Leveraging Migration and Remittances for Development

By Ratha, Dilip | UN Chronicle, September 2013 | Go to article overview

Leveraging Migration and Remittances for Development


Ratha, Dilip, UN Chronicle


Three notable facts about migration are often drowned in the stringent debate surrounding migration policies. First, the contribution of migrants to their host and home countries is enormous, over $500 billion in remittances alone (of which over $400 billion went to developing countries in 2012). Second, South-South migration is actually larger than South-North migration, implying that not only emigration, but also immigration matters for the developing countries. Third, internal migration is nearly four times the size of international migration and is an integral part of an economy's structural change and development process. Yet, movement of people is rarely included in the development strategies of countries.

Migration to a richer destination can provide a fast path to reducing poverty not only of the migrant but also of the family members left behind. After migration, a person's income multiplies rapidly, often by a factor of 10, and the income gains are shared with family members and friends back home through remittances. These remittances are used for purchasing food, housing and health care for the family, education for children, and business investments. Over time, migrants facilitate exports and imports between countries. The more skilled ones also share their knowledge and expertise with people back home. Some of them return home after years of working abroad, bringing with them skills and savings. In the destination community, migrants provide cheap labour and scarce skills for their employers and, over time, many of them invest in real estate, businesses and new enterprises that create employment.

Remittances, the money migrants send home to family and friends, provide the most tangible and perhaps the least controversial link between migration and development. In 2012, international remittance flows to developing countries, as officially recorded, amounted to nearly four times the size of official development assistance (figure 1). (The true size of remittances, including unrecorded flows, is larger, perhaps a multiple of the current level in many poor countries.) In addition, remittances tend to be stable and resilient during financial crises. Unlike private capital flows which fell precipitously during the global financial crisis in 2009, remittances to developing countries declined by less than 5 per cent and recovered quickly afterwards. In times of an economic downturn or a natural disaster or political crisis back home, migrants send a bit more to help their families. Thus, remittances often act as insurance against unexpected adverse events.

[FIGURE 1 OMITTED]

STRENGTHENING THE LINKS BETWEEN REMITTANCES AND DEVELOPMENT--THE GLOBAL REMITTANCES AGENDA

Migrant remittances provide an economic lifeline to many countries. India received $70 billion in remittances in 2012, more than three times the size of foreign direct investment. Egypt received $21 billion, three times the value of its revenue from the Suez Canal. In many smaller countries, such as Tajikistan or Liberia, remittances are between one-third and one-half of the national income. Remittances are the largest source of foreign exchange in many countries, especially poor or conflict-affected countries, providing critical support to their balance of payments. At times, however, large remittance inflows can lead to currency appreciation that needs to be addressed by improving the business environment and increasing productivity in the economy.

Since remittances are personal funds, governments have no effective way of directing the use of these funds for specific purposes. Yet, governments can facilitate the flow of remittances by reducing the cost of sending money, and promote access to savings, loans and health insurance products linked to remittances (see figure 2 for a summary of the global remittances agenda). They can even reduce sovereign borrowing costs by using future remittance flows as collateral.

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