Transcript The Role of Remittances

9th PERC Summer School
with the financial support of ACTRAV and in cooperation with
DGB Frankfurt
Frankfurt am Main 26 – 28 September 2016
The Geography and Economics of Immigration.
The Role of Remittances.
Bruno S. Sergi
University of Messina
Davis Center for Russian and Eurasian Studies – Harvard University
Global migration routes: migration is a feature of social and economic life
across many regions and countries. In Europe, migrants accounted for 70%
of the increase in the workforce over the past ten years.
The Geography of Remittances
The Geography of Remittances – Russia & CIS
It is not only about money …… however sending money to their
families is expensive!!
The global average of sending a remittance of $200 came down from 9.81% to 8.95% in the
normal average and from 8.58% to 6.62% in the weighted average from 2008.
The result of the global efforts led by the World Bank to reduce the cost of sending remittances is so far the savings of
approximately $42.48 billion from 2009 to 2013 at the global level.
There was little price transparency and no global effort to address this problem until the World Bank helped form a
coalition to monitor the process and create a “one-stop shop” information system to help remittance-senders compare
services and costs.
What does cause migration? Wars, economics and
political instability.
In 2015, remittance flows to developing
countries reached $432 bn (World Bank)
TOP RECIPIENT COUNTRIES OF REMITTANCES (IN BILLIONS OF US DOLLAR)
Remittances 2009
Remittances 2010
Remittances 2011
Remittances 2012
Remittances 2013
India
49.20
53.48
62.50
68.82
69.97
China
41.60
52.46
61.58
57.99
59.49
Philippines
19.96
21.56
23.05
24.61
26.70
France
16.06
19.46
22.56
22.05
23.34
Mexico
22.08
22.08
23.59
23.37
23.02
Nigeria
18.37
19.82
20.62
20.63
20.89
7.15
12.45
14.32
19.24
17.83
Germany
12.34
12.79
14.52
15.14
15.20
Pakistan
8.72
9.69
12.26
14.01
14.63
10.74
11.28
12.96
14.24
13.86
Egypt
Bangladesh
Remittances sent home by migrants in 2015 (i.e., $432 bn) were more than
three times the size of official development assistance! (World Bank)
•
The Effects of Remittances Sent
Home by Migrants
Overview: Micro and Macro Impacts …. not a black and white picture
 Remittances are stable and can be countercyclical too ;
 Remittances sustain consumption and economic stability of recipients countries;
 Remittances increase the rate of accumulation of physical and human capital;
 Remittances may discourage active labour participation (substitute remittance income for
labour income);
 Remittances help to maintain stability in the balance of payments, ensure foreign currency
reserves, improve credit worthiness for external borrowing and credit ratings by rating agencies
 The Dutch disease (real exchange rate appreciation that harms the competitiveness of tradable
sector);
 Monetary expansion, excessive consumption, inflationary pressures, and reduce the incentives
Relevant Cases of Remittances
In 2013, remittances to India were larger than its exports of information
technology services.
In 2015, remittances to Egypt were four times the size of its revenues from the
Suez Canal.
In most small island nations and countries such as Tajikistan, Nepal and Haiti,
•
remittances amount to nearly one-third of GDP.
In Moldova, remittances accounted for about 25% of GDP in 2012
In Bosnia and Herzegovina, Kosovo, and Montenegro, remittances exceeded 8%
of GDP.
The Role of Remittances – The Plus Side
The impact of remittances on the receiving countries’ poverty rates
A cross-country study of 71 developing countries found that a 10%
increase in per capita international remittances produced a 3.5%
decline in the share of people living in poverty (Adams and Page
2005).
Were it not for remittances, the share of the poor in the population
would have been 4 percentage points higher in Nepal, 5 percentage
points higher in Ghana, 10 percentage points higher in Bangladesh,
and 11 percentage points higher in Uganda (World Bank 2012 and
2016).
The Role of Remittances – The Plus Side
Stable remittances flows and efficiency
• Remittances are playing an increasingly large role in the economies of labourexporting countries: the stability of remittance flows despite financial crises
and economic downturns make them a reliable financial resource for developing
countries. And unlike private capital flows, which tend to be highly
cyclical, remittances are relatively stable and often consumptionsmoothing
• Unlike official aid that go through official agencies, remittances flow directly to the
families of migrants and are arguably more efficient in meeting the needs of the
recipients.
• The share of remittances spent on consumption (food, clothing, and rent) ranges
from more than 56% in Senegal to less than 15% in Nigeria. Conversely, spending
on education, health and investments accounts for 43% of remittances in Senegal
and 85% in Nigeria
The Role of Remittances – The Plus Side
Investment and financial deepening
Remittances appear to have promoted investment and, in some
cases, supported consumption and facilitated financial deepening.
IMF’s cross-country estimates (2016) suggest that in countries that
depend heavily on remittances (where the remittance-to-GDP ratio
exceeds 10%), remittances played a crucial role in financial
deepening (measured as private credit or deposit in percent of GDP)
as well as in supporting private sector activity.
Remittances may help boost private investment in physical and
human capital by alleviating credit constraints.
The Role of Remittances – The Plus Side
Diasporas as sources of knowledge
Japan, the Republic of Korea, and Taiwan, China are examples of
economies that have relied on their diasporas as sources of knowledge.
For example, skilled emigrant populations such as India and China have
also been able to tap their expatriates and develop mentor-sponsor models
in certain sectors or industries.
Evidence of transfer of knowledge between ethnic emigrant groups in
the US and their home countries and the contribution of the Indian
diaspora to the development of some the most important innovations in
India as been provided.
The Role of Remittances – The Minus Side of
Slow income convergence
 Emigration has lowered growth and slowed income convergence. Empirical analysis
suggests that in 2012, cumulative real GDP growth would have been 7 percentage
points higher on average in CESEE in the absence of emigration during 1995–2012,
with skilled emigration playing a key contributing factor.
 This fact has slowed per capita income convergence, in particular in SEE countries
(Albania, Bulgaria, Croatia, and Romania), which had a high share of young and
skilled emigrants in their populations. Significant effects are also observed in the
Baltics (Estonia, Lithuania) and in Slovenia. On average, CESEE countries would
have reduced their per capita income gap with EU-28 by an additional 5
percentage points by 2014 in the absence of skilled emigration during 1995–
2012.
 Has this phenomenon reduced incentives for governments to carry out structural
reforms? Yes, maybe!
Emigrants have generally been younger than the populations they
left behind. In 2010, about three-quarters of emigrants were of
working age (15-64 year old)—above the share of working-age
people in the CESEE population at large.
Emigrants’ education levels tended to be higher than their home
country averages. As of 2010, the share of emigrants with tertiary
education was well above the equivalent ratio in the general
population.
The prevalence of better-educated and working-age people among
emigrants has reduced the supply of skilled labor and contributed
to fiscal burdens arising from the higher dependency ratio.
The Role of Remittances – The Minus Side
Missing Return Migration and Labor Inactivity
Return migration appears to have been limited. Estimates based on bilateral
inflows of foreign citizens suggest that only a modest fraction of emigrants have
returned to their home countries, with higher-income countries registering a
somewhat larger inflow.
Higher remittance receipts are associated with higher probability of a person
deciding not to join the labor market, possibly reflecting a relaxation of the budget
constraint coupled with an increase in the reservation wage. A 1% of GDP
increase in remittance inflows is associated with about 3 percentage points and
2 percentage points increase in the economy-wide inactivity rate in SEE-XEU
and CE-5, respectively.
The Role of Remittances – The Minus Side
Future cumulative GDP loss
Model simulations show that net migration flows during 2015–30 would
cause a cumulative output loss may be as large as close to 9%.
GDP per capita could decline by about 4% in some countries. Some
Baltic countries would be particularly affected, followed by Bulgaria,
Romania, and SEE-XEU, despite moderate positive contributions from
remittances.
In an adverse scenario, based on the historical pattern of migration, the
cumulative output loss would exceed 15% in some countries!
Note that migration flows result in a net output gain for the EU as a whole,
consistent with positive effects on overall GDP and on per capita GDP of
recipient countries, e.g. the Czech Republic, Hungary, and Russia.
Full Picture of Negative Effects
The Experience in Arab countries
• Despite the huge absolute and relative size of remittance inflows to
the Arab countries, it was found
• a long-term causality: running from remittances only to current account balance
and primary education enrolment rate,
• a short-term impact of remittances on GDP, household expenditures,
investment, and saving was found.
• As remittances are used for supporting families’ expenditures
on food, education, and healthcare, the effect of remittances
is at a micro level.
• The macroeconomic effects of remittances have not yet been
tapped into by governments and policy makers and efforts are
needed to channel remittances into economic development.
Policy remarks
The new arrivals in Europe are mostly young and employable with little financial
investment;
 Remittances: the low banking penetration in some regions, typical of rural and poor
areas, leads to larger reliance on informal means of remittance transfer (the high fees
incurred for transferring money to the Arab countries are very high), which in turn
could lead to further economic and social development;
 Developing legislation that supports the promotion of investments to the diaspora
community;
 Whereas permanent migration may ease integration at the destination and yield
higher benefits for individual migrants, temporary migration may lead to larger
benefits for the origin country through return of human, physical and social
capital. Therefore, giving incentives and guarantees for expats to invest in
productive, long-term, developmental projects, whether individually or collectively.

Thank you!
The Economic Role of Migrants
The Impact of Migrants on a Country’s Economic Growth
Immigrants can affect the economy’s rate of growth, especially if they
are skilled, innovative or entrepreneurial.
However, irregular migrants are unlikely to be involved in innovative
activity, which is a benefit typically associated with high-skilled
immigration in STEM (science, technology, engineering, and math)
fields.
Irregular migrants may be more likely to be entrepreneurs, but their
businesses are often small, lack capital, and are limited to the informal
sector.
Labour markets
Unauthorized immigrants who can access the labour market are often a flexible
and relatively cheap source of labour, which benefits employers and consumers
but may pose some challenges:
- create low-wage competition for some workers;
- are fuel for the expansion of the shadow economy, which
increases tax evasion;
- can impose net fiscal costs, costing more in publicly provided
services than they contribute in taxes (in the short run).
The European case is complicated by (i) the concentration of irregular migrants
in the informal economy and (ii) to what extent output in the informal economy
is captured in official estimates of economic activity.
Labor market effects
Immigration can affect the labor market in the receiving country in several ways:
- the number of natives who are employed;
- wages;
- the types of jobs.
 The theory predicts that an increase in the number of workers due to immigration would
reduce wages.
 New immigrants will replace some workers who may be native-born or earlier
immigrants. The magnitude of the employment and earnings effects depends on how
substitutable new immigrants are for existing workers, the more substitutable they are,
the larger the adverse effects.
 Some groups of existing workers would benefit from immigration, that is, some of the
beneficiaries are complements to immigrant workers, such as a native-born supervisor
who works with foreign-born laborers.
o Some natives respond to immigration by moving into different types of jobs.
o Some natives move into communications-intensive jobs in response to
immigration and this might reduce any adverse effect of immigration on natives
in the labour market, and it is larger in countries with fewer labour market
regulations.
o Many natives have different skills than immigrants.
o Communications skills are many natives’ comparative advantage, while lesseducated immigrants’ comparative advantage is often manual skills.
o In a single labour market, unauthorised immigrants may have a more adverse impact
than legal immigrants on competing workers if they are willing to work for lower
wages or in worse conditions.
o In Europe, the informal sector is large and there is evidence of segmented labour
markets, particularly in Spain, Italy, and Greece.
Wage-dampening Effect
Unskilled workers and existing migrants are most vulnerable, as they are
the closest substitutes for the new arrivals: a ten-percentage-point rise in
the share of migrants working in unskilled jobs, such as cleaning,
depressed wages for such positions by just 2% (S. Nickell and J.
Saleheen).
This wage-dampening can even have positive side-effects:
- refugees arriving in Denmark (1991 – 2008) did push loweducated natives out of lowly jobs. The displaced natives
switched to jobs that involved less manual labour, sometimes with
higher salaries (Mette Foged and Giovanni Peri).
Fiscal impact: Welfare/transfer programmes and taxes
This phenomenon has a fiscal impact – the difference between what
immigrants pay in taxes and consume in government.
Irregular migrants in Europe are much more likely to work in the
informal sector where their labour is not taxed, which reduces their
contributions.
The OECD assessed the effect of immigrants on its members’ finances in 20072009 and they made a net fiscal contribution of around 0.35% of GDP on
average, with relatively little variation from country to country.
However, a recent paper from the IMF uses existing immigrants to Europe
from Afghanistan, Eritrea, Iran, Iraq, Somalia, Syria and the former
Yugoslavia as proxies for the latest wave of refugees:
- people from those countries who have been in Europe for less than six
years are 17 percentage points more likely to rely on benefits as their
main source of income and 15 percentage points less likely to be
employed;
- this gap does shrink the longer the migrants have been in Europe, but
it is still there for refugees who have been in residence for more than 20
years.
 These studies suggest that it will be a while before
refugees pay more in tax than they receive in state
support:
 A study of Australian refugees found that they
paid less tax than they received in benefits for
their first 15-20 years of residency.
 Given that most European countries redistribute income
from rich to poor, as long as they are poorer than the
average native, they will probably receive net transfers.
The newest arrivals in Europe could be very different
 The IMF estimates that refugees will add around 0.19% of GDP
to public expenditure in the EU (0.35% in Germany) in 2016.
This will add to public debt, and given higher joblessness among
refugees, unemployment could rise;
 As the new arrivals integrate into the workforce, they are
expected to boost annual output by 0.1% for the EU as a
whole, and 0.3% in Germany. They should also help to
reverse the cost of state pensions as a share of GDP, given
their relative youth.
Impact on the Human capital
 One study that looks at the impact of migration on economic
growth for 22 OECD countries between 1986 and 2006
demonstrates a positive but fairly small impact of the human
capital brought by migrants on economic growth, including
countries which have highly selective migration policies:
 An increase of 50% in net migration of the foreign-born
generates less than one tenth of a percentage-point
variation in productivity growth (Boubtane and Dumont,
2013).
Last but not least: the important US
Experience
A recent (Sept 2016) US National Academies of
Sciences, Engineering, and Medicine provides a
comprehensive assessment of the economic impact of
US immigration over the past 20 years
Wages and fiscal impacts
On a ten-year period, the impact of immigration on the wages of native-born workers
is small (in case, it is most likely to be found for prior immigrants or native-born
workers who have not completed high school—who are often the closest substitutes for
immigrant workers with low skills).
In terms of fiscal impacts, first-generation immigrants are more costly to governments
than are the native-born, in large part due to the costs of educating their children.
However, the children of immigrants (the second generation) are among the strongest
economic and fiscal contributors in the U.S. population, contributing more in taxes than
either their parents or the rest of the native-born population.
It has been found a positive impact of skilled immigration on the wages and
employment of both college- and non-college-educated natives. Skilled
immigrants are complementary to native-born workers; that spillovers of wageenhancing knowledge and skills occur as a result of interactions among workers.
The role of immigrants in consumer demand
Immigrants’ contributions to the labor force reduce
the prices of some goods and services, which
benefits consumers in a range of sectors, including
child care, food preparation, house cleaning and
repair, and construction.
High-Skill Immigrants and Economic Growth
Immigration exhibit an overall positive impact on long-run economic
growth in the U.S. and other benefits in terms of innovation and
entrepreneurship.
Impacts on economic growth. The inflow of labor supply has helped the
US avoid the problems of unfavorable demographics, particularly the
effects of an aging workforce and reduced consumption by older
residents. In addition, the infusion of human capital by high-skilled
immigrants has boosted the nation’s capacity for innovation,
entrepreneurship, and technological change. Research suggests that
immigrants raise patenting per capita, which ultimately contributes to
productivity growth.
Impacts on Federal, State, and Local Budgets
Over the period 1994-2013, the net fiscal contribution (federal, state,
and local combined) of first-generation immigrants was less favorable
than that of native-born generations. First-generation immigrants
contributed less in taxes during working ages because they were, on
average, less educated and earned less. However, this pattern reverses at
around age 60, when the native-born (except for the children of
immigrants) were consistently more expensive to government on a percapita basis because of their greater use of social security benefits.
Second-generation adults have contributed more in taxes on a per capita
basis during working ages than did their parents or other native-born
Americans.
The analysis reveals that an immigrant and a native-born person with
similar skills will likely have about the same fiscal impact.