence that migrants’ remittances can promote a “dependency culture”. Many remittance receivers can sit back and live off the life of the sender. Not surprisingly, "family assistance" can generate the same moral hazards as government assistance.
Most regrettably, there is little strong evidence to suggest that remittances foster investment beyond real estate in many receiving countries. A key factor is clearly the unfavorable investment climate that exists in countries like the Philippines with much red tape, bureaucracy and corruption. Indeed, lack of economic opportunity at home is one of the reasons why migrants often feel pushed to leave their own country in the first place. There is also evidence of "Dutch disease" effects as remittances lead to currency appreciation with adverse effects on export industries.
In the case of the Philippines, over the past 15-20 years, migrants’ remittances have grown dramatically, while at the same time gross investment has fallen from around 25 to 15 per cent of GDP. Over the same period, the Philippines current account balance has swung from deficit into surplus. On the face of it, this may seem like a positive trend for the current account. But in reality this means that the Philippines is actually exporting capital overseas, while it is in desperate need of investment in infrastructure, industry and education.
One perverse trend in the migrants’ remittances story is that they can generate a vicious circle of migration. Remittances are sent home to finance the education and training of family relatives in preparation for their emigration -- that is, emigration finances even more emigration. And thus is generated a "migration mindset" -- people's first thought is to emigrate. Labor migration has even been called a "civil religion" in the Philippines.
Further, when large parts of a country’s population is fully geared up to leaving the country, and have no intention or incentive of staying in their country, there is much less pressure on the government to implement pro-development reforms. Very often the blockages to reform are privileges accorded to societal elites. And these elites are very happy to feel no domestic political pressure to give up privileges such as tolerance of tax evasion and corruption.
As US Secretary of State Hilary Clinton recently said to Philippine President Aquino regarding Philippine migrants – “But let’s be very honest here. Too many of them feel that they cannot progress in their own country. Too many of them feel that the elite in business and politics basically call the shots, and there’s not much room for someone who’s hardworking, but not connected. Too many of them believe that even if they get the best education they can, that there won’t be an opportunity for them, and so they take that education and help build someone else’s economy, very often here in the United States.”
Is there any positive message that one can say about migrants’ remittances and economic development? There are some countries which arguably have no real developmental hope, which are too small and isolated to have a comparative advantage in anything – countries like the small Pacific Island states of Tonga and Samoa. International migration and remittances can be a saviour for such countries.
Could migrants’ remittances ever become an alternative to official development assistance? Migrants’ remittances are fundamentally a very different thing. First, they go into private hands, not the public purse, and therefore would not finance important development needs like infrastructure, public education or public health. Second, over 90 per cent of migrants’ remittances go to middle income countries. The one and a half billion people living on less than a dollar a day benefit very little from migrants’ remittances, and are still in desperate need of official development assistance.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
In 2012, East Asian developing countries received $114 billion from migrants' remittances sent back home, while South Asia received $109 billion. Thus developing Asia accounts for more than half the global figure for migrants's remittances to developing countries, of $406 billion. The true size of remittance flows, including unrecorded flows through formal and informal channels, is believed to be significantly larger.
These remittances to developing countries have grown exponentially. From a mere $55 billion in 1995 and $81 billion in the year 2000, they accelerated to $316 billion in 2008, and now to over $400 billion. Even after the global financial crisis struck in 2008, they only slipped back a little. The World Bank projects that as early as the year 2015, migrants' remittances to developing countries could amount to $534 billion.
Individual Asian countries were among the developing world’s major recipients of remittances in 2012: India ($70 billion), China ($66 billion), Philippines ($24 billion), Mexico ($24 billion), Nigeria ($21 billion), Egypt ($18 billion), Pakistan ($14 billion), Bangladesh ($14 billion), Vietnam ($9 billion), and Lebanon ($7 billion). In terms of GDP, a number of smaller countries dominate the recipient list: Tajikistan (47%), Liberia (31%), Kyrgyz Republic (29%), and Lesotho (27%).
The US is the largest recipient of migrants from developing countries as well as the largest sender of remittances. Migrant employment in the US has picked up considerably – and faster than employment of native workers – since 2009 and has recovered to the pre-crisis level.
This recovery, however, has favored higher-skilled occupations in healthcare and technical services more than lower-skilled occupations in construction. Interestingly, native employment in the construction sector has fallen more than that for unskilled migrants, and has actually increased for naturalized foreign-born individuals. Migrants have responded to a shrinking construction sector by moving to other services and trade sectors.
Migrants’ remittances to developing countries have grown to around three times the size of official development assistance. In 2011, the donor countries from the OECD gave $134 billion to developing countries.
To what extent could migrants' remittances become a motor for economic development?
The evidence shows that migrants’ remittances can reduce poverty for the individuals that receive them, by improving their access to food, clothing, shelter and health services. It also shows that recipients often use remittances to invest in the education of their children, a potential positive for development. Interestingly, remittances are transforming power relations as the economic status of migrant women is now improving in their households, and they buy land and property.
At the same time, there is growing evidence that migrants’ remittances can promote a “dependency culture”. Many remittance receivers can sit back and live off the life of the sender. Not surprisingly, "family assistance" can generate the same moral hazards as government assistance.
Most regrettably, there is little strong evidence to suggest that remittances foster investment beyond real estate in many receiving countries. A key factor is clearly the unfavorable investment climate that exists in countries like the Philippines with much red tape, bureaucracy and corruption. Indeed, lack of economic opportunity at home is one of the reasons why migrants often feel pushed to leave their own country in the first place. There is also evidence of "Dutch disease" effects as remittances lead to currency appreciation with adverse effects on export industries.
In the case of the Philippines, over the past 15-20 years, migrants’ remittances have grown dramatically, while at the same time gross investment has fallen from around 25 to 15 per cent of GDP. Over the same period, the Philippines current account balance has swung from deficit into surplus. On the face of it, this may seem like a positive trend for the current account. But in reality this means that the Philippines is actually exporting capital overseas, while it is in desperate need of investment in infrastructure, industry and education.
One perverse trend in the migrants’ remittances story is that they can generate a vicious circle of migration. Remittances are sent home to finance the education and training of family relatives in preparation for their emigration -- that is, emigration finances even more emigration. And thus is generated a "migration mindset" -- people's first thought is to emigrate. Labor migration has even been called a "civil religion" in the Philippines.
Further, when large parts of a country’s population is fully geared up to leaving the country, and have no intention or incentive of staying in their country, there is much less pressure on the government to implement pro-development reforms. Very often the blockages to reform are privileges accorded to societal elites. And these elites are very happy to feel no domestic political pressure to give up privileges such as tolerance of tax evasion and corruption.
As US Secretary of State Hilary Clinton recently said to Philippine President Aquino regarding Philippine migrants – “But let’s be very honest here. Too many of them feel that they cannot progress in their own country. Too many of them feel that the elite in business and politics basically call the shots, and there’s not much room for someone who’s hardworking, but not connected. Too many of them believe that even if they get the best education they can, that there won’t be an opportunity for them, and so they take that education and help build someone else’s economy, very often here in the United States.”
Is there any positive message that one can say about migrants’ remittances and economic development? There are some countries which arguably have no real developmental hope, which are too small and isolated to have a comparative advantage in anything – countries like the small Pacific Island states of Tonga and Samoa. International migration and remittances can be a saviour for such countries.
Could migrants’ remittances ever become an alternative to official development assistance? Migrants’ remittances are fundamentally a very different thing. First, they go into private hands, not the public purse, and therefore would not finance important development needs like infrastructure, public education or public health. Second, over 90 per cent of migrants’ remittances go to middle income countries. The one and a half billion people living on less than a dollar a day benefit very little from migrants’ remittances, and are still in desperate need of official development assistance.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com