Remittances and Development: A Perspective from Southeast Asia IOM-MRTC Conference January 25, 2013 Yoon Ah Oh Center for Emerging Economies Research Korea Institute for International Economic Policy

Outline Ⅰ Remittances: Overview and Issues Ⅱ Remittances to Southeast Asia Ⅲ Concluding Remarks

1. Remittances: Overview International migrants estimated million, 3.2% of world population  Remittances are the cause and effects of labor mobility Reached US$534 billion in 2012, where $406 billion went to developing countries  Excluding the funds that use informal channels  Larger and more resilient than FDI, foreign aid, portfolio investment in many developing countries  Globally, remittances far exceed ODA

Remittances: Characteristics Large and stable, resilient  FDI fell 37% while remittances only dropped 5.2% after the Global Economic Recession (2009) Counter-cyclical  Remittances rose during financial crises or after natural disasters (Indonesia and Thailand in 1998) Helps avoid balance of payment crises  Historical research private-to-private transfers  No government as a middleman; funds that actually reach and are better targeted for the needs of the recipient  Frequently compared to ODA

Remittances and Development Policy Agenda Heralded as an alternative source of development finance UN and International Organizations took notice – UN (2005) “Migration in an Interconnected World: New Directions for Action” – World Bank(2006) “Global Economic Prospects 2006: Economic Implications of Remittances and Migration” – ILO (2010) “Making Migration a Development Factor: The Case of North and West Africa” – World Bank (2011) “Diaspora for Development in Africa” – IOM programs and initiatives

Remittances and Development: which channels? Poverty Reduction  Households are moving out of poverty  Increase in consumption and investment in health and education  Unproductive investment Investment and entrepreneurship  A parallel to microfinance?  Financial institutions and investment environment Governance Improvement (political economy)  A long causal chain  Disengagement incentives

Recipient Countries Responded Collective remittances by hometown associations: contributions made to local development projects (Mexico, the Philippines) Matching funds: Mexico’s 3X3 program Diaspora bonds: India, Israel

Challenges Remittances are no substitute for development Small-scale improvement but no structural transformation Dependency Dutch Disease

2. Remittances to Southeast Asia Source: World Development Indicators Remittances to Southeast Asia (US$ million) Remittances to Southeast Asian countries have been increasing with the Philippines, Vietnam and Indonesia as top recipients.

How Important Are Remittances? Source: World Development Indicators Remittances as percentage to GDP are highest in the Philippines, Vietnam and Cambodia while the importance of remittances is further declining in Thailand Remittances percentage to GDP

A Global Look India and China are top two recipients Countries with small populations tend to receive larger remittances in relative terms The Philippines stands out as a major recipient in both absolute and relative terms

Inside Southeast Asia Remittances to Vietnam may need a closer look Labor migration and remittances will be a more important policy issue in the future

3. Concluding Remarks We should probably have more realistic expectations for the development impact of remittances Granted, there are still things we can do about remittances Policy recommendations to origin countries have included:  Improving access to financial services and reducing remittance costs What can the destination countries do?

Yoon Ah Oh