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Economic Implications of
Remittances and Migration
Dilip Ratha
World Bank
Global Issues Seminar Series
October 11, 2006
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
 There is considerable scope for reducing
remittance costs faced by poor migrants
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
 There is considerable scope for reducing
remittance costs faced by poor migrants
International migration has increased
Stock of migrants as share of destination countries’ population (%)
8.3
1970
2000
4.3
2.9
2.2
1.6
World
Source: UN
Industrial countries
1.8
Developing
countries
1.6
1.3
Developing
countries, excl.
USSR
Remittances are large, have continued
to increase
Private debt
and portfolio
equity
275 $ billion
225
175
125
75
FDI
Recorded
remittances
ODA
25
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
0
20 3
04
20 e
05
e
-25
Top recipients of remittances - 2004
$ billion
22
% of GDP
21
31
18
27
13
India
China
Mexico France
26
25
23
12
Philippines
Tonga Moldova Lesotho
Haiti
BosniaHerz.
Top sources of remittances, 2004
39
$ billion
% of GDP
0.7
14
13
0.3
10
0.2
6
U.S.A.
Saudi
Arabia
Switzerland
Germany
0.3
Russia
Low-income
Lower
middleincome
Upper
middleincome
High income
OECD
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
 There is considerable scope for reducing
remittance costs faced by poor migrants
Migration to the South has been significant
Number of migrants in millions
91
78
51
48
45
29
22
11
5
1965 1985 2005
South (Developing
countries)
Source: United Nations
1965 1985
2005
1965 1985 2005
North (High-Income North (High-Income
OECD)
excl. OECD)
Global migrant stocks (millions)
South
Migrants in
North
North
(HI OECD)
(HI non-OECD)
Total
Migrants from:
South
74
62
20
156
North
3
25
1.2
30
1
4
0.3
5
78
91
22
191
(HI OECD)
North
(HI non-OECD)
Total
Source: World Bank staff calculations based on migration data from
University of Sussex, United Nations, and World Bank
Destinations of migrants from the South
North (HInon-OECD)
13%
South
47%
North (HIOECD)
40%
Top migration corridors include several SouthSouth corridors (excluding the FSU)
Mexico-US
Bangladesh-India
Turkey-Germany
India-UAE
Philippines-US
Afghanistan-Iran
Algeria-France
India-Saudi Arabia
Egypt-Saudi Arabia
Pakistan-India
India-US
China-US
Vietnam-US
India-Bangladesh
Malaysia-Singapore
Burkina Faso-Cote
Cuba-US
10.4
South-South
South-North
0
1
Source: University of Sussex and World Bank
2
3
millions of migrants
4
Former Soviet Union corridors are among the
largest South-South corridors
Russia-Ukraine
Ukraine-Russia
KazakhstanRussia
RussiaKazakhstan
millions of migrants
0
1
2
3
4
5
South-South remittances were likely
between $19 to $53 billion in 2005
Sources of Remittances to developing countries
($ billion, 2005)
By migrant By migrant stocks By migrant stocks,
stocks
and host country host country incomes,
incomes
and sending country
incomes
South
53
19
32
North
128
162
149
Total
181
181
181
Source: World Bank Staff estimates
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
 There is considerable scope for reducing
remittance costs faced by poor migrants
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 tend to rise following
crisis, natural disaster, or conflict
Remittances as % of private consumption
2.0 2.0
2.0
1.7
1.8
1.4
1.2
year before
year of crisis
year after
1.0
0.5
Indonesia
Mexico
Thailand
Remittances improve countries’ access to
capital
Present value of external debt as % of exports of
goods, services, and remittances
800
700
600
Excluding remittances
500
Including remittances
400
300
200
100
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Downside
 Large remittance flows may lead to
currency appreciation and adverse
effects on exports
 Remittances may create
dependency
 Remittance channels may be
misused for money laundering and
financing of terror
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
 There is considerable scope for reducing
remittance costs faced by poor migrants
Remittance fees are high, and regressive
Fee and foreign exchange commission as % of principal
16
9
7
6
$100
$200
$300
$400
5
5
$500
$600
Weighted average of fees of four largest money transfer
operators in the U.S.-Mexico corridor
South-South remittance costs tend to be
higher than North-South costs
Fee and FX commission $
London-Lagos
$29
Cotonou-Lagos
$35
South-South
Singapore-Jakarta
Kuala Lumpur-Jakarta
$10
North-South
$12
Jakarta-Kuala Lumpur
Los Angeles-Mexico City
Guatemala City-Mexico City
Mexico City-Guatemala City
$27
$13
$23
$24
Policy priorities
 Governments can provide information
and regulate intermediaries to reduce
risks, costs of migration
 High remittance costs faced by poor
migrants can be reduced by increasing
access to banking and strengthening
competition in the remittance industry
 Governments should not tax remittances
or direct the allocation of expenditures
financed by remittances
Policy priorities
 Governments can provide information
and regulate intermediaries to reduce
risks, costs of migration
 High remittance costs faced by poor
migrants can be reduced by increasing
access to banking and strengthening
competition in the remittance industry
 Governments should not tax remittances
or direct the allocation of expenditures
financed by remittances
Policy priorities
 Governments can provide information
and regulate intermediaries to reduce
risks, costs of migration
 High remittance costs faced by poor
migrants can be reduced by increasing
access to banking and strengthening
competition in the remittance industry
 Governments should not tax remittances
or direct the allocation of expenditures
financed by remittances
Future work
 Improving bilateral migration data
 Understanding impacts (on incomes,
inequality, health, gender, and migrant
rights)
 Better management of migration
 Reducing remittance costs
Monitoring, analysis, projection
- Size, corridors, channels
- Counter-cyclicality
- Effects on poverty, education, health,
investment
Financial access
- Deposit and saving products
- Loan products (mortgages,
consumer loans,
microfinance)
- Credit history for MFI clients
- Insurance products
Capital market access
- Private banks and
corporates (securitization)
- Governments (diaspora
bonds)
- Sovereign credit rating
Retail payment systems
- Remittance costs
- Payment platforms/instruments
- Regulation (clearing and settlement, capital
adequacy, exchange controls, AML/CFT,
disclosure, cross-border arbitration)