migration, remittances, and economic development

Migration, Remittances, and Economic Development

Dean YangUniversity of Michigan

2

• Between 1965 and 2010, the fraction of people living outside their countries of birth increased from 2.2% to 3.1% of world population – Estimated 247 million migrants in 2013

• These migrants send home huge amounts of remittances, an international financial flow that compares favorably in magnitude with FDI and ODA– Estimated US$436 billion in 2014

MotivationThe basic numbers

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• Vast numbers of people in low-income countries want to emigrate, but cannot

• Gallup World Poll: more than 40 percent of adults in the poorest quartile of countries “would like to move permanently to another country” if they had the opportunity

• In 2010, U.S. Diversity Visa Lottery had 13.6 million applications for 50,000 visas, or 272 applicants per slot

• Main motivation: dramatic increases in wages upon migration

(Source: Clemens 2011, and citations therein)

MotivationDemand for migration is high

4Notes: Ratios of U.S. to home-country wages for 35-year-old male urban worker with 9 years of education acquired in home country. Comparison is between individuals observed in U.S. data vs. home-country data. Source: Clemens, Montenegro, and Pritchett (2009).

MotivationWage gains from international migration

15.514.9

11.9

7.5

6.3

5.2

3.8 3.52.8 2.7 2.5 2.2

0.0

2.0

4.0

6.0

8.0

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12.0

14.0

16.0

18.0

Rat

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es

Among top 10 sources of immigration to Sweden(Others include Iraq, Iran, Bosnia.)

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MotivationRemittances vs. other international financial flows

Data show international financial flows to developing countries. Source: World Bank Development Prospects Group, “Migration and Development Brief 24,” April 13, 2015.

6

MotivationTop remittance recipient countries

Source: World Bank Development Prospects Group, “Migration and Development Brief 24,” April 13, 2015.

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• Remittances bring substantial benefits at the household level– Higher consumption, lower poverty– Increased investments in human capital, small enterprises

• In addition, remittances serve as insurance, rising when origin areas experience negative economic shocks

• Most evidence is correlational, but some natural experiments confirm impacts are causal

MotivationRemittances and development

Source: Yang (2011).

8Source: Yang (2008).

MotivationA natural experiment among Filipino migrants

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1.1

1.2

1.3

1.4

1.5

1.6

1.7

Jul9

6

Aug

96

Sep9

6

Oct

96

Nov

96

Dec

96

Jan9

7

Feb9

7

Mar

97

Apr

97

May

97

Jun9

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Jul9

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Aug

97

Sep9

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Oct

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Nov

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Dec

97

Jan9

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Feb9

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Mar

98

Apr

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May

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Jun9

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Jul9

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Aug

98

Sep9

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Oct

98

Month

Malaysia

Korea

TaiwanSingapore

Japan

Start of Asian

financial crisis

(July 1997)

Exchange Rates in Selected Locations of Overseas Filipinos (Jul 1996 - Oct 1998)

US, Hong Kong,Saudi Arabia, KuwaitStart of

Asian financial

crisis(July 1997)

15.0%13.0%

3.5%1.8%

11.6%

27.7%

-16.7%-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Effe

ct o

f 2

5%

imp

rove

men

t in

mig

ran

t's

exch

ang

e ra

te

9Source: Yang (2008).

MotivationImpact of positive migrant exchange rate shocks

Positive exchange rate shocks for migrants led to higher remittances, and a variety of other substantial benefits for migrants’ origin households in the Philippines.

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• Decentralized nature of remittances poses challenges for policy– How to encourage individual migrants to send more?– How to channel remittances to particular ends without

choking off the flow?

• We still are still learning about policies that can:– Encourage migrants to send more remittances– Channel remittances towards uses with more long-term

development impacts

MotivationRemittance policies for development

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• Enhance migrant control over financial decisions at home– Savings experiments

• Banco Agricola study• Matricula consular study in Texas

– Eduremesa study with Viamericas– Edupay study with Bank of the Philippine Islands

• Provide financial education– Educating migrant families in Indonesia– Motivating migrants in Qatar

• Reduce remittance transaction fees

MotivationEnhancing remittance impacts on development

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“I have many uncles and they get drunk, so I just send money when needed, or I send to someone like my sister who I trust.”

Male, 34 years old, 8 months in the U.S., works as a roofer

“The brother of my boss sent around $50,000 to his mother over the years. When he thought he had enough money to build a house, he asked his mom for the money. She said she didn't have it. She had lent it to an uncle. When he asked for the money back, the uncle threatened to kill him if he came back to El Salvador for the money.”

Male, 30 years old, 1 year in the U.S., works as a carpenter

MotivationDC-area Salvadorans on remittance uses

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• Migrants currently have limited ability to monitor or control how remittances are used by recipients

• Migrants and recipients have different preferences as to how remittances should be used

• In particular, compared to remittance recipients back home, migrants often have stronger preferences that remittances be saved rather than spent immediately

• If migrants are given more control over remittance uses…– Remittance flows might be affected– And a higher fraction of remittances may be channeled to uses

that have long-term development impacts

MotivationEnhancing migrant control at home

Migrant vs. recipient remittance allocation (US$)

Source: El Salvador Study of Migrant Families (ESSMF), Ashraf et al (2015)

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• We offered Salvadoran migrants in metro Washington, DC the ability to directly channel remittances into savings accounts in El Salvador (Ashraf et al, 2015)– Facilities developed for project in partnership with a

Salvadoran bank, Banco Agricola

• Implemented as a randomized controlled trial (RCT)– We randomly assigned migrants to a control group or to one of

three treatment groups – Treatments involved offering different types of Banco Agricola

bank accounts– Control group that was surveyed but did not receive the

savings intervention

MotivationSavings intervention among Salvadorans in DC

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MotivationImpact on savings at Banco Agricola

$186

$231

$334

$482

$0

$100

$200

$300

$400

$500

$600

Control Treatment 1 Treatment 2 Treatment 3

Ssv

ing

s at

Ban

co A

gri

cola

(U

S$

)

(Savings account for recipient only)

(T1 + joint account for migrant and recipient)

(T2 + account for migrant only)

**

Note: Savings is average balance in total across all Banco Agricola accounts, over 12 months post-treatment.

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• No identifiable impact on savings when channeling remittances only to bank accounts for remittance recipients

• Substantial positive impacts of offering suite of options that allow migrants monitoring and control over home country savings

• Matricula consular study in Texas provides complementary findings (Chin et al, 2011) – Increased bank account opening and savings in U.S.– Migrants appear to value control over savings in the U.S. as

well

MotivationTakeaways from Banco Agricola study

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• Funding for education– Eduremesa study with Viamericas (Ambler et al, 2015)

• Migrants direct remittances to education when offered matching funds, but not otherwise

• Positive impacts on student outcomes in El Salvador– Edupay study with Bank of the Philippine Islands (De

Arcangelis et al 2015)

• Filipino migrants send more remittances when “labeled” for education

• Not much additional impact of directing funds to schools

• Control over grocery expenditures (Torero and Viceisza 2013)

– No apparent demand for control in this domain

MotivationControl over other uses of remittances

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MotivationFinancial innovations for transnational households

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• Financial literacy training for migrants before departure, and their families (Doi et al. 2014)– Indonesian female migrants, departing to work as maids– Training both the migrant and family led to increases in

savings in the origin household– No similar impact of training migrant only or family only– Key takeaway: complementarity from training both migrants

and family members

• Motivational session for married male migrants in Qatar from Kerala, India (Seshan and Yang 2014) – Treatment was a one-time motivational session on personal

finance– Among migrants with lower savings at baseline (prior to

treatment) treatment led to higher total (Qatar plus India) household savings and higher remittances sent by migrants to wives

MotivationFinancial training for transnational households

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MotivationImpact on migrant savings, remittances

Savings Remittances

52,593

35,742

0

10,000

20,000

30,000

40,000

50,000

60,000

Low savings subsample

Ind

ian

ru

pee

s (I

NR

)

Treatment Control

155,333

139,309

130,000

135,000

140,000

145,000

150,000

155,000

160,000

Low savings subsample

Ind

ian

ru

pee

s (I

NR

)

Treatment Control

Source: Seshan and Yang (2014)

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MotivationFinancial innovations for transnational households

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• asdf

MotivationExperiment with money transmitter Viamericas

• On-the-spot survey of remitters• Randomized discount on

Viamericas transactions to “primary remittance recipient” (PRR)

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• Two studies– With Banagricola among Salvadorans (Aycinena et al 2010)

• Provided discounts in increments of $1 to $5 (off base of $9), valid for 12 months

– With Viamericas among Salvadorans and Guatemalans (Ambler et al 2014)

• Provided discount of $3 (off base of $8), valid for 10 weeks

• Both studies find large, positive impacts on transactions and total dollars remitted

MotivationStudies on impact of fee reductions

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Control Treatment

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MotivationRemittance transactions to PRR

Time periods are 2-week intervals to reduce noise. Graph shows total number of remittances sent during the 2-week interval.

• No evidence that remitters reduce their remittances later

Discount period

29Time periods are 2-week intervals to reduce noise. Remittances are total $ sent during the 2-week interval.

MotivationRemittances in $ to PRRDiscount period

$0

$50

$100

$150

$200

$250

$300

Tota

l rem

itta

nce

s ($

)

Discount Control

• Clear positive impact on $ remittances to PRR

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• Recent experimental findings point the way towards promising policies to promote financial inclusion of migrants and their families

– Bank account offers to migrants raise savings – in host and origin countries – but only when migrants have control over accounts

– Migrants also seek to direct remittances to education

– Financial education can increase transnational household savings

– Price discounts stimulate remittances, at least in the short run

MotivationIn sum

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• What is impact of simply labeling remittances for specific purposes, such as education?

• Would migrants guarantee microloans for borrowers in the home country?

• Can we facilitate remittances-as-insurance?– Provide discounts on remittance fees when natural

disasters occur in home country?

MotivationOpen questions

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Ambler, Kate, Diego Aycinena, and Dean Yang (2015), “Channeling Remittances to Education: A Field Experiment among Migrants from El Salvador,” American Economic Journal: Applied Economics, Vol. 7, No. 2, April, pp. 207-232.

Ambler, Kate, Diego Aycinena, and Dean Yang (2014), “Remittance Responses to Temporary Discounts: A Field Experiment among Migrants from Central America,” NBER Working Paper 20522, September.

Ashraf, Nava, Diego Aycinena, Claudia Martinez A., and Dean Yang (2015), “Savings in Transnational Households: A Field Experiment among Migrants from El Salvador,” Review of Economics and Statistics, Vol. 97, No. 2, May, pp. 332-351.

Aycinena, Diego, Claudia Martinez A., and Dean Yang (2010), “The Impact of Transaction Fees on Migrant Remittances: Evidence from a Field Experiment among Migrants from El Salvador,” working paper.

Chin, Aimee, Leonie Karkoviata, and Nathaniel Wilcox (2011) “Impact of Bank Accounts on Migrant Savings and Remittances: Evidence from a Field Experiment,” working paper.

Clemens, Michael, Claudio Montenegro, and Lant Pritchett (2009), “The Place Premium: Wage Differences for Identical Workers across the U.S. Border,” Center for Global Development Working Paper 148.

Clemens, Michael (2011), “Economics and Emigration: Trillion Dollar Bills on the Sidewalk?” Journal of Economic Perspectives, Vol. 25, No. 3, Summer, pp. 83-106.

De Arcangelis, Giuseppe, Majlinda Joxhe, David McKenzie, Erwin Tiongson, and Dean Yang (2015), “Directing Remittances to Education with Soft and Hard Commitments: Evidence from a Lab-in-the-field Experiment and New Product Take-up among Filipino Migrants in Rome,” Journal of Economic Behavior and Organization, Vol. 111, March, pp. 197-208.

Doi, Yoko, David McKenzie and Bilal Zia (2014), “Who You Train Matters: Identifying Complementary Effects of Financial Education on Migrant Households,” Journal of Development Economics, 109, pp. 39-55.

Seshan, Ganesh and Dean Yang (2014), “Motivating Migrants: A Field Experiment on Financial Decision-Making in Transnational Households,” Journal of Development Economics, 108: 119-127.

Torero, Maximo and Angelino Viceisza (2013), “To remit, or not to remit: that is the question. A remittance field experiment,” working paper.

World Bank, “Migration and Development Brief 24,” Development Prospects Group, April 13, 2015.

Yang, Dean (2008), “International Migration, Remittances, and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks,” Economic Journal, Vol. 118, April, pp. 591-630.

Yang, Dean (2011), “Migrant Remittances,” Journal of Economic Perspectives, Vol. 25, No. 3, pp. 129-152.

MotivationReferences

migration, remittances, and economic development

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