Remittances and Poverty Alleviation New

Remittances and poverty alleviation

Presented by :Emil Mathew BinnyIII DC ECO St Thomas College Pala

Motivation

• Remittances have outpaced official development assistance, and exceed foreign direct investment (FDI) in many developing countries (World Bank, 2009)

• Women account for about half of an estimated 215 million international migrants (United Nations, 2010).

• Gender remains an understudied aspect of international

remittance flows and philanthropy.

$700 billion remittance flows may reach worldwide by 2016.$540 billion remittance flows to developing countries are expected to by 2016.

Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016

Kerala Facts (in Crores)• per capita GDP (Rs. 74,620)• GSDP- 3,96,282• Population:34 million• Emigrants:3 million• 1.18% area of the country, occupies 21st position• HDI value’s 0.79• High quality of life: Life expectancy, low IM, low MMR, high

literacy rate, good health care facilities• Remittances• India (No 1 in the world) 441000• Kerala (total remittances) 110000• % of Kerala to total ~25%•25% of the state domestic product(Kerala GSDP @2013-14::3,96,282)

Worker’s Remittances

•Macro Economic Impact•Remittances: 1.1 lac crores•Population in 2004: 34 million•Each one gets Rs. 32352 per year or Rs 2696 per month •Sufficient for a person to sustain life

Number of Emigrants by Districts in Kerala, 2011

Malappuram

Kannur

Thiruvananthapuram

Kozhikode

Thrissur

Kollam

Alappuzha

Palakkad

Ernakulam

Kasaragod

Kottayam

Pathanamthitta

Wayanad

Idukki

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

Total Remittances by Districts, 2011

Mala

ppur

am

Ernak

ulam

Kannu

r

Thiru

vana

ntha

pura

m

Kollam

Thriss

ur

Kozhi

kode

Palakk

ad

Kottay

am

Alappu

zha

Pathan

amth

itta

Kasar

agod

Way

anad

Iduk

ki0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Two different Methodologies:

▫Macro: cross country regressions with large global Micro: country case studies using household surveys Both methodologies yield same result:

0.4% poverty decline for each increase in remittances of 1% of GDP average poverty in LAC is 25% (under $2/day), would be 27.8% without remittances

Remittances matter….

Source: IMF Balance of Payments Statistics; UN Trends in Migrant Stock, 2000.

Gulf C

ount

ries

EU-1

5US

Oth

er O

ECD

E Asia

NIC

s

Devel

opin

g Reg

.

2686.5

926.4 766.5 649.4431.5

160.4

Money sent home annually, per migrant (2000)

percentage

Source: Fomin, Pew Hispanic Center

78.0

7.0 5.0 4.0 1.0

Consumption

GoodsEducation Saving Other

Cons.

Investment

Remittances tend to finance consumption: often productive (consumer durables, house improvement, education, health)

Uses of remittances, Mexico 2000

The impact is dependent on the broader economic and political context

at the microeconomic level:• Expand HH income – poverty alleviation • Realization of the human rights to food,

education, health care• Inherent risks of dependency on remittances• Mostly used for consumption, e.g. Angola,

Bangladesh case studiesImpact of remittances at the macroeconomic level:• Key source of foreign exchange• Increase external value of currency or exchange rate • High dependence can pose risks-and currency value fluctuations leading to price

rise10

11

4. THE CONTRIBUTION OF REMITTANCES & OTHER DIASPORA RESOURCES TO DEVELOPMENT

Potential role of the diasporas: Private sector contributions

• Role in private sector development still at nascent stage

• Lower risk perception than traditional investors

• Remittances can offer Access to capital, thus fostering entrepreneurshipFinance for public infrastructure projects e.g. in Senegal River Valley in West Africa

Promotion of the development of the financial sector

• Sharing of know-how and innovative practices through transnational networkse.g. HTAs of Haitians in the US

11

12


Potential role of diaspora members: Trade contributions• Knowledge of the local context in origin countries and the market in the

destination country- Caribbean diaspora networks in trade, tourism, investment

• Networks and contacts in origin and destination countries - Samoan migrants in NZ

Transfer of skills, technology and ideas• Transfer of new values, expectations, ideas and social capital

- President Ellen Johnson-Sirleaf of Liberia

• New techniques and transfer of human capital - workers from Vanuatu returning from NZ

• Donation of technology - IOM‘s MIDA project in Ethiopia

• Virtual transfer of skills - IOM‘s Temporary RQN project in Afghanistan, Ethiopia,

Sierra Leone and Sudan

Key message: Potential role of diasporas in trade and economic development

12

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The potential role of diaspora members in peacebuilding

• Remittances provide a lifeline to relatives, e.g. Haiti, Somalia• Support reconstruction efforts Filling critical human resource gaps by mobilizing diasporas, e.g. IOM‘s

MIDA Somalia, TRQN to Afghanistan, Ethiopia, Sierra Leone and Sudan

Generate employment

As politically sensitive • Need to build trust, e.g. through ‘Diaspora Dialogues‘

in the Great Lakes region, Sudan

Key message: This role could be explored and strengthened further

see UN SG 2009 report on “Peacebuilding in the immediate aftermath of

conflict“

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ECONOMIC CONTRIBUTION (Origin Countries)

Remittances: most immediate and tangible benefits.

• 2nd Largest source of external funding for developing countries

• More reliable source of income

▫ The flows of remittances fluctuate with economic cycles (counter-cyclical)▫ Better distributed than Foreign Direct Investment (FDI)

• World Bank: remittances transfers more than doubled

▫ 1995-2005, up to $250 billion ▫ Developing countries received 72% in 2005 = $190 billion


• Labour migration can reduce pressures on labour markets in labour-surplus countries

• In some countries, migrants are replaced easily without loss in production or increase of wages

• But, migration is selective: ▫ Produces upward pressure on salaries in certain sectors▫ In general, emigration of low-skilled workers generates gains for those

who remain behind


Remittances:

• Positive Effects: ▫The first waves of migrants, coming from middle class, their

remittances may increase inequality. As low-skilled workers, from poor families, start to migrate,their remittances reduce poverty and inequality.

▫Families receiving remittances spend more than average on human capital formation (education and health care)

▫Long-term: increase local production (income and investment)

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

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

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

Probability of migration and per capita income

Pro

bab

ilty

Per capita income 0 5000 10000 15000 20000

.00228

.014914

Official urban poverty line

3.5 times the official urban poverty line

There is an inverse U-shaped relationship between human development and migratory intensity.

Remittances and development

Human development index and migratory intensity index by municipality, 2000.

Poverty and migration

The poor are not the main group that migrates…

…but migration among the poor is increasing

The poor migrate in response to economic shocks…

…but as social networks expand the poor migrate as a planned decision

Migration and Education

• Historically, migrants have, on average, higher levels of education than those non-migrants in their communities, though lower than in the receiving places in the United States

• The above is especially true for women, a population group where migrants have a schooling differential higher than in the case of men with respect to those non-migrants within their own communities

• Migration tends to reduce inequality in levels of education, at least in the short-run

Migration and Education

•Remittances promote greater investment in primary and secondary education for the sons of migrant families, with a favorable bias for girls; and

•Migration discourages investment in middle-high and high levels of education (individuals of 16 to 18 years of age) in communities with a migrant tradition.

Migration and Health

The relationship between migration and health is overly complex.

Remittances have been shown to have a positive effect on children’s health (lower infant mortality and higher weight at birth)

Annual Savings and Investment Membership

Annual Savings

Annual Investment

s

HHs with No Emigrants

16244 60304

HHs With Emigrants

32809 139919

Total 21991 91187

MembershipAnnual Medical

Expenses

Annual Education Expenses


6469 10688

HHs With Emigrants

12169 19186

Total 8538 13933

Annual Health and Education Expenses

Membership FOOD Non FoodExpense

s


2850 3144 5994

HHs With Emigrants

3256 4425 7681

Total 2994 3597 6591

Monthly Food and Non Food expenses

• Savings and Investment• Human Development (education and

health)• Unemployment and Poverty• Standard of Living• Reduce Inequality

Direct Benefits of Migration

The Role of Remittances and Migration.

•Positive Effects on Remittances:• - Poverty reduction.• - Highest per capita consumption expenditure in the

country.•There has been a growth in the tertiary and service

sectors of Kerala which is seen with hope and optimism by some and regarded as an effect of ‘remittances’ by others.

Migration and Development

•Positive effects•Reduction in Poverty•Reduction in unemployment•Other effects•Increase in income equality and conflicts•Replacement Migration

Indirect effects of migration

•Reductions in Fertility•Political participation (financing political parties and

elections)•Philanthropy•Women empowerment•Knowledge and skills diffusion•Entrepreneurship and work culture

Percent of Households Directly Beniftted From Remittances

0

5

10

15

20

25

30

35

40

Hindus Christians Muslims

Pe

rce

nt

of

Hh

s

Expenditure on Education Per Household, by Migration Status and Religion

0

2000

4000

6000

8000

10000

12000

14000

16000

All NRK Non-NRK

Ru

pees

Hindus

Christians

Muslims

Population of Kerala and Emigration by Religion, 2011 ( in percent)

Expenditure per Household on Health, by Religion and Migration Status

0

2000

4000

6000

8000

10000

12000

14000

All NRK Non-NRK

Rupees

Hindus

Christians

Muslims

Additional Findings• Women are more likely to be better remitters

• Female-headed households in the country of origin are more likely to be recipients of remittances and receive larger amounts.

• Female migrants tend to target their remittances toward education, health, youth projects

• Women account for a growing share of the world’s migrants

• Gender affects the incidence, amount and types of remittances –and the impact on the origin household

• Female migrants can have a significant impact on their communities of origin through their remittance flows.

Diaspora bonds(addl)34

Remittances are a way of tapping into diaspora income flows on a regular basis, while issuance of foreign currency-denominated bonds to diaspora is a way of tapping into diaspora’s wealth, i.e. savings.

Empirical analysis shows that migrant (diaspora) savings are several times higher than annual remittance flows Israel India

$25 billion issued in total $11 billion issued in total

Annual issuance since 1951 Opportunistic issuance in 1991, 1998 and 2000

Development-oriented borrowings Balance-of-payments support

Large though declining patriotic discount Small patriotic discount, if any

Fixed, floating-rate bonds and notes Fixed-rate bonds

Maturities from 1 to 20 years with bullet repayment

Five year with bullet maturity

Distribution by Development Corporation for Israel

Distribution by State Bank of India and international banks

Targeted toward but not limited to diaspora Limited to diaspora

Nonnegotiable Non-negotiable Source: Ratha and Kethar 2009. World Bank.

Nepal-Country background• Poorest country of South Asia• Per capita GDP $240 ($1,420 PPP)• Maoist Insurgency and political instability• Diminishing export markets, difficult economic

situation But• Between 1995 and 2004 poverty declined from 42 to

31 percent• Per capita expenditure grew 40 percent in real terms

Why?• Increase in work migration and remittances

• About 1M prime age males work outside Nepal

• The proportion of households receiving remittances has increased from 24 percent in 1995 to 32 percent in 2004

• Remittances grew at 30% per year, from 3% of GDP in 95 to 15% of GDP in 04

• Official statistics: $1 billion comes in Nepal as remittances. Unofficial statistics: even larger

Main findings• About 20 percent of total poverty reduction in Nepal

between 1995 and 2004 could be explained by the increase in work migration and remittances.

• Out of total 2 percentage points poverty reduction because of the migration:▫ Increase in external migration and remittances

contributed 53 percent.▫ Increase in internal migration contributed 38 percent. ▫ The rest (9 percent) could attributed to the interaction

effects of internal and abroad migration and remittances.

• In the absence of migration the poverty rate in Nepal would increase from the currently observed 29.9 percent to 33.5 percent and the mean per capita expenditure would decline from 16,400 NRP to 15,000 NPR.

• Work migration and remittances increase income inequality in the country.

Final Comments

Migration is a way of exercising the effective freedom of people.

Public policy should favor that the exercising of such an option is a legitimate way of individual development.

The purpose of any development strategy must be the raising of welfare and freedom levels for concrete individuals in a sustainable way.

The most commendable migratory policy is a strategy of sustainable local development

Only convergence through regional development strategies can eventually stabilize migration flows

Conclusions

Migrants potential for investment and remittances should addressed.

Migrants investments would also be a very good signal for Foreign Direct Investors.

Many countries adopted policies that would attract migrant investments and remittances

The policies specially designed for migrants should encourage them to increase their remittances

Documents

Remittances and Poverty Alleviation New