Migration, Remittances, and Development: Policy Options Dilip Ratha Migration and Remittances Team...

Migration, Remittances, and Development: Policy Options

Dilip RathaMigration and Remittances TeamDevelopment Prospects GroupWorld Bank

Lowy Institute, SydneyJuly 16, 2008

Outline

A. Stylized facts

B. Development impact of international migration

C. Policy implications

A. Stylized facts

1. Only 3% of world population are international migrants; 97% are not.

2. Economic migrants account for 93% of global migant stock.

Income differences are a powerful motivation for migration

Median wage levels for workers in the same occupation, relative to high-income economies (1988-92, adjusted for purchasing power)

Source: Freeman and Oostendorp 2000

100

43

2821

0

25

50

75

100

High income

Upper middle income

Lower middle income

Low income

A. Stylized facts

1. Only 3% of world population are international migrants; 97% are not.

2. Economic migrants account for 93% of global migant stock. Economic migration is set to increase in future.

3. South-South migration is as high as as South-North migration.

South-South migration is almost as large as South-North migration

South47%

North (HI-non-OECD)

13%

North (HI-OECD)

40%

Source: Ratha and Shaw (2007)

Destination of migrants from the South

B. Development impact of international migration

1. Migration benefits all parties – the migrants, the destination country, and the origin country.

Migration boosts welfare for most households

139

-88

143 162

-90

-60

-30

0

30

60

90

120

150

180

Natives, high-income countries

Old migrants,high-inc.countries

Residents,developingcountries

New migrants

.

Global income gains of $356 billion (0.6%)

Change in real income in 2025, $ billion

Source: Global Economic Prospects 2006

B. Development impact of international migration

1. Migration benefits all parties – the migrants, the destination country, and the origin country.

2. Benefits to countries of origin are mostly through remittances.

-25

25

75

125

175

225

275

325

375$ billion

Private debt and portfolio equity

FDI

ODA

RecordedRemittances

Remittances are large, have continued to increase

27 26 25

17

13

0

10

20

30

Top recipients of remittances

36 3632

27 26

0

10

20

30

40

$ billion, 2007 % of GDP, 2006

Remittances reduce poverty

Evidence from a few household surveys shows that remittances reduce poverty

Remittances also finance education and health expenditures, and ease credit constraints on small businesses

Remittances have reduced poverty in Nepal

23

42

32 31

15

20

25

30

35

40

45

% of householdreceiving remittances

Poverty headcount rate%

1995/6

2003/4

Source: World Bank, DFID, ADB Study 2006, Glinskaya and others 2006

Remittances help reduce poverty in Sri Lanka

0 0 1

1620

83 5

-1

-7

-10

-5

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10

% of Sri Lankan households that moved up to a higher income decile after receiving remittances, 1999-2000*

Income Decile

Remittances tend to rise following crisis, natural disaster, or conflict

Remittances as % of private consumption

0.5

1.7

1.21.4

2.0 2.0

1.0

1.8

2.0

Indonesia Thailand Mexico

year before

year of crisis

year after

Downside of remittances

Large remittance flows may lead to currency appreciation and adverse effects on exports; but sterilization of inflows may not be an appropriate policy response

Remittances may create dependency

Remittance channels may be misused for money laundering and financing of terror

Migration and remittances in the Pacific

1. Remittances to Pacific Island countries were about $500 million in 2006

Tonga $91 mn or 39% of GDPSamoa $67 mn or 14% of GDPFiji $165 mn or 6% of GDP

2. Outward remittances from Australia $2.8 bn or 0.4% of GDP, New Zealand 0.9 bn or 0.8% of GDP in 2006

B. Development impact of international migration

1. Migration benefits all parties – the migrants, the destination country, and the origin country.

2. Benefits to countries of origin are mostly through remittances.

3. Emigration of skilled people may be a problem in small countries

4. Diasporas also provide business contact, trade network, technology, and capital to the origin country.

1

3

5

7

9

11

13

15 Percent

US Treasury 10-year

Israel DCI bond

Discount on Israel diaspora bonds

Israel and India have raised nearly $40 billion via diaspora bonds

Outline

A. Some stylized facts

B. Development impact of international migration

C. Policy implications

C. Policy implications

1. The international remittances agenda

International remittances Agenda

1. Improve monitoring, analysis, projection (MAPping)

2. Improve retail payment systems:

reduce remittance costs

High remittance fees are a drain migrant income

2

6

10

14

18

22

26

30

1999 2000 2001 2002 2003 2004 2005 2006 2007

0

5

10

15

20

25

30Fee for sending $300 from U.S. to Mexico, left-scale

Remittance flows to Mexico, $ bn, right scale

Source: Condusef, Mexico

$10

$12

$27

$29

$35

$13

$23

$24

London-Lagos

Cotonou-Lagos

Singapore-Jakarta

Kuala Lumpur-Jakarta

Jakarta-Kuala Lumpur

Los Angeles-Mexico City

Guatemala City-Mexico City

Mexico City-Guatemala City

South-South

North-South

Fee and FX commission $

South-South remittance costs tend to be higher than North-South costs

Cost of remittances to Pacific Islands often exceed 20%

International remittances Agenda

1. Improve monitoring, analysis, projection (MAPping)

2. Improve retail payment systems:

Reduce remittance costs

Improve competition in remittance industry

Share networks - avoid exclusivity contracts

Avoid overregulation of remittance industry

Introduce new technology

3. Leverage remittances for financial access for households

4. Leverage remittances for improving access to capital markets for institutions/countries

International Remittances

Agenda

1. Monitoring, analysis, projection

2. Retail payment systems

3. Financial access for households

4. Capital market access for institutions

International Remittances

Agenda

1. Monitoring, analysis, projection- Size, corridors, channels- Counter-cyclicality - Effects on poverty, education, health,

investmen- Policy (costs, competition, exchange

controls)

2. Retail payment systems- Payment platforms/instruments- Regulation (clearing and settlement, capital

adequacy, exchange controls, disclosure, cross-border arbitration)

- Anti-money laundering/Countering financing of terrorism (AML/CFT)

3. Financial access for households

- Deposit and saving products- Loan products (mortgages,

consumer loans, microfinance)

- Credit history for MFI clients- Insurance products

4. Capital market access- Private banks and

corporations (securitization)

- Governments (diaspora bonds)

- Sovereign credit rating

G8 Global Remittances Working Group

C. Policy implications

1. The international remittances agenda

2. Know your migrants/diaspora

3. Help potential migrants acquire globally marketable skills

4. Ethical recruitment policies may be ineffective, and unethical –

5. Improve transparency in recruitment of migrants

6. Border control policies should be revisited

Migration

Maximum0Border control

Migration Curve

Migration

Maximum0Border control

C

Migration Curve

Migration

Maximum0Border control

C Income difference

C. Policy implications

1. The international remittances agenda

2. Know your migrants/diaspora

3. Help potential migrants acquire globally marketable skills

4. Ethical recruitment policies may be ineffective, and unethical –

5. Improve transparency in recruitment of migrants

6. Border control policies should be revisited

7. Migration is not a substitute for employment creation at home

Development implications of migration and remittances

Migration and remittances continue to increase. South-South migration may be as large as South-North migration

Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances, and also through trade, investments, and transfer of knowledge, skill and technology

Migration and remittances can be leveraged for the development of poor countries, but they are not a substitute for development at home

World Bank work program

• Research and publications

• Global advocacy

• Country analytic work/Operations

• Africa migration project

• Pacific Islands labor mobility program

www.worldbank.org/prospects/migrationandremittances

References:

At Home and Away: Expanding Job Opportunities for Pacific Islanders through Labour Mobility

Migration and Remittances Factbook 2008

International Remittances

Agenda

1. Monitoring, analysis, projection- Size, corridors, channels- Counter-cyclicality - Effects on poverty, education, health,

investmen- Policy (costs, competition, exchange

controls)

2. Retail payment systems- Payment platforms/instruments- Regulation (clearing and settlement, capital

adequacy, exchange controls, disclosure, cross-border arbitration)

- Anti-money laundering/Countering financing of terrorism (AML/CFT)

3. Financial access for households

- Deposit and saving products- Loan products (mortgages,

consumer loans, microfinance)

- Credit history for MFI clients- Insurance products

4. Capital market access- Private banks and

corporations (securitization)

- Governments (diaspora bonds)

- Sovereign credit rating