International Migration, Remittances and Development in Europe and Central Asia

Dilip RathaDevelopment Prospects GroupWorld Bank

GDLN Migration Policy Series: Europe and Central Asia February 5, 2009Washington DC

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

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

3027

2419

11 10 9 9 9 7

05

101520253035

Top recipients of remittances

4638 35

2924 24 24 23 20 19

0

10

20

30

40

50

$ billion, 2008e % of GDP, 2007

Within ECA59%

High-income OECD29%

Other high-income4%

Other South8%

Destination of migrants from ECA

Source: Ratha and Shaw (2006)

Stock of emigrants: 47.6 million or 10% of population

Europe and Central Asia top migration corridorsMillions

Source: Ratha and Shaw (2007)

4.8 3.6 2.7 2.6 1.80.9 0.9 0.9 0.9 0.7

-100

0

100

200

300

400

500

600

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Private debt and portfolio equity

FDI

ODA

RecordedRemittances

Remittances to developing countries are large, have continued to increase

US$ billion

020406080

100120140160180200

2000 2001 2002 2003 2004 2005 2006 2007 2008

Private debt and portfolio equity

FDI

ODA

RecordedRemittances

Remittances and other resource flows to ECA

US$ billion

Emigration from ECA countries

Millions

Source: Ratha and Shaw (2007)

0.2 0.1 0.1 0.10.6 0.7 0.6 0.5

2.5

8.9

0123456789

10

Russia Armenia Tajikistan Moldova KyrgyzRepublic

Within ECA

Out of ECA

High-skilled emigration (of tertiary educated) from Europe and Central Asia

Percent of tertiary educated in the origin country

28.6

13.914.115.317.42020.9

29.4

12.3 12.1

05

101520253035

Croatia

Bosnia

& Herz

egov

ina

Macedo

nia FYR

Albania

Serbia

& Monte

negro

Slovak Rep

ublic

Romania

Estonia

Poland

Hungar

y

Remittances in Europe and Central Asia, 2007

US$ billion % of GDP

45.538.3

1913.5

0.3

Tajikistan Moldova KyrgyzRepublic

Armenia Russia

4.5

1.31.8 1.6

0.7

Russia Armenia Tajikistan Moldova KyrgyzRepublic

Remittances reduce poverty

Evidence from a few household surveys shows that remittances reduce poverty

Cross-country evidence shows that a 10% increase in per capita remittances leads to a 3.5% decline in the share of poor people

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%

1995/62003/4

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

1.82.0

Indonesia Thailand Mexico

year beforeyear of crisisyear 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 also increases trade and investment links Diaspora networks facilitate:

– Trade

– Investment

– Skill and technology transfer

Reduce remittance costs

- Outward remittances not allowed in many countries in the region

- Money order charges are very high in India or Nepal

- Domestic remittance markets well developed – inefficiency in the sending end

Policy implications

Reduce remittance costs

Prudential banking regulations and AML/CFT regulations may need rebalancing

Leverage for financial access of households

Policy implications

Reduce remittance costs

Prudential banking regulations and AML/CFT regulations may need rebalancing

Leverage for financial access of households

Policy implications

Remittances sent through banks can bring benefits Account-to-account transfers promote savings

compared to cash transfers or hand-carry

Allows migrants and remittance recipients to develop a credit history based on past transfers

Banks can provide their remittance clients housing and business loans, insurance, pension products

... however, implicit cost of "free" bank transfers often high

Reduce remittance costs

Prudential banking regulations and AML/CFT regulations may need rebalancing

Leverage for financial access of households

Leverage for foreign borrowing and reducing country risk

Policy implications

Policy recommendations Diaspora bonds can potentially raise development

financing

1

3

5

7

9

11

13

15 PercentUS Treasury 10-year

Israel DCI bond

Discount on Israel diaspora bonds

Policy recommendations Governments should not tax remittances or direct the

allocation of expenditures financed by remittances

Remittances are not a substitute for official aid

Know your diaspora

Provide training and support to potential and existing migrants

Help potential migrants acquire globally marketable skills

Improve transparency in recruitment process

But migration is not a substitute for employment creation at home

Policy recommendations

International Remittances

Agenda

1. Monitoring, analysis, projection

2. Retail payment systems

3. Financial access

4. Capital market access

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- 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

www.worldbank.org/prospects/migrationandremittances