Harnessing Hope: International Migration,
Remittances and Development

Remittances–that is, migrant earnings sent back to countries of origin–are the main reason experts point to international migration as important for poverty reduction. Although exact numbers are hard to pin down, the sums are enormous. The World Bank estimates that, in 2005, formally transferred remittances rang in at about US$232 billion –of which developing countries received $167 billion.(65) The actual amount of remittances is considered to be substantially higher, since this figure does not take into account funds transferred through non-formal channels.

Remittances are considerably larger than the value of Official Development Assistance (ODA) and comprise the second-largest source of external funding for developing countries after Foreign Direct Investment (FDI). Furthermore, remittances tend to be a more predictable and stable source of income than either FDI or ODA. For some small countries they represent a high share of GDP, such as in Tonga (31 per cent), the Republic of Moldova (27 per cent), Lesotho (26 per cent) and Haiti (25 per cent).(66)Fully 70 per cent of China's FDI comes from the Chinese diaspora.(67) So great is the impact on developing world economies that the World Bank theorizes that a 10 per cent increase in remittances as a proportion of a country's GDP could result in a 1.2 per cent reduction in the share of people living in extreme poverty.(68)

This is borne out by statistics. In Nicaragua, more than 60 per cent of the 22,000 households who escaped poverty between 1998 and 2001 had a family member living abroad.(69) Remittances sent by migrants to El Salvador, Eritrea, Jamaica, Jordan, Nicaragua and Yemen in 2000 increased the GNP of these countries by more than 10 per cent.(70) That same year, 1.2 million Moroccans managed to escape poverty purely on the strength of remittance income alone.(71) According to ECLAC, in 2002, remittances from abroad helped to boost 2.5 million people living in Latin American and the Caribbean above the poverty line.(72)

The propensity to remit–and the amount sent–depends on a variety of factors such as age, number of dependents, the marital status of the migrant and the duration of residence in the host country. Thus, one study finds that Mexican migrants are most likely to remit when they are married, under the age of 40 and with strong social contacts in the host country.(73) Women send a larger proportion of their lesser resources than men(74)(see Chapter 2); temporary migrants send more money than permanent residents; and unskilled/semi-skilled labourers tend to generate more than highly skilled professionals (although this is partly due to the fact that there is a smaller pool of the latter).(75) Another factor that affects remittance levels is the strength of the migrant's kinship ties and intent to return to the country of origin. In other words, migrants who plan to eventually head back home are more inclined to remit than those who choose to stay. By implication, this also means that remittances may decline as ties with communities of origin weaken over time.(76)

While the impact of remittances on developing countries would appear to be clearly beneficial, part of the literature still questions whether remittances have positive implications for short-term poverty or longer-term development. A major issue is that the poorest people and the poorest countries profit the least from remittances. The largest recipients are middle-income countries: Sub-Saharan Africa received only 1.5 per cent of all remittance flows in 2002.(77) This only serves to show that people from the poorest regions have the most difficulty migrating, earning and remitting funds from abroad. Another concern is that remittances can sometimes exacerbate income inequality in the country of origin, with remittance-receiving families and communities prospering while less fortunate neighbours do without.(78) In addition, some experts argue that remittances encourage dependency by discouraging government efforts to take the steps necessary to restructure their economies.(79) Still others contend that donor countries will use remittances as an excuse to shrug off ODA commitments to combat poverty, while developing countries might neglect the needs of their most vulnerable populations because some poor families are receiving remittance income. Thus, despite its contribution to poverty reduction, migration is not necessarily the ultimate equalizer-particularly in an increasingly unequal world.

Some experts also express concern that most remittances do not generally find their way into productive investments. This is because remittances are privately owned monies that are largely used to contribute to family income rather than to capital flows, and because migrants tend to be unfamiliar with investment instruments.(80) Existing research, however, underscores the fact that remittances could play a more significant role in development and poverty alleviation. Whether remittances are used for the purposes of investment or consumption, they bring important benefits to the households, communities and countries that receive them.(81) Remittances have proven more stable than other forms of private financial flows to developing countries and can cushion countries from economic fluctuations and shocks.(82) After an exhaustive analysis, the IOM concludes that recipients of international remittances are more likely to save, and that remittances can be used for small businesses and pave the way to credit for use as investment capital. By creating new demands for labour-intensive goods and services, they can also boost aggregate demand and, therefore, output and income.(83) The World Bank, the UN and other development institutions express similar views.(84)

What is missing, most experts agree, are mechanisms capable of harnessing the potential of remittances to promote longer-term economic growth. Another issue is the cost of transferring funds. While they have come down, transfer costs remain a key barrier owing to the fact that they can consume up to 20 per cent of remittance income.(85) Several institutions, including the World Bank, are already addressing this problem.(86)

PUTTING TRANSNATIONAL NETWORKS TO WORK:
COLLECTIVE AND "SOCIAL" REMITTANCES

Nowadays, improved communication and cheaper transportation mean that migration no longer represents a definitive break with the past. A large and growing number of links to the home community helps maintain local, national, ethnic and religious ties. In turn, such ties also help generate other kinds of financial flows beyond individual remittances-including FDI, expatriate tourism, hometown association philanthropy and fundraising.(87) Although the potential for development through formal diaspora networks is enormous, mechanisms for channelling it are still nascent.

Collective remittances could be combined with matching funds provided by public sources or by development agencies.(88) At present, the volume of "collective" remittances is still very small: In Central America, it represents only 1 per cent of total remittances.(89) In Mexico, government-sponsored programmes are attempting to channel worker remittances into infrastructure development and business start-ups. In 1999, Mexican federal, state and municipal governments started the "Tres por Uno" (Three for One) programme which provides three dollars for every one remittance dollar sent back from the US. In 2004, the programme successfully raised US$70 million that was then used to fund regional infrastructural and community projects. Programme organizers are now working with the World Bank to initiate projects that will lead to greater employment and thus encourage would-be émigrés to stay home.(90)

The transnational diaspora network can also form a bridgehead for home country enterprises looking to market goods and services to the host country.(91) For instance, many credit Korean-Americans with the successful penetration of the US market by Korean cars, electronics and manufactured products. In Canada, skilled migration from Asia led to a 74 per cent increase in Asian imports to the country. Meanwhile, formal and informal diaspora networks are playing a significant role transmitting information and knowledge to compatriots back home.(92) The importance of such networks is giving rise to policy recommendations aimed specifically at maximizing their developmental potential in a globalized society.

Further, there is the issue of "social" remittances–the transfer of ideas, information, knowledge, attitudes, behaviour patterns, identities, culture and social capital from one culture to another.(93) In their contacts with, or return to, communities of origin, migrants can become agents of political and cultural transformation, which can be particularly beneficial to furthering gender equality (see Chapter 2). Not only do source countries benefit, but receiving countries as well. In Australia, for example, the IOM contends that large-scale migration from Asia and elsewhere has greatly boosted the country's economic, social and political interactions with origin countries. Although the organization points out that such benefits have not yet been "quantified", they are nonetheless significant. These include linguistic and cultural diversity and a greater "openness" to other countries, in addition to a concomitant range of attitudes, values and mores. These have all contributed significantly to Australia's culture and way of life.(94)