International migration can generate substantial welfare gains
for migrants and their families, as well as their origin and
destination countries, if policies to better manage the flow of
migrants and facilitate the transfer of remittances are pursued,
says the World Bank's annual Global Economic Prospects (GEP) report for
2006.
"With the number of migrants worldwide now reaching almost 200
million, their productivity and earnings are a powerful force for
poverty reduction,"said Fran?ois Bourguignon, World Bank Chief
Economist and Senior Vice President for Development Economics.
"Remittances, in particular, are an important way out of extreme
poverty for a large number of people. The challenge facing
policymakers is to fully achieve the potential economic benefits of
migration, while managing the associated social and political
implications."
This year's GEP, entitled The Economic Implications of
Remittances and Migration, also forecasts that economic growth
in developing countries will slow to 5.9 percent this year, and to
5.7 percent in 2006, down from 6.8 percent in 2004. Developing
economies will continue to grow at historically very high rates,
and more than twice as fast as high-income economies. Economic
growth in the latter is also expected to slow from 3.1 percent
growth in 2004 to around 2.5 percent in 2005 and 2006.
High oil prices, capacity constraints and gradually rising
interest rates are the key factors that have been dampening the
global expansion. "Until recently, strong global demand and rising
non-oil commodity prices have mitigated the impact of rising oil
prices on oil-importing developing countries,"said Andrew Burns,
one of the chapter authors of the report. "However, the increase in
the oil price since 2004 is expected to generate substantial
economic costs for oil-importing poor economies that are not fully
captured in the GDP numbers."
The negative terms-of-trade impact of high oil prices is
estimated at around three percent of income in oil-importing
low-income countries. Unless steps are taken to assist the most
vulnerable of these countries, they may be forced to cut essential
non-oil imports.
Table 1.1: The Global Outlook in Summary
One of the risks to the outlook investigated in the report is
the possibility of a disruption in oil supply that could send oil
prices even higher, potentially reducing global output by 1.5
percent for several years. A second uncertainty arises from
persistent global imbalances and rising public debt in high-income
countries. This, the report cautions, could cause long-term
interest rates to rise much faster than expected, and dampen growth
prospects.
The recent strong economic performance of developing countries
suggests that reforms undertaken over the past decades have had a
positive impact on growth trends. Progress has been made in Africa,
with per capita incomes there rising by 1.8 percent a year, in
marked contrast to falling incomes during the 1980s and 1990s.
Despite this progress, much more needs to be done. Although growth
in Sub-Saharan Africa has strengthened, and the incidence of
poverty has fallen, rapid population growth there means the actual
number of people in the region living on US$1 a day or less has
grown since the early 1980s, and is expected to rise further.
Migration offers potentially huge economic
gains
Turning to the main theme of this year's GEP, remittances and
migration, the report presents evidence that an increase in
migrants that would raise the work force in high-income countries
by three percent by 2025 could increase global real income by 0.6
percent, or US$356 billion. Such an increase in migrant stock would
be in line with the migration trend observed during the past three
decades.
"The relative gains are much higher for developing-country
households than rich-country households, rivaling potential gains
from global reform of merchandise trade," the authors conclude,
with US$162 billion going to new migrants, US$143 billion to people
living in developing countries, and US$51 billion to people living
in high-income countries. To achieve these gains, the GEP proposes
that developing countries seek agreements with countries to which
their nationals migrate, to improve the conditions under which they
cross borders, seek and maintain employment, and send a part of
their earnings home.
Consistent with the recent report of the Global Commission on
International Migration, which urges that the role of migrants in
promoting economic growth, development and poverty reduction "be
recognized and reinforced," the GEP also notes that remittances and
migration should be seen as a complement to local development
efforts in low-income countries. "Migration," the GEP says, "should
not be viewed as a substitute for economic development in the
origin country as ultimately, development depends on sound domestic
economic policies."
The GEP also cites the need for developing countries faced with
a large exodus of skilled workers and university graduates (the
so-called "brain drain") to improve working conditions in public
employment, invest more in research and development, and help
identify job opportunities at home for returning migrants with
advanced education.
"Managed migration programs, including temporary work visas for
low-skilled migrants in industrial countries, could help alleviate
problems associated with a large stock of irregular migrants, and
allow increased movement of temporary workers," said Uri Dadush,
Director of the Bank's Development Prospects Group, which produces
the GEP. "This would contribute to significant reductions in
poverty in migrant sending countries, among the migrants
themselves, their families and, as remittances increase, in the
broader community."
Remittances reach US$232 billion
Officially recorded remittances worldwide exceeded US$232
billion in 2005. Of this, developing countries received US$167
billion, more than twice the level of development aid from all
sources. The GEP authors suggest that remittances sent through
informal channels could add at least 50 percent to the official
estimate, making remittances the largest source of external capital
in many developing countries.
The countries receiving the most in recorded remittances are
India (US$21.7 billion), China (US$21.3 billion), Mexico (US$18.1
billion), France (US$12.7 billion), and the Philippines (US$11.6
billion). Those for which remittances account for the largest
proportion of gross domestic product are Tonga (31 percent),
Moldova (27.1 percent), Lesotho (25.8 percent), Haiti (24.8
percent), and Bosnia and Herzegovina (22.5 percetn).
Despite the emphasis on remittances from developed countries,
remittances sent from developing countries -- the so-called
"South-South flows" -- represent 30-45 percent of total
remittances.
"Migration is truly a global phenomenon," said Dilip Ratha, one
of the co-authors of the report. "Many countries, both developed
and developing, both send and receive migrants, and both send and
receive remittances."
Analysis of household surveys indicates that remittances have
been associated with significant declines in poverty (headcounts)
in several low-income countries, including Uganda (11 percent),
Bangladesh (six percent) and Ghana (five percent). In addition,
remittances appear to help households maintain their consumption
levels through economic shocks and adversity. They are also
associated with increased household investments in education and
health, as well as increased entrepreneurship. These conclusions
are borne out by findings of a recent World Bank research study,
International Migration, Remittances and the Brain Drain, co-edited
by Caglar Ozden and Maurice Schiff.
But the fees charged by remittance service providers are often
as high as 10?15 percent for small transfers typically made by poor
migrants. The GEP urges action to reduce these fees, which are
often much higher than the actual cost of carrying out the
transactions. The report says increased competition in the
remittance transfer market would result in lower fees, thereby
increasing the disposable income of poor migrants, as well as their
incentives to send more money home.
Reduce remittance transfer costs
Reducing remittance costs would do more to encourage the use of
formal remittance channels than will regulation of so-called
informal services. While regulation is necessary to curb money
laundering and terrorist financing, it must be implemented in a way
that does not interfere with the objective of reducing remittance
costs.
The GEP recommends increasing access by poor migrants and their
families to formal financial services for sending and receiving
remittances. This could be done by encouraging the expansion of
banking networks, allowing domestic banks in origin countries to
operate overseas, providing recognized identification cards to
migrants, and facilitating the participation of micro-finance
institutions and credit unions in the remittances market.
The report cites experiences of reducing remittance transfer
fees in India, the Philippines, and the US-Mexico corridor, as
examples for others to follow. These involved government action to
open the postal system to increase competition for remittance
transfers, issuance of a consular identification card to facilitate
opening of bank accounts by Mexican migrants in the US, and the use
of cell-phone text messaging for remittance transfers, among
others.
In addition to raising consumption levels in the migrants'
families, the steady stream of foreign exchange that remittances
deliver can improve a country's creditworthiness for external
borrowing. Where financial institutions can securitize remittance
deposits, they can expand access to capital in developing countries
and lower borrowing costs.
While encouraging reforms to facilitate an increased flow of
remittances, the report opposes efforts by governments to tax
remittances and cautions against providing incentives to direct
remittances to specific areas or sectors through matching-fund
programs. Arguing that these schemes have met with little success
in the past, the Bank report advises governments to treat
remittances like other private income. Similarly, as private funds,
remittances should not be viewed as a substitute for development
assistance, the report argues.
"Remittances are hard-earned income that, in most cases, has
already been taxed," Bank chief economist Bourguignon said. "They
should not be taxed again, and governments should not try to count
them as development aid."
(China.org.cn November 28, 2005)
