Transcript the social, economic and political impact of remittances

THE SOCIAL, ECONOMIC
AND POLITICAL IMPACT
OF REMITTANCES
October 2009
“Beyond Small Change” IDB
Worldwide $300B in ‘06 by 150M migrants
(WB $309, $380 & $433B in 06, 07 & 08).
$68B to LAC ‘06. For some countries, more
than sum FDI/ODA. Must add “goods”.
More than $60B sent by LAC migrants living
in USA (more than 60% of total living in
USA send remittances). Rest mostly from
Spain. 7% decrease expected in ‘09.
They send 12% of their salary ($200-300)
almost thirteen times every year.
Widespread origin
Remittances come from nearly every State.
CA $13.2B, TX $5.2B, NY $3.6B,, FL $3.1B, IL
$2.6B, NJ $1.9B, GA $1.7B, AZ $1.4B, NC
$1.2BM, VA $1.1BM.
MD $921M, CO $646M, NV $618M, MA
$579M, PA $517M , WA $504M.
TN $407M, IN $386M, OR $383M, NM $370M,
MI $337M, WI $335M, SC $322M, CT $301M,
MN $292M, UT $258M, AR $253M, OK
$226M, AL $219M, KS $215M, OH $214M.
All the rest, save MT & WV, also participated.
Widespread destination
They go to nearly every country (2006).
MEX $24.3B, BRA $7.4B, COL $4.5B,
GTM $3.6B, SLV $3.3B, EC $3.2B, DR
$2.7B, PER $2.9B, HND $2.3B, JAM
$1.9B, ARG $1.7B, CHL $1B, HAI $1B.
BOL $972M, VEN $950M, NIC $800M,
PAR $650M, PAN $479M, URU $479M,
CRI $444M, GUY $270M.
Putting it in Perspective
Remittances as % of GDP (2006):
BR CO DR ES GU HA HO ME NI
0.3 3.3 9 18 10 21 25 3 15
Remittances as % of exports (2004):
BR CO DR ES GU HA HO ME NI
5
18 25 58 61 167 42 8 67
The Importance of
Remittances
Causes of Migration
Internecine conflicts (SLV, NIC, GTM).
Natural disasters (Mitch, earthquakes).
Economic hardship in home country.
Employment opportunities in host country
(3Ds, jobs that are dirty, difficult, dangerous)
Migrants respond to comparative advantages.
Rational “insurance” policy.
Why do people remit?
Altruistic reasons.
Exchange reasons: remitter needs family
members for tasks at home & pays for them;
family seeks insurance (diversify income) &
finances family member’s trip; so that family
can hire services that the remitter provided
before; to reserve place in family or obtain
larger inheritance.
In practice, difficult to distinguish between
two reasons.
Compensatory or
Opportunistic?
Evidence suggests that they are sent to
compensate for situations at home. They are
thus counter-cyclical. They reduce amounts
sent when a devaluation occurs in home
country and increase them in bad times.
Occasionally they are opportunistic (as capital
flows), that is, sent to take advantage of an
opportunity at home (investment opportunity,
such as higher interest rate in the host
country).
Uses of Remittances
Significant portion, often the majority, for
consumption (60 to 80% in LAC).
Smaller portion to investment, usually land
&/or housing.
HTAs used to promote investment in MEX
(3x1) and SLV (2x1). Not very successful.
Distrust of government.
Social Consequences
A very dangerous journey.
Brain, brawn and entrepreneurial drain.
Family separation and breakdown.
Disruption of labor markets.
The dependency syndrome.
Youth gangs.
Backlash in host countries.
Impact on remitters (poverty, schooling).
Positive Economic
Consequences
 Contribute to poverty alleviation, but not related to
GDP growth rate. Not economic growth program.
 Increase demand (local purchases, tourism,
transportation, telecoms, nostalgic trade.)
 Support education, housing and business
development.
 Reduce exchange rate volatility, country risk.
 Increase foreign exchange reserves (finance needed
imports) & debt sustainability.
 Constant (low volatility), long lasting (more than ten
years). Countercyclical. Negatively correlated with
FDI & other private flows.
Negative Economic
Consequences
 “Dutch disease”: loss of X competitiveness.
 Higher interest rates in LC. De facto dollarization.
 Weaken government’s will to maintain fiscal
discipline (they may consume/borrow more).
 Governments overspend hoping for growing
flows.
 Reduce labor force (migration & willingness to
work).
 Little correlation between GDP growth & volume
of remittances. Idem for inflation.
Political Consequences
Several countries have unilaterally granted
dual citizenship (Mexico, Guatemala,
Honduras, El Salvador, Nicaragua).
Others (Mexico, Honduras) have allowed
their migrants to vote in their elections
(restricted to Presidential candidates).
Scant participation (0.5% for Mexico and
Honduras).
Other (More Important)
Political Consequences
Manipulation of the fear of deportation.
Influencing home politics thru relatives.
Influencing home politics thru fear of
loss of remittances.
Influencing host country politics.
Is politics for migrants also “local”?
Will politics be affected through culture
change?
Migration
Throughout time, people have migrated
Migration will continue and with it come
remittances.
Close to a billion persons benefit from
migration and remittances.
Thank you!