Remittances and poverty alleviation

Presented by :
Emil Mathew Binny
III 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.
Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016
$700 billion
remittance flows may reach worldwide by 2016.
$540 billion
remittance flows to developing countries are expected to by 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 values 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)

Workers 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

450000
400000
350000
300000
250000
200000
150000
100000
50000
0

Total Remittances by Districts, 2011

10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0

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.
Money sent
home annually, per migrant (2000)
2686.5

926.4

766.5

649.4

431.5

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

160.4

Remittances tend to finance consumption: often productive (consumer

durables, house improvement, education, health)
Uses of remittances, Mexico 2000
percentage
78.0

7.0

Consumption
Goods

Source: Fomin, Pew Hispanic Center

5.0

Education Saving

4.0
Other
Cons.

1.0
Investment

4. THE CONTRIBUTION OF REMITTANCES & OTHER

DIASPORA RESOURCES TO DEVELOPMENT
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 studies
Impact 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
10
rise
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 entrepreneurship
Finance 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 networks
e.g. HTAs of Haitians in the US
11

12

4. THE CONTRIBUTION OF REMITTANCES & OTHER

DIASPORA RESOURCES TO DEVELOPMENT
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 - IOMs MIDA project in Ethiopia

Virtual transfer of skills - IOMs Temporary RQN project in Afghanistan, Ethiopia,
Sierra Leone and Sudan
12

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

13

4. THE CONTRIBUTION OF REMITTANCES & OTHER

DIASPORA RESOURCES TO DEVELOPMENT
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. IOMs
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
13
14

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

ECONOMIC CONTRIBUTION
(Origin Countries)
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

ECONOMIC CONTRIBUTION
(Origin Countries)
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

Migration boosts welfare for most

households
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

Probability of migration and per capita

income
Probabilty

.014914

.00228

5000

Official urban
poverty line

10000
15000
Per capita income

3.5 times the

official urban
poverty line

20000

Remittances and development

There is an inverse U-shaped relationship
between human development and
migratory intensity.
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 nonmigrants 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 nonmigrants within their own communities

Migration tends to reduce inequality in

levels of education, at least in the shortrun

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 childrens health (lower
infant mortality and higher weight at birth)

Annual Savings and

Investment
Membership

Monthly Food and Non Food expenses

FOOD

Non Food

Expense
s

2850

3144

5994

3256

4425

7681

Total
2994
3597
21991
91187
Annual Health and Education Expenses

6591

Annual
Savings

Annual
Investment
s

HHs with No
Emigrants

16244

60304

HHs With
Emigrants

32809

139919

Total

Membership
HHs with No
Emigrants
HHs With
Emigrants
Total

Membership

HHs with
No
Emigrants
HHs With
Emigrants

Annual
Medical
Expenses

Annual
Education
Expenses

6469

10688

12169

19186

8538

13933

Direct Benefits of
Migration
Savings and Investment
Human Development (education and
health)
Unemployment and Poverty
Standard of Living
Reduce Inequality

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

40

Percent of Hhs

35

Population of Kerala and

Emigration
by Religion, 2011 ( in percent)

30
25
20
15
10
5
0
Hindus

Christians

Muslims

Expenditure on Education Per Household,

by Migration Status and Religion
16000
Hindus

14000

Rupees

12000
Christians

10000
8000
6000

M uslims

4000
2000
0
All

NRK

Non-NRK

14000

Expenditureper Household on Health, by

Religion and Migration Status
Hindus

12000

Rupees

10000

Christians

8000
M uslims

6000
4000
2000
0
All

NRK

Non-NRK

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 worlds 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 Remittances
bonds(addl)
are a way of tapping into diaspora income flows
on a regular basis, while issuance of foreign currencydenominated bonds to diaspora is a way of tapping into
diasporas wealth, i.e. savings.
Empirical analysis shows that migrant (diaspora) savings are
Israel
India remittance flows
several times higher than annual
$25 billion issued in total

Annual issuance since 1951

Development-oriented borrowings
Large though declining patriotic
discount
Fixed, floating-rate bonds and notes
Maturities from 1 to 20 years with
bullet
repayment
Distribution by Development
Corporation for
Israel
Targeted toward but not limited to
diaspora
Nonnegotiable
Source: Ratha and Kethar 2009. World
Bank.

$11 billion issued in total

Opportunistic issuance in 1991, 1998
and 2000
Balance-of-payments support
Small patriotic discount, if any
Fixed-rate bonds
Five year with bullet maturity

Distribution by State Bank of India and

international banks
Limited to diaspora
Non-negotiable

34

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

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