The Role of Migrant Remittances in Development: Evidence from Mediterranean Countries

Given the persistent problems in the balance of trade in LDCs, the limited effect of foreign aid, and the difficulties of borrowing, the often huge amounts of migrant remittances can substitute for the inadequacies of these forms of foreign exchange. As market flows of foreign exchange, remittances have complex positive and negative effects on development. In this paper, I deal with this role of migrant remittances in the theoretical framework of development economics, as related to the importance of foreign exchange as an indispensable factor of growth and structural change in LDCs. Various channels transmitting the impact of remittances on development are investigated based on the experience of countries from both sides of the Mediterranean basin.     

Worker Remittances and Capital Flows to Developing Countries

Worker remittances constitute an increasingly important channel for the transfer of resources to developing countries. Behind foreign direct investment, remittances are the second‐largest source of external funding for developing countries. Yet, literature on worker remittances has traditionally focused on the impact of remittances on income distribution within countries, on the determinants of remittances at a micro‐level, or on the effects of migration and remittances for specific countries or regions. Macroeconomic determinants and effects of remittances have received more attention only recently. Hence, the focus of this paper is on the macroeconomic determinants of remittances and on differences in these determinants between remittances and other capital flows. We find that remittances respond more to demographic variables while private capital flows respond more to macroeconomic conditions.     

Foreign Remittances and Regional Poverty: Evidence from Household Data

This study examines the association between foreign remittances and poverty (incidence and severity) in the Punjab province of Pakistan. Logit regression is used to deal with binary headcount ratio, while the instrumental variable approach is employed to avoid possible endogeneity. Household-based data, covering more than 40,000 household units in Punjab, are used for the empirical estimations. After controlling for several variables, such as the number of dependents of households, age, gender, and education of the household head, the results indicate that foreign remittances’ inflow reduces the incidence and severity of poverty in all three regions of the Punjab province, North Punjab, South Punjab and Central Punjab. The South Punjab, however, is found to be poorer based on headcount poverty and severity of poverty as compared to the other two regions.     

International Migrants' Remittances and Welfare Status of the Left‐Behind Families in Turkey

In this study, micro implications of remittances are examined based on the data from the 1996 Turkish International Migration Survey (TIMS‐96), part of a comprehensive study of Eurostat and the Netherlands Interdisciplinary Demographic Institute (NIDI). Results of the study imply that migrant savings are generally used for satisfying basic consumption needs. Patterns of expenditures suggest that for 12 percent of all the households receiving remittances, about 80 percent used remittances to improve their standard of living. Considering the variation by regions, it is observed that households in less‐developed regions spent more on daily expenses than those in developed regions. This suggests that daily expenses of households in less developed regions depend significantly on remittances received by households. Moreover, remittances have a positive impact on household welfare; households receiving remittances are found to be better off than nonremitting households. This suggests that migration and remittances have positive indirect effects on incomes of emigrant households. A considerable part of the relevant literature argues that remittances are mostly spent on consumption, housing and land and are not used for productive investment that would contribute to long‐run development. This conclusion often rests on arbitrary definitions of “productive investments.” Access to better nutrition and allocation of more resources to education are, without question, forms of productive investment. Although emigration does not serve as a solution to the problems of national development, it is evident that remittances generate considerable welfare effects, at least for the remittance‐receiving population.     

Remittances and Other Financial Flows to Developing Countries

Official estimates of migrants’ remittances are around US$100 billion annually, with some 60 per cent going to developing countries. Any policy making use of migrants as a development resource must understand the size and allocation of remittances, and the roles played by migrants and their communities in the remittance process. This paper examines the flows of remittances in relation to other financial flows to developing countries. The examination is based on data available from official statistics. As discussed in the paper, remittances by unofficial channels are significant by all accounts so the remittance amounts reported here are quite conservative. The paper shows that annual remittances to developing countries have more than doubled between 1988 and 1999. Viewed over the last decade, remittances have been a much larger source of income for developing countries than official development assistance (ODA). The gap is increasing, since ODA has been falling while remittances have increased. Furthermore, remittances appear to be a much more stable source of income than private flows, both direct and portfolio, which tend to be more volatile and flow into a limited set of countries. Remittances to developing countries go first and foremost to lower middleincome and low–income countries. Lower middle–income countries receive the largest amounts, but remittances constitute a much higher share of total international flows to low–income countries. Of the ten countries receiving most remittances, two are low–income (India and Pakistan); six are lower middle–income (Philippines, Turkey, Egypt, Morocco, Thailand, and Jordan); and two are upper middle–income (Mexico and Brazil). Sub–Saharan Africa received some 8 per cent of remittances in 1980, but only some 4 per cent in 1999. South Asia’s share also declined from what was already a relatively high 34 to 24 per cent. Those who gained most were Eastern Europe and Central Asia, South and Central America, and the Caribbean, which increased their share of global remittances.     

Macroeconomic impacts of worker remittances on Arab world labor exporting countries

The author discusses the effect of remittances from workers in oil-producing states in the Arab world on macroeconomic development patterns in non-oil-producing regions. Consideration is given to the impact of remittances on consumption and domestic growth and their interrelationships with foreign exchange. (SUMMARY IN FRE AND SPA)     

The Migration–Development Nexus: Sri Lanka Case Study

This paper explores the relationship between migration and development in Sri Lanka, a country that has been the source of large numbers of migrants and the recipient of much development assistance. Commissioned as part of a wider study conducted by the Centre for Development Research, Denmark, this case study seeks to answer a set of specific questions about the nature and extent of links between development assistance and migration flows. The paper surveys the socio–economic context in which both migration and development have taken place in Sri Lanka, describing the causes, scale, and features of migration flows from Sri Lanka in recent decades. Two main streams of migration flows are identified: labour migration and political migration. The flows are distinguished by ethnic characteristics (the former is mostly Sinhalese and the latter pre–dominantly Tamil) and destination (the former to the Middle East and the latter to the West). Both flows have intensified during a time of protracted conflict and in the context of waraffected economic development since the early 1980s.
The importance of remittances from migrants to the Sri Lankan economy and the extent to which diaspora activities impact Sri Lanka are also discussed. Despite the lack of statistics, especially on informal remittances from the Tamil diaspora, it is suggested that the remittances have been and will continue to be a sizeable component of foreign exchange receipts in Sri Lanka. The paper concludes that the complex interactions between migration, development assistance, remittances, and conflict are important for the prospects for peace and reconstruction in Sri Lanka. The challenge in Sri Lanka will be to move from a vicious cycle of conflict, underdevelopment and migration to a more virtuous one. In this process, it is suggested that the diaspora will be a key player in the shift towards peace and remittances will be an integral part of reconstruction.     

What Drives Remittances from Saudi Arabia to Pakistan? Home Versus Host Country's Economic Conditions

Saudi Arabia is the largest source country of remittances to Pakistan since the 1970s. This study examined the impact of home versus host country’s economic conditions on remittances from Saudi Arabia to Pakistan. The ARDL bounds testing is used on the annual data set from 1973 to 2014. The study concluded that economic growth in the host country and economic crises in the home country increase remittances. 1% decrease in domestic output increases remittances by 2.79% while 1% increase in sending country’s output growth increases remittances by 5.2% in the long‐run. The bilateral trade has a positive while financial deepening has a negative impact on inflows. The impact of oil shock is insignificant. We suggest cautious foreign policy as remittances depend significantly on the host country’s economic condition that is not directly under the control of the home country but remittances can be sustained with bilateral trade.     

Manpower export and economic development: evidence from the Philippines

The Philippines has actively pursued a policy of labor export with the expectation that it would relieve unemployment, augment the supply of skills, and relieve pressure on the balance of payments. It was also anticipated that the inflow of overseas workers' remittances would translate into increased investment, the sine qua non for economic development. However, recent evidence casts some doubt on the extent to which these goals have been achieved. Particularly in the areas of skill formation, there appears to be a significant discrepancy between anticipated and actual outcomes. Indeed, it appears that the labor export may reduce the supply of skills available since 1) many skilled and educated workers are taking jobs requiring skill levels lower than they possess, and 2) a large majority of returning workers do not want to take up employment in those occupations reliant on the skills they used abroad. There is conflicting evidence regarding the impact of labor export on Philippine industries. There is some anecdotal evidence that a few industries have suffered because of a loss of key workers. In general, however, it appears that unemployment is still quite significant in those occupations most heavily represented in labor export. Despite this observation, it may still be true that labor emigration is selective of only the best workers, implying a decline in quality of the work force and possibly productivity in certain industries. The export of professional, technical, and managerial workers is another issue. Unless it can be shown that these workers are in excess supply, it is not advisable to expand the number going abroad. Although their salaries may be higher, and hence their remittances greater, their loss can impose costs on indigenous industries well in excess of a any marginal gains. Remittances from overseas workers do constitute a relatively significant source of foreign exchange. However, the translation of remittances into investment has been restrained by the very low propensity of remittance recipients and returnees to undertake productive investment and by the diversion of remittances from formal banking channels into informal channels. Remittances which are being channeled through the formal banking sector constitute a potentially important source of loan funds, as well as providing a potential stimulus to indigenous industry.     

Do internal and international remittances matter to health,education and labor of children and adolescents? The case of Vietnam

Using data from Vietnam Household and Living Standard Surveys in 2006 and 2008, this study estimates the effect of the receipt of international remittances and internal remittances on education, labor and healthcare utilization of children and adolescents in Vietnam. It shows that there are no statistically significant effects of receipt of remittances on school enrolment as well as child labor of children and adolescents. However, receiving international remittances helps children increase the number of completed grades by around 2% of the average completed grade for children. Both international and internal remittances are positively associated with the number of outpatient health care visits.     

Remittances and well-being among rural-to-urban migrants in China

The main objective of this paper is to propose a systematic approach to empirically analyse the relationship between sending remittances and the utility of migrants, as proxied by their subjective well-being (SWB). Using data from a new survey on China, we estimate models in which a SWB measure is regressed on the level of remittances, finding a sizeable positive correlation. The estimates vary with the socio-economic characteristics of migrants, migration experience and the diversity of family arrangements. As a complementary objective, we use SWB measures to elicit the motivations behind remittances, finding evidence that both altruistic and contractual motivations are at work among rural-to-urban migrants in China.     

Residential Remittances and Food Security in the Upper West Region of Ghana

In recent years, out migration from the Upper West Region to the southern belt of Ghana for farming has become commonplace. The natural question that has arisen is: what is the potential impact of remittances from this migration pattern on food security in the region? Using multivariate ordered logistic regression this study assesses the linkage between remittances and household food security (derived using the HFIAS) among urban and rural households (n=1,438) in the region. The findings show that urban remittance‐receiving households and rural remittance and non‐remittance receiving households were more likely (OR=2.44, p<0.05; OR=2.46, p<0.001; and OR=1.49, p<0.1, respectively) to report being more severely food‐insecure than urban non‐remittance receiving households. The findings demonstrate that household strategies such as migration and remittances on their own are not sufficient to ameliorate the precarious food insecurity situation of the region. The study calls for development of alternative livelihoods in the region.     

Factors determining migrant remittances: the case of Greece

"In this study we review the literature regarding the theory and the empirical evidence regarding migrants' remittance behavior, and we examine the flow and determinants of remittances from Greek migrants for the period 1961 to 1991. The main body of data is for remittances to Greece from Germany, but for some years data are available for remittances from Belgium and Sweden as well. The objective of this study is to test the significance of certain factors in terms of their effects on remittances to Greece. These factors are the migrant's income, the migrant's family income, the rate of unemployment, the rate of interest, the exchange rate, and the rate of inflation. The study attempts to see if these factors have had any effect on the volume of remittances. It also attempts to see if there are any structural changes during this period that affect migrants' propensity to remit."     

Do Migrant Remittances Cause Dutch Disease in Nigeria?

Statistics show that remittances inflow to Nigeria grew from US$3,000,000 in 1978 to over US$22 billion in 2017. Theoretically, such a large inflow of foreign currency into an economy may lead to Dutch diseases. This study, therefore, investigated whether the massive inflow of remittances into the economy causes Dutch disease. Given that the model had both I(0) and I(1) variables, ARDL/Bound testing methodology was used with annual data from 1981 to 2016. The ARDL result showed that migrant remittances have a significant positive effect on the real effective exchange rate in Nigeria in the long run. Specifically, a one per cent increase in the inflows of remittances increases the real effective exchange rate of Naira by 0.44 per cent in the long run. This appreciation of the Nigerian Naira relative to other competing nations encourages import and discourages export, leading to the Dutch disease effect.     

Overseas workers' remittances in Asian development

In recent years, overseas workers from Asia have been sending remittances of about $8 billion annually to their home countries. These remittances are an important source of precious foreign exchange for the major labor-exporting countries. The overall development impact of remittances, however, has not been well established. Remittances are spent primarily on day-to-day consumption expenditures, housing, land purchase, and debt repayment. Although only a small proportion of remittances are directed into productive investments, this does not warrant the conclusion that the developmental value of remittances is negligible. In fact, remittances spent on domestic goods and services Asia provide an important stimulus to indigenous industries and to the economies of the labor supplying countries. It is these broader macroeconomic benefits of remittances which seem to have been largely ignored in the literature, and this perhaps explains the pessimistic view of the developmental value of remittances. Reservations concerning the effects of remittance on the sending countries include the fears that 1) expenditure patterns of remittance receiving households may create a demonstration effect whereby nonmigrant households may increase consumption, 2) remittance inflow will increase income and wealth inequalities, 3) remittance expenditures may result in inflation, 4) remittances may produce only short-term fluctuations in long-term economic development, and 5) remittances may adversely affect agricultural development.     

The impact of migrants' remittances on the Egyptian economy

"The main objective of this paper is to evaluate the impact of the large remittances made by Egyptian migrants to their home country on the Egyptian economy. In order to study this impact, we use the implications of the standard Keynesian model. We estimated the structural equations of the model using annual data for the Egyptian economy over the period from 1970 to 1984.... The results suggest that remittances have had a strong positive impact on GNP in Egypt." The authors note that remittances especially affect private consumption spending. Policy implications concerning labor migration are discussed. (SUMMARY IN FRE AND SPA)     

The Effect of Remittances on Economic Growth in Kyrgyzstan and Macedonia: Accounting for Financial Development

Kyrgyzstan and Macedonia have experienced a reasonable increase in remittances over the last twenty‐five years. Subsequently, the extent to which remittances can be instrumental for economic development of the two countries has gained serious attention in recent development dialogues. The aim of this study is to examine the impact of remittances versus financial development on the economic growth of the two counties, complementing the burgeoning interest and focus on remittances for policy. The short‐run and the long‐run effects and the causality dynamics of remittances and financial development, are explored. The results show a long‐run positive impact of remittances on the economic growth of these countries. The impact of financial development is negative, significant only for Kyrgyzstan and not statistically significant for Macedonia. The causality results show that remittances support economic growth for Kyrgyzstan, whereas economic growth appears to propel remittances for Macedonia.     

The impact of liquidity constraints and imperfect commitment on migration decisions of offspring of rural households

This paper presents a non-cooperative model of intra-household decision-making regarding investment in migration. It is shown that the combination of liquidity constraints and imperfect commitment are a source of underinvestment in migration. More precisely, we highlight that, if remittances are unenforceable as a repayment for the parent’s contribution in migration transaction costs, then both the migrant and the parent’s liquidity constraints, rather than the household’s liquidity constraint as a whole, matter in determining the investment decision. Besides, the insurance motive for remittances is shown to generate divergence of interest over the characteristics of migration. This result calls for a theoretical approach that properly takes account of potential internalization problems, which the paper intends to offer. Plausibility checks of the model are provided by comparative statics whose outcomes are consistent with previous research on migration and remittances.     

What is Love? The Materiality of Care in Ghanaian Transnational Families

In the West, economics and intimacy are assumed to occupy separate – even antithetical – domains. In Ghanaian family life, however, affection is understood to be expressed through the distribution of material resources across generations and a person’s life cycle. Such an understanding of love means that migrant parents who leave their children behind in Ghana can continue to be good parents by sending remittances, and, in fact, may be considered better parents than caregivers who stay and are poorer. This construction of love also means that children tend to attach themselves to more financially secure caregivers over those with fewer economic opportunities — to men in favour of women, to those abroad over those in Ghana. It is precisely because love is signalled through material exchanges that children long to be with parental migrants far away who support them and feel abandoned by those parents who do not. The intertwining of economic and emotional ties in Ghanaian transnational families has significant implications for policy, as discussed in the conclusion.     

Best Practice Options: Albania

The Cooperative Efforts to Manage Emigration (CEME) site visit to Italy and Albania – organized in cooperation with the Centro Studi di Politica Internazionale (CeSPI), an Italian independent research institute – took place in June 2002. Albania is a country of 3.1 million people with a GDP of $4.1 billion that switched in the early 1990s, after 45 years of communism, from economic autarky to a peculiar form of market economy, and experienced some of the world’s highest emigration rates in the 1990s. Some 600,000 to 700,000 Albanians, or almost one–fourth of Albanians, and half of Albanian professionals, emigrated. As a result, the labour force is only 38 per cent of the population, versus 50 per cent in most industrial countries (UNDP, 1996, 2000). The major destinations of Albanian migrants in the 1990s were Greece, which had 400,000 to 600,000 Albanians in 2002, and Italy, which had 144,000 legal residents and probably some tens of thousands illegals at the end of 2001. 1 The Albanian Government estimates that about half of the Albanians in Greece are legal residents. There are also about 100,000 Albanians in Switzerland, the UK, Germany, and other Western European countries.
Many Albanians have become legal residents of Greece and Italy as a result of regularization–legalization programmes. Albania is also a transit point for third country nationals attempting to reach the rest of Europe via Albania. Of particular interest to the CEME members were efforts by the Italian and Albanian governments to cooperate in managing the flows of Albanian and transit migrants. When the CEME visit was made, Albania was experiencing rapid, yet unbalanced economic growth as a result of $615 million in remittances from Albanians abroad (estimates: Bank of Albania annual report, 2001), and aid from the European Union (EU) and other sources. The spending of remittances and aid has fuelled a building boom, but there was no clear sense of how Albania would use the window of opportunity opened by remittances and aid to develop a viable economy. The optimistic scenario is that remittances and investments from Albanians abroad will produce an economic take off based on value–added food production and tourism in the “Switzerland of the Balkans”. The pessimistic scenario is that corruption and divided government will prevent the development of a successful economic strategy, and that low wages, high unemployment, and inadequate services such as health care and education will prompt the continued emigration of young and educated Albanians. Potential best practices include: joint Italian–Albanian marine patrols to discourage smuggling and trafficking in small “fast boats”; Italy granting Albania at least 6,000 work visas a year to publicize that there is a legal way to work in Italy, helping to discourage illegal migration; and bilateral and international assistance to enable Albania to develop laws and institutions to deal with foreigners transiting Albania, and foreigners requesting asylum in Albania. Albania does not, on the other hand, appear to be a best practice in managing the use of remittances to aid economic development. Although remittances play an important role in basic subsistence and construction of housing, there have been fewer efforts to encourage investment of these funds in infrastructure or productive activities. The banking system needs substantial reform to become a venue for transfer of remittances and source of credit for enterprise development. Albania would benefit from a more systematic examination of the lessons learned in other countries about the investment of remittances for economic development.