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The Socio-Economic Impact of
Migrant Remittances: Pros and Cons
by
Claremont Kirton
Department of Economics
University of the West Indies, Mona, Jamaica
Caribbean Diaspora Economy Research Group (CDERG)
Presentation to Friedrich Ebert Stiftung (FES) Regional Seminar
on Migration and Human Trafficking in the Caribbean
Kingston, Jamaica 27-28 November 2008
Defining Remittances
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International Monetary Fund (IMF) reports
remittances in its Balance of Payments Manual as
part of current transfers in a country’s balance of
payments (BOP) statistics.
Remittances include workers’ remittances and
“other current transfers.”
Workers’ remittances: “current transfers by
migrants who are employed in new economies
and considered residents there. (A migrant is a
person who comes to an economy and stays, or is
expected to stay, for a year or more.)”
Measurement Issues
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Unrecorded remittance flows through
informal channels estimated at 50 per cent
larger than recorded flows.
Various informal channels used.
Difficult to measure in-kind and cash
remittances.
Migration
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Over 30 million people have emigrated
abroad from Latin America and the
Caribbean (LAC).
For LAC, migrants constitute one quarter
of their population.
Until recently, the United States was main
destination; increasing migration to
Europe and intraregional mobility have
changed this pattern.
Remittances to Latin American and
the Caribbean (LAC)
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In 2006, US$230 billion remittance flows to
developing countries globally
Latin America and Caribbean (LAC) – almost
US$68 billion or nearly 1/3 (30%) of total
worldwide flows
Mexico (US$24.2b), Brazil (US$7.4b), Colombia
($4.5b) are major remittance receivers in LAC
In Caribbean, Dom. Republic (US$2.7b), Jamaica
(US$1.9b), Haiti (US$1.0b) are top three
recipients
In nominal dollar terms, officially
recorded remittance flows to
developing countries are
estimated to reach $283 billion in
2008, up 6.7 percent from $265
billion in 2007.
In real terms, remittances are
expected to fall from 2 percent of
GDP in 2007 to 1.8 percent in
2008.
The Remittance System: Financial
Flows
Government
Regulates and
sets policy
Migrant
Workers
Recipients
Send
money
Financial
Intermediaries
(Formal and
Informal)
Transfer
funds to
households
Remittances channels


Cost, speed, familiarity and service
reliability – impact choice of remittance
channel.
Informal systems attractive due to lower
costs, culture and suitability.
Market channels

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Money Transfer Operators (MTOs)/ agents
Commercial banks
Building societies
Credit unions
Other non-bank financial intermediaries
Supermarkets, shops
Informal Funds Transfer Systems
Remittance Flows to CARICOM (1996-2005)
4000.0
3500.0
US$mn
3000.0
2500.0
2000.0
1500.0
1000.0
500.0
0.0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Total and Top Three CARICOM Recipients of Remitances
4000
3500
US$ MN
3000
2500
Guyana
Haiti
2000
Jamaica
TOTAL
1500
1000
500
0
2000
2001
2002
2003
2004
2005
Remittances/GDP
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
Haiti (22%), Guyana (17%), Jamaica (15%)
have the highest remittances/GDP ratios for
2005
In 2004, of 28 LAC countries, only two Latin
American countries (Honduras and El
Salvador) have ratios greater than 15% (World
Bank Study, 2006)
Remittances and Development


Impact on development can be either positive or
negative
Remittances may have an impact on:
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Poverty and income inequality
Consumption
Investment and household saving
Labour markets
Human capital
Macroeconomic variables
Poverty and Inequality
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Remittances positively contribute to poverty reduction in the recipient
households or may prevent households from falling into poverty:
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In Mexico, studies done using national household survey data on income and
expenditure indicate that remittance recipients are less likely to be poor
In Guatemala, it is reported that remittances have the largest impact on the
depth and severity of poverty, with poverty rates being reduced by roughly 20%
(2005 study)
LAC region, remittances reduce poverty headcounts in 6 out of 11 countries
studied by the World Bank (Bolivia, Ecuador, El Salvador, Guatemala, Haiti,
Honduras)
Impact on income inequality not conclusive as this significantly depends on
the income levels of migrants.
Jamaica: percentage of households receiving remittances increased
progressively from 30.4% in poorest quintile to 54.9% in richest quintile
(2006).
Consumption
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Consumption can have a positive impact on economic activity
through the multiplier effect
Jamaica: 68.7% spent on normal day-to-day expenditure;
10.1% on education; 9.5% on health; 3.2% on entertainment
Positive impact may be minimized if the import content of
consumption is high
Investment and Saving
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Remittances provide the opportunity for investment in new businesses or
expansion of existing enterprises
Remittances provide financing opportunities for potential entrepreneurs who
typically have difficulty accessing finance from formal financial sector
sources

In Mexico, a study of 30 communities indicates that 31% of businesses were initially
financed by remittances
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In Jamaica, less than 1% used for investment; in a small study of a rural parish, 40%
of start up capital for small businesses came from remittances
If remittances are transferred through formal financial sector channels, this
may encourage savings among recipients and lead an increase in the pool of
domestic savings available for investment
Labour Markets

Remittances may have direct impact on the decision
of recipients to participate in the labour force:

May create a certain level of dependency among
recipients, thus encouraging a disincentive to
work:
 World
Bank study indicates that remittances
may reduce both labour force participation as
well as hours worked per week by recipients

Reduction in labour supply is less prevalent among
recipients with a higher level of schooling
Human Capital
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Remittances act as a supplement to income
thus relaxing income constraints that limit
human capital investment
Remittances can facilitate an improvement in
household investment in human capital:
Education – greater schooling
 Health care expenditure

Human Capital
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Education - studies indicate that remittances improve
educational attainment among children in recipient
households:
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El Salvador – respective of amount transferred, this lowers the
likelihood of dropouts from schools
Health care – particularly important in countries where
public health care systems do not offer universal
health insurance:

In Guatemala and Nicaragua, children whose parents receive
remittances access better health care relative to non-recipients with
similar demographic and socioeconomic characteristics
Macroeconomic Effects
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Improvements to GDP through increased
consumption, investment and savings
Helps to alleviate balance of payments
constraints

May also be a disincentive to production
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May reduce export competitiveness
Remittances and Development:
Recommendation
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Priority - in Caribbean context, need for
extensive research on the impact of
remittances on development
This research should seek to inform
policies on leveraging the development
impact of remittances for the region