remittances and poverty alleviation new
DESCRIPTION
impact of remittances on poverty alleviation in developing countries.TRANSCRIPT
Remittances and poverty alleviation
Presented by :Emil Mathew BinnyIII DC ECO St Thomas College Pala
Motivation
• Remittances have outpaced official development assistance, and exceed foreign direct investment (FDI) in many developing countries (World Bank, 2009)
• Women account for about half of an estimated 215 million international migrants (United Nations, 2010).
• Gender remains an understudied aspect of international
remittance flows and philanthropy.
$700 billion remittance flows may reach worldwide by 2016.$540 billion remittance flows to developing countries are expected to by 2016.
Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016
Kerala Facts (in Crores)• per capita GDP (Rs. 74,620)• GSDP- 3,96,282• Population:34 million• Emigrants:3 million• 1.18% area of the country, occupies 21st position• HDI value’s 0.79• High quality of life: Life expectancy, low IM, low MMR, high
literacy rate, good health care facilities• Remittances• India (No 1 in the world) 441000• Kerala (total remittances) 110000• % of Kerala to total ~25%•25% of the state domestic product(Kerala GSDP @2013-14::3,96,282)
Worker’s Remittances
•Macro Economic Impact•Remittances: 1.1 lac crores•Population in 2004: 34 million•Each one gets Rs. 32352 per year or Rs 2696 per month •Sufficient for a person to sustain life
Number of Emigrants by Districts in Kerala, 2011
Malappuram
Kannur
Thiruvananthapuram
Kozhikode
Thrissur
Kollam
Alappuzha
Palakkad
Ernakulam
Kasaragod
Kottayam
Pathanamthitta
Wayanad
Idukki
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
Total Remittances by Districts, 2011
Mala
ppur
am
Ernak
ulam
Kannu
r
Thiru
vana
ntha
pura
m
Kollam
Thriss
ur
Kozhi
kode
Palakk
ad
Kottay
am
Alappu
zha
Pathan
amth
itta
Kasar
agod
Way
anad
Iduk
ki0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Two different Methodologies:
▫Macro: cross country regressions with large global Micro: country case studies using household surveys Both methodologies yield same result:
0.4% poverty decline for each increase in remittances of 1% of GDP average poverty in LAC is 25% (under $2/day), would be 27.8% without remittances
Remittances matter….
Source: IMF Balance of Payments Statistics; UN Trends in Migrant Stock, 2000.
Gulf C
ount
ries
EU-1
5US
Oth
er O
ECD
E Asia
NIC
s
Devel
opin
g Reg
.
2686.5
926.4 766.5 649.4431.5
160.4
Money sent home annually, per migrant (2000)
percentage
Source: Fomin, Pew Hispanic Center
78.0
7.0 5.0 4.0 1.0
Consumption
GoodsEducation Saving Other
Cons.
Investment
Remittances tend to finance consumption: often productive (consumer durables, house improvement, education, health)
Uses of remittances, Mexico 2000
The impact is dependent on the broader economic and political context
at the microeconomic level:• Expand HH income – poverty alleviation • Realization of the human rights to food,
education, health care• Inherent risks of dependency on remittances• Mostly used for consumption, e.g. Angola,
Bangladesh case studiesImpact of remittances at the macroeconomic level:• Key source of foreign exchange• Increase external value of currency or exchange rate • High dependence can pose risks-and currency value fluctuations leading to price
rise10
11
4. THE CONTRIBUTION OF REMITTANCES & OTHER DIASPORA RESOURCES TO DEVELOPMENT
Potential role of the diasporas: Private sector contributions
• Role in private sector development still at nascent stage
• Lower risk perception than traditional investors
• Remittances can offer Access to capital, thus fostering entrepreneurshipFinance for public infrastructure projects e.g. in Senegal River Valley in West Africa
Promotion of the development of the financial sector
• Sharing of know-how and innovative practices through transnational networkse.g. HTAs of Haitians in the US
11
12
4. THE CONTRIBUTION OF REMITTANCES & OTHER DIASPORA RESOURCES TO DEVELOPMENT
Potential role of diaspora members: Trade contributions• Knowledge of the local context in origin countries and the market in the
destination country- Caribbean diaspora networks in trade, tourism, investment
• Networks and contacts in origin and destination countries - Samoan migrants in NZ
Transfer of skills, technology and ideas• Transfer of new values, expectations, ideas and social capital
- President Ellen Johnson-Sirleaf of Liberia
• New techniques and transfer of human capital - workers from Vanuatu returning from NZ
• Donation of technology - IOM‘s MIDA project in Ethiopia
• Virtual transfer of skills - IOM‘s Temporary RQN project in Afghanistan, Ethiopia,
Sierra Leone and Sudan
Key message: Potential role of diasporas in trade and economic development
12
13
4. THE CONTRIBUTION OF REMITTANCES & OTHER DIASPORA RESOURCES TO DEVELOPMENT
The potential role of diaspora members in peacebuilding
• Remittances provide a lifeline to relatives, e.g. Haiti, Somalia• Support reconstruction efforts Filling critical human resource gaps by mobilizing diasporas, e.g. IOM‘s
MIDA Somalia, TRQN to Afghanistan, Ethiopia, Sierra Leone and Sudan
Generate employment
As politically sensitive • Need to build trust, e.g. through ‘Diaspora Dialogues‘
in the Great Lakes region, Sudan
Key message: This role could be explored and strengthened further
see UN SG 2009 report on “Peacebuilding in the immediate aftermath of
conflict“
13
14
4. THE CONTRIBUTION OF REMITTANCES & OTHER DIASPORA RESOURCES TO DEVELOPMENT
ECONOMIC CONTRIBUTION (Origin Countries)
Remittances: most immediate and tangible benefits.
• 2nd Largest source of external funding for developing countries
• More reliable source of income
▫ The flows of remittances fluctuate with economic cycles (counter-cyclical)▫ Better distributed than Foreign Direct Investment (FDI)
• World Bank: remittances transfers more than doubled
▫ 1995-2005, up to $250 billion ▫ Developing countries received 72% in 2005 = $190 billion
ECONOMIC CONTRIBUTION (Origin Countries)
• Labour migration can reduce pressures on labour markets in labour-surplus countries
• In some countries, migrants are replaced easily without loss in production or increase of wages
• But, migration is selective: ▫ Produces upward pressure on salaries in certain sectors▫ In general, emigration of low-skilled workers generates gains for those
who remain behind
ECONOMIC CONTRIBUTION (Origin Countries)
Remittances:
• Positive Effects: ▫The first waves of migrants, coming from middle class, their
remittances may increase inequality. As low-skilled workers, from poor families, start to migrate,their remittances reduce poverty and inequality.
▫Families receiving remittances spend more than average on human capital formation (education and health care)
▫Long-term: increase local production (income and investment)
Income differences are a powerful motivation for migration
Median wage levels for workers in the same occupation, relative to high-income economies (1988-92, adjusted for purchasing power)
Source: Freeman and Oostendorp 2000
100
43
2821
0
25
50
75
100
High income
Upper middle income
Lower middle income
Low income
Migration boosts welfare for most households
139
-88
143 162
-90
-60
-30
0
30
60
90
120
150
180
Natives, high-income countries
Old migrants,high-inc.countries
Residents,developingcountries
New migrants
.
Global income gains of $356 billion (0.6%)
Change in real income in 2025, $ billion
Source: Global Economic Prospects 2006
Remittances tend to rise following crisis, natural disaster, or conflict
Remittances as % of private consumption
0.5
1.7
1.21.4
2.0 2.0
1.0
1.8
2.0
Indonesia Thailand Mexico
year before
year of crisis
year after
Probability of migration and per capita income
Pro
bab
ilty
Per capita income 0 5000 10000 15000 20000
.00228
.014914
Official urban poverty line
3.5 times the official urban poverty line
There is an inverse U-shaped relationship between human development and migratory intensity.
Remittances and development
Human development index and migratory intensity index by municipality, 2000.
Poverty and migration
The poor are not the main group that migrates…
…but migration among the poor is increasing
The poor migrate in response to economic shocks…
…but as social networks expand the poor migrate as a planned decision
Migration and Education
• Historically, migrants have, on average, higher levels of education than those non-migrants in their communities, though lower than in the receiving places in the United States
• The above is especially true for women, a population group where migrants have a schooling differential higher than in the case of men with respect to those non-migrants within their own communities
• Migration tends to reduce inequality in levels of education, at least in the short-run
Migration and Education
•Remittances promote greater investment in primary and secondary education for the sons of migrant families, with a favorable bias for girls; and
•Migration discourages investment in middle-high and high levels of education (individuals of 16 to 18 years of age) in communities with a migrant tradition.
Migration and Health
The relationship between migration and health is overly complex.
Remittances have been shown to have a positive effect on children’s health (lower infant mortality and higher weight at birth)
Annual Savings and Investment Membership
Annual Savings
Annual Investment
s
HHs with No Emigrants
16244 60304
HHs With Emigrants
32809 139919
Total 21991 91187
MembershipAnnual Medical
Expenses
Annual Education Expenses
HHs with No Emigrants
6469 10688
HHs With Emigrants
12169 19186
Total 8538 13933
Annual Health and Education Expenses
Membership FOOD Non FoodExpense
s
HHs with No Emigrants
2850 3144 5994
HHs With Emigrants
3256 4425 7681
Total 2994 3597 6591
Monthly Food and Non Food expenses
• Savings and Investment• Human Development (education and
health)• Unemployment and Poverty• Standard of Living• Reduce Inequality
Direct Benefits of Migration
The Role of Remittances and Migration.
•Positive Effects on Remittances:• - Poverty reduction.• - Highest per capita consumption expenditure in the
country.•There has been a growth in the tertiary and service
sectors of Kerala which is seen with hope and optimism by some and regarded as an effect of ‘remittances’ by others.
Migration and Development
•Positive effects•Reduction in Poverty•Reduction in unemployment•Other effects•Increase in income equality and conflicts•Replacement Migration
Indirect effects of migration
•Reductions in Fertility•Political participation (financing political parties and
elections)•Philanthropy•Women empowerment•Knowledge and skills diffusion•Entrepreneurship and work culture
Percent of Households Directly Beniftted From Remittances
0
5
10
15
20
25
30
35
40
Hindus Christians Muslims
Pe
rce
nt
of
Hh
s
Expenditure on Education Per Household, by Migration Status and Religion
0
2000
4000
6000
8000
10000
12000
14000
16000
All NRK Non-NRK
Ru
pees
Hindus
Christians
Muslims
Population of Kerala and Emigration by Religion, 2011 ( in percent)
Expenditure per Household on Health, by Religion and Migration Status
0
2000
4000
6000
8000
10000
12000
14000
All NRK Non-NRK
Rupees
Hindus
Christians
Muslims
Additional Findings• Women are more likely to be better remitters
• Female-headed households in the country of origin are more likely to be recipients of remittances and receive larger amounts.
• Female migrants tend to target their remittances toward education, health, youth projects
• Women account for a growing share of the world’s migrants
• Gender affects the incidence, amount and types of remittances –and the impact on the origin household
• Female migrants can have a significant impact on their communities of origin through their remittance flows.
Diaspora bonds(addl)34
Remittances are a way of tapping into diaspora income flows on a regular basis, while issuance of foreign currency-denominated bonds to diaspora is a way of tapping into diaspora’s wealth, i.e. savings.
Empirical analysis shows that migrant (diaspora) savings are several times higher than annual remittance flows Israel India
$25 billion issued in total $11 billion issued in total
Annual issuance since 1951 Opportunistic issuance in 1991, 1998 and 2000
Development-oriented borrowings Balance-of-payments support
Large though declining patriotic discount Small patriotic discount, if any
Fixed, floating-rate bonds and notes Fixed-rate bonds
Maturities from 1 to 20 years with bullet repayment
Five year with bullet maturity
Distribution by Development Corporation for Israel
Distribution by State Bank of India and international banks
Targeted toward but not limited to diaspora Limited to diaspora
Nonnegotiable Non-negotiable Source: Ratha and Kethar 2009. World Bank.
Nepal-Country background• Poorest country of South Asia• Per capita GDP $240 ($1,420 PPP)• Maoist Insurgency and political instability• Diminishing export markets, difficult economic
situation But• Between 1995 and 2004 poverty declined from 42 to
31 percent• Per capita expenditure grew 40 percent in real terms
Why?• Increase in work migration and remittances
• About 1M prime age males work outside Nepal
• The proportion of households receiving remittances has increased from 24 percent in 1995 to 32 percent in 2004
• Remittances grew at 30% per year, from 3% of GDP in 95 to 15% of GDP in 04
• Official statistics: $1 billion comes in Nepal as remittances. Unofficial statistics: even larger
Main findings• About 20 percent of total poverty reduction in Nepal
between 1995 and 2004 could be explained by the increase in work migration and remittances.
• Out of total 2 percentage points poverty reduction because of the migration:▫ Increase in external migration and remittances
contributed 53 percent.▫ Increase in internal migration contributed 38 percent. ▫ The rest (9 percent) could attributed to the interaction
effects of internal and abroad migration and remittances.
• In the absence of migration the poverty rate in Nepal would increase from the currently observed 29.9 percent to 33.5 percent and the mean per capita expenditure would decline from 16,400 NRP to 15,000 NPR.
• Work migration and remittances increase income inequality in the country.
Final Comments
Migration is a way of exercising the effective freedom of people.
Public policy should favor that the exercising of such an option is a legitimate way of individual development.
The purpose of any development strategy must be the raising of welfare and freedom levels for concrete individuals in a sustainable way.
The most commendable migratory policy is a strategy of sustainable local development
Only convergence through regional development strategies can eventually stabilize migration flows
Conclusions
Migrants potential for investment and remittances should addressed.
Migrants investments would also be a very good signal for Foreign Direct Investors.
Many countries adopted policies that would attract migrant investments and remittances
The policies specially designed for migrants should encourage them to increase their remittances