Transcript in Mishra (2006) - Department of Conferences and Meetings

Emigration, Brain Drain,
and Remittance Flows
in the Caribbean
Hunter Monroe
Western Hemisphere Department
International Monetary Fund
The views expressed herein are those of the author and should not be attributed to the IMF,
its Executive Board, or its management.
Scope of Presentation
• Quantify emigration and brain drain and
assess the impact
• Evaluate the costs of emigration and brain
drain relative to remittance inflows
• Assess the impact of emigration on
pension scheme sustainability
Data Source: Docquier and Marfouq, 2004 in Mishra (2006)
Caribbean
Central America
Northern Europe
Southern Europe
Oceania
Western Europe
Western Asia
Northern Africa
South-Eastern Asia
South America
Eastern Europe
North America
Central Africa
Southern Africa
Western Africa
Estern Asia
Eastern Africa
South Central Asia
The Caribbean has the highest
emigration rates in the world
Percent of Labor Force that Migrated to OECD Member
Countries: 1965–2000
12
10
8
6
4
2
0
3
A large proportion of the labor force
has migrated abroad
Percent of Labor Force that Has Migrated from the Caribbean
Countries to OECD Member Countries, 1965–2000
60
50
40
30
20
10
Mishra (2006)
Grenada
St Kitts &
Nevis
Suriname
Guyana
Dominica
St. Vincent &
Grens
Antigua and
Barbuda
Jamaica
Barbados
Belize
Trinidad and
Tobago
St. Lucia
Dominican
Republic
Bahamas,The
Haiti
0
4
Much of this emigration has been in the
form of a “brain drain”
Percent of Labor Force That Has Migrated to OECD Member Countries,
1965–2000, (By Level of Schooling)
Primary
Secondary
Tertiary
Antigua and Barbuda
Bahamas, The
Barbados
Belize
Dominica
Dominican Republic
Grenada
Guyana
Haiti
Jamaica
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago
9
3
18
7
19
6
25
18
3
16
32
12
18
39
8
64
10
28
58
67
33
71
43
30
35
42
21
33
74
22
67
61
63
65
64
22
85
89
84
85
78
71
85
48
79
Average
15
42
70
Mishra (2006)
5
In terms of skilled migration rates, Caribbean countries
comprise most of the top 20 countries in the world
Top 20 Countries in the World with the Highest Emigration Rates, 1970–2000
(Percent of Educated Labor Force that has Migrated to OECD Member Countries)
Mishra (2006)
Note: Educated labor force is defined as having 12 or more years of completed schooling.
Mauritius
Malta
Bahamas, The
Fiji
Gambia, The
Barbados
Dominica
Belize
Antigua and Barbuda
Cape Verde
Saint Lucia
Tonga
Samoa
Saint Kitts and Nevis
Trinidad and Tobago
Haiti
Saint Vincent and the
Grenadines
Jamaica
Grenada
Guyana
100
90
80
70
60
50
40
30
20
10
0
6
Are the costs of the “brain drain” sufficiently
high to outweigh the gains from remittances?
versus
Mishra (2006) uses a labor demandsupply framework to show that the
costs of the brain drain are, in fact,
significant for the Caribbean
7
Why are remittances
important?
• World-wide remittances to developing countries
•
•
and emerging markets have increased more
than 9-fold over the past 25 years.
Current estimates of remittance flows on the
order of US$200 billion in 2006.
Total gross remittances are now the 2nd largest
source, behind FDI, of external financial flows to
these countries.
8
External Financial Flows
(US$ billions)
Remittances
FDI
Other Private Capital Inflows
200
150
100
50
0
1970
1975
1980
1985
1990
1995
2000
-50
-100
Spatafora (2007)
9
What are some of the benefits of
remittances?
• Compared with other resource flows,
typically much more stable.
• Unrequited transfers, so no future
financing obligations as with other capital
flows.
 Can help smooth crises, foster economic
and financial development, and alleviate
poverty.
10
Volatility of Inflows
1
(1980-2003)
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
Remittances
1Volatility
Aid
FDI
Other Private
Capital
Inflows
Exports
is defined as the standard deviation of the ratio of the relevant inflow to GDP.
Spatafora (2007)
11
Cyclicality of Inflows
1
(1980-2003)
0.3
0.2
0.1
0
Remittances
-0.1
Aid
FDI
Other Private
Capital
Inflows
Exports
-0.2
-0.3
1Cyclicality
is defined as the correlation between the detrended relevant inflow
and detrended GDP.
Spatafora (2007)
12
Definition of remittances
 Workers’ remittances—transfers from workers
staying abroad for >1 year
recorded under “current transfers”
 Compensation of employees—transfers from
persons staying abroad for <1 year
recorded under “income” of the current
account
 Migrants’ transfers—flows of goods and financial
assets linked to migrants’ cross-border
movements
recorded under “capital transfer”
13
Data Caveats
Remittances may actually be much larger!
• Large share of remittances flow through informal
channels
• Freund & Spatafora (2005)—informal remittances
could be 35-75 percent of official remittances
• Poor data collection implies even formal remittances
may be unrecorded
• Remittances often misclassified as exports, tourism
receipts, non-resident deposits, or FDI
14
The Caribbean is the world’s largest
recipient of remittances relative to GDP
12
10
(in percent of GDP)
8
6
4
2
0
East Asia and
P acific
Europe & Central
Asia
Latin America
Sub-Saharan
Africa
M iddle East and
Northern Africa
South Asia
Caribbean
World Bank; data for 2007, simple average
15
Remittances in the Caribbean are
greater than either FDI or ODA
14
12
(in percent of GDP)
Remittances
10
8
6
FDI
4
2
Net ODA
Mishra (2006); weighted average
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
16
Mishra (2006)
Grenada
Haiti
Dominica
Jamaica
Dominican
Republic
St. Kitts &
Nevis
St.
Vincent &
Belize
St. Lucia
Antigua &
Barbuda
Barbados
Guyana
Suriname
Trinidad &
Tobago
Total remittances for Caribbean countries
(In percent of GDP, average over 1980-2002)
12
10
8
6
4
2
0
17
Are remittances driven by altruism or
portfolio (profit-driven) motives?
Mishra (2005) analyzed the macro impact of remittances on
13 Caribbean countries (using data from 1980-2003):
• Remittances have a statistically and economically
significant impact on private investment
 1 percentage point increase in remittances implies 0.6
percentage point increase in private investment
• Remittances increase after a negative output shock
(such as a natural disaster), although with a lag
 1 percent decrease in real GDP associated with remittances
increase of about 3 percent after a 2-year lag
18
The pickup in remittances after Hurricane Ivan’s
devastating impact on Grenada is illustrative of an
altruistic (insurance) role of remittances
60
In percent of GDP
Exports of goods
50
Remittances
40
Tourism
30
Hurricane Ivan
20
10
0
2000
2001
2002
2003
2004
2005
2006
19
Why are remittances to the Caribbean
so high?
Because emigration is so high.
Why is emigration so high:
 Pull factor—higher wages abroad
 Push factor—limited domestic job
opportunities for the highly educated
 Low cost factors—geographical proximity
of the U.S. and common language
20
Labor Demand-Supply Model: Emigration Loss
Emigration Loss = Triangle B
Gain to workers who have stayed
behind = Region A
Loss to owners of fixed factors =
Regions A+B
Mishra (2006)
21
Remittances typically outweigh the emigration
loss due to high-skilled migration
Emigration Loss Due to High-Skilled Migration
(in percent of GDP)
Emigration Loss
Remittances
Average
1980–2002
Antigua and Barbuda
Bahamas, The
Barbados
Belize
Dominica
Dominican Republic
Grenada
Guyana
Haiti
Jamaica
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago
2.7
2.3
2.4
2.6
2.5
0.3
4.3
4.7
4.2
4.3
3.7
3.0
4.3
1.4
3.8
3.0
n.a.
2.3
4.7
8.4
5.3
11.0
1.9
10.1
7.4
6.9
4.0
7.2
0.5
0.3
Average
3.1
5.2
22
Mishra (2006)
But high-skilled emigration also shifts the marginal
product of labor curve inwards (external effects)
Emigration Loss =
Triangle DEF + Area ABCD
Mishra (2006)
23
A major cost of high-skilled migration is due
to the government subsidy on education
Figure 10. Estimated Government Expenditure on Education of Migrants
(as a percent of GDP)
St. Kitts and Nevis
Antigua and Barbuda
Jamaica
Barbados
St. Vincent & Grens.
Guyana
Trinidad and Tobago
Mishra (2006)
Grenada
Belize
St. Lucia
Suriname
Dominican Republic
Bahamas, The
Haiti
Dominican Republic
10
9
8
7
6
5
4
3
2
1
0
24
Costs of High-Skilled
Migration
• Welfare losses from changes in domestic labor
•
•
•
•
supply and wages
Dynamic effects of brain-drain on growth—
decline in productivity
Government subsidy on education of high skilled
Other fiscal losses—loss to tax base of highincome earners
Social goals—decrease in ability to redistribute
from high-income households to low-income
households
25
Total Costs of High-Skilled Migration vs.
Benefits of Remittances
Total Losses Due to High-Skill Emigration vs Remittances
(in percent of GDP)
Estimated
Education
Expenditure
Emigration
Loss with
External Effects
Total
Loss
Antigua and Barbuda
Bahamas, The
Barbados
Belize
Dominica
Dominican Republic
Grenada
Guyana
Haiti
Jamaica
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Suriname
Trinidad and Tobago
8.8
1.1
7.4
2.7
5.0
0.2
5.7
6.8
0.8
7.7
9.4
2.0
7.0
1.3
6.2
5.4
4.2
4.9
4.8
5.2
1.4
7.7
7.8
6.6
7.2
6.8
5.3
7.2
3.9
6.3
13.2
4.4
18.5
6.8
11.5
2.1
11.0
9.5
9.0
20.4
9.7
3.8
10.7
7.8
16.8
2.3
4.7
8.4
5.3
11.0
1.9
10.1
7.4
6.9
4.0
7.2
0.5
0.3
Average
4.8
5.6
10.3
5.2
Mishra (2006)
Remittances
Average
1980-2002
3.0
26
Emigration and ECCU Pension Schemes
 How does emigration affect pension scheme
asset depletion rates? Builds on previous work
on ECCU pension funds and migration.
• Context: high Caribbean debt ratios, and use of
pension scheme cash surpluses to finance
central government budgets.
Migration and Demographics
• Emigration is atypically a key factor in the
ECCU’s demographic transition.
• For comparison, Moldovan emigration has
undermined pension scheme finances—
but Central American emigrants were
apparently not pension fund contributors.
• ECCU’s highly-educated emigrants
probably were contributors, and the
actuarial reviews assume slowing
emigration from very high rates.
The ECCU’s Aging Population
(Number of persons)
800,000
700,000
Retirement age
600,000
500,000
400,000
300,000
16-retirement age
200,000
100,000
0-15
0
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
29
Asset Depletion per Actuarial Reviews
100
ECCU: Social Security Reserve Assets per Actuarial Reviews
(In percent of GDP)
St. Kitts and Nevis
80
60
Grenada
40
St. Lucia
St. Vincent and the
Grens.
20
0 Antigua and Barbuda
Dominica
-20
2005
2015
2025
2035
2045
2055
Source: Fund staff estimates and projections, as shown in Roache and
Rasmussen (2007).
Sensitivity to Emigration
• Actuarial projections assume a slowing
rate of emigration based on the actuary’s
judgment. Historical emigration rates are
estimated using the residual change in
population per local censuses.
• Suppose emigration remains constant at
the emigration rate implied by OECD
census data (see next slide).
A large proportion of the labor force
has migrated abroad
Percent of Labor Force that Has Migrated from the Caribbean
Countries to OECD Member Countries, 1965–2000
60
50
40
30
20
10
Mishra (2006)
Grenada
St Kitts &
Nevis
Suriname
Guyana
Dominica
St. Vincent &
Grens
Antigua and
Barbuda
Jamaica
Barbados
Belize
Trinidad and
Tobago
St. Lucia
Dominican
Republic
Bahamas,The
Haiti
0
32
Asset Depletion with Historical Emigration
(In percent of GDP)
100
90
80
Antigua and
Barbuda
St. Kitts and Nevis
Actuarial assumptions
on emigration
Historical emigration
rate
70
60
50
Grenada
40
30
Dominica
St. Lucia
20
10
0
St. Vincent and
the Grens.
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060
Source: Fund staff estimates and projections and Docquier and Marfouq (2004).
Summary of Results
• Remittances outweigh simple emigration losses
for most countries
• But total losses due to high-skilled migration
(emigration losses with external effects,
government expenditure on education) outweigh
remittances for most countries
 There is, indeed, some evidence for
“brain drain”
34
But the jury is still out …
• due to data deficiencies, particularly
remittances coming in through informal
channels, results are inconclusive
• emigration confers benefits (not only
costs), including network effects and
human capital formation
35
Policy Issues
• Minimize losses
– Taxes on emigration?
– Reorient education system
• Maximize Benefits
– Diaspora approach: Networks for trade,
investment and tourism
• Remittances
– Promote effective use of remittances
– Reduce transactions costs
– Better recording of data
36
References
• International Monetary Fund (2005a), Chapter II in
World Economic Outlook.
• Mishra, Prachi (2005), “Macroeconomic Impact of
•
•
•
•
Remittances in the Caribbean,” unpublished manuscript.
Mishra, Prachi (2006), “Emigration and Brain Drain from
the Caribbean” in The Caribbean: From Vulnerability to
Sustained Growth, IMF.
Spatafora, Nikola (2007), unpublished presentation.
Freund and Spatafora (2005), “Remittances:
Transaction Costs, Determinants, and Informal Flows”,
World Bank Working Paper No. 3704.
Monroe, Hunter (2009) “Pension Schemes in the Eastern
Caribbean”, forthcoming.
37