Along with foreign direct investments
Along with foreign direct investments
According to figures recently published by the International Monetary Fund (IMF), remittances totalling US$172 billion flowed into developing countries in 2004, approximately 13% more than the previous year
In order to comprehend the actual extent of remittances, one must take into account that the balance of payments completely disregards money transferred by informal means. Expert estimates put this cash flow well above that of official channels.
According to the definition of the International Monetary Fund (IMF), migrants' remittances are reported in the balance of payments statistics under three categories:
Compensation of Employees, i.e. gross earnings of workers residing abroad for less than 12 months;
Workers' Remittances, i.e. the value of monetary transfers sent home by workers residing abroad for more than one year; and
Migrants' Transfers, i.e. the net wealth of migrants who move from one country of employment to another.
Many central banks, however, do not follow the IMF's definition and report migrants' remittances under other categories as well, most commonly as Other Transfers of Other Sectors.
There are several problems linked to estimates of international remittance flows and to comparisons between countries. First of all, estimating migrants' remittances as the sum of Compensation of Employees, Workers' Remittances and Migrants' Transfers definitely underestimates the real flows (see above). However, by adding Other Transfers of Other Sectors
Second, some small industrialised countries like Luxembourg and Switzerland have labour markets extending into bordering regions of neighbouring countries. As a result, a considerable part of the work force consists of commuters residing in a neighbouring country. Consequently, these countries report high flows of Compensation of Employees going to other countries. In order to correct for this "cross-border commuter effect", we exclude these flows from the calculation of migrants´ remittances for these two countries.
Finally, the total migrants' remittances outflows worldwide do not match with the total migrants' remittances inflows worldwide. Following the definition described above, in 2004 the total migrants´ remittances outflows worldwide amounted to US$225.1 billion while the total migrants´ remittances inflows worldwide amounted to US$278.6 billion. This is manly due to the fact that source countries and destination countries of remittances count private transfers under different categories of their balance of payments (e.g. as a foreign investment outflow in the source country, but as a workers' remittance inflow in the destination country).
All data on migrants' remittances, including those in this policy brief, must be therefore interpreted with caution.
Where does the money go?
In terms of nominal amounts, China (US$21.4 billion), India (US$20.1 billion) and Mexico (US$15.2 billion) were the main recipients of remittance payments in 2004. However, the Philippines (see Box), with migrant labourers spread worldwide, also registered a noteworthy sum of US$10.0 billion. Populous India and China have the largest diaspora communities, which are based in numerous countries, whereas emigration from Mexico is mainly directed at the USA. Remittance payments from migrants tend to represent a more significant percentage of the gross domestic product (GDP) in small or low-income national economies.
Altogether, remittances amount to 2.2% of the GDP of all developing countries. The Republic of Moldova, the poorest country in Europe, is the country with the highest inflow of remittances as a percentage of GDP (29.0%). However, according to estimates, due to payments made through informal channels and real assets, the remittances are twice as high as the GDP. A large percentage of the population works abroad
Opposite the recipients are the remittance source countries, which primarily consist of industrialized nations
An individual migrant's support for his family back home no longer represents the only form of remittance. Monetary flows from immigrant organisations in host countries to communities back home are becoming more commonplace. As connections between internationally scattered diaspora communities increase and their identification with the home country intensifies, support for collective financial strategies increases. In France alone there were 1000 immigrant associations in the year 2000. Such associations have financed the improvement and expansion of infrastructure as well as prestigious projects such as the building of mosques in Senegal, Mali and Mauritania. As a result, remittances have benefited communities and the general public, not simply individual households.
However, the inflow of money from abroad brings with it the danger of creating additional dependency, as the push for development is not endogenous. As a result, many projects are either not carried through or not maintained following their completion.
Having learned from such mishaps, the Mexican province of Zacatecas created a state-run initiative called Tres por uno (Three for One). It attempts to channel remittance funds into productive enterprises. Together with the community, the local and national governments contribute one dollar each for every dollar migrant organisations spend on community projects. The real benefit of this initiative is not simply the mixed financing that results from it, but rather the increasing cooperation between migrant associations (so-called hometown associations) abroad, the community and local government. The co-operation, founded in 1986, has always placed an emphasis on collaboration at the social and political level. They have profited most from the synergies and learning processes that have arisen from meetings between interested parties. Unfortunately, lasting economic growth has not yet been generated, despite the successful realisation of civil works projects.
Stefanie Hertlein studies Geography, Economic Policy and Ethnology at the University of Freiburg.
Florin Vadean is a member of the Migration Research Group at the Hamburg Institute of International Economics (HWWI), a Ph.D. candidate in economics at the University of Hamburg and a Research Fellow at the Research on Immigration and Integration in the Metropolis (RIIM), Vancouver, Canada.
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