Figures and trends | Zuwanderung, Flucht und Asyl: Aktuelle Themen | bpb.de

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 . This dramatic rise can be traced back to a growing number of migrants, an increase in the use of official transfer mechanisms and a weaker dollar. The relative share of remittances in the total capital flows to developing countries has increased steadily in recent years, from around 20% in the 1990s to about 28% in 2004. By contrast, direct investments accounted for 41%, portfolio investments for 19% and official development assistance for 12% of capital flows by 2004. In Figure 1, the anti-cyclical nature of remittances can be seen as well. While direct and portfolio investments fell dramatically between the end of the 1990s and 2002, because of the financial crisis in Asia (1997/1998) and the September 11th terrorist attacks, remittances increased significantly during that time.

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.

Data analysis

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. In its report entitled Global Economic Prospects 2006, the World Bank identified a number of countries where migrants' remittances fall under this category: Algeria, China, Gambia, Iran, Kenya, Lebanon, Malaysia, Mauritius, Nigeria, Serbia and Montenegro, and Vietnam . Therefore, in the case of these countries, the authors of the World Bank publication added the category Other Transfers of Other Sectors to the Compensation of Employees, Workers' Remittances and Migrants' Transfers categories in order to estimate the overall size of remittance flows. However, the World Bank estimate does not take into account that a lot of transition countries (e.g. Bulgaria, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Ukraine) and some industrial countries (e.g. Germany and the UK ) also report migrants' remittances completely or partly under 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 money flows are included that are definitely not linked to workers' remittances, e.g. humanitarian aid from NGOs, pension payments, insurance and reinsurance benefits, transfers to and from investment funds or to and from savings accounts held in banks outside the country of residence, and even some transfers from illegal activities. In this policy brief, we define remittance flows as the Compensation of Employees plus an estimated fraction of the "total private current transfers" (i.e. the sum of Workers' Remittances and Other Transfers of Other Sectors) . Based on the analysis of the balance of payments statistics of numerous countries, we assume workers' remittances to account for 50% of the private current transfers in the case of high-income countries and for 80% of the private current transfers in the case of middle and low- income countries, which have less liberalised financial markets and thus less in- and outflows of other transfers.

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 due to the precarious economic and political situation in the country. Tonga, a small archipelago country in the South Pacific, is ranked second. More than half of its population lives abroad and 28.7% of its GDP is made up of remittances . In terms of remittances as a percentage of GDP, Lesotho (26.1%) and the Palestinian territories (23.7%) rank third and fourth in the world, respectively. This ranking order is not solely based on the value of remittances; the current economic situation in a given recipient country, as reflected by the GDP, is also a crucial factor.

Opposite the recipients are the remittance source countries, which primarily consist of industrialized nations . With a total remittance outflow of US$43.5 billion in 2004, the USA stands alone as the most significant remittance source country. The majority of immigrants to the US come from Mexico, India and other Southeast Asian countries and the Caribbean. The most significant remittance source countries in Europe are Germany (US$14.6 billion), the UK (US$12.3 billion), France (US$10.6 billion), Italy (US$7.4 billion), Switzerland (US$7.3 billion) and Belgium (US$5.5 billion).

InfoCollective remittances

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.