NS4540 Winter Term 2019 Migration and Remittances in Latin America and the Caribbean: Engines of Growth and Macroeconomic Stabilizers? IMF June 2017

Overview I Migration and remittances can have profound effects on human welfare and economic development Economic migration reflects people’s desire to improve their own and their families’ wellbeing As emigrants find higher-paying jobs abroad, productivity likely rises at a global level Likewise remittances emigrants send home can also improve: Standard of living Health Education Of the often-poor recipient households

Overview II However for others in the home country, and for the remaining population as a whole, impact of outward migration can be less favorable Departure of people in prime working age, who may be relatively well-educated in some cases, can weaken the country’s economic base Outward migration an important phenomenon for countries in Latin American and the Caribbean, particularly those in Central America and the Caribbean. In these two sub-regions, emigrants account for about 10% or more of the population, compared with 2% on average for emerging and developing countries

Overview III Emigrants typically represent the younger and more productive segment of the population. Average emigrant is Between 20-25 years old Often higher educated – especially Caribbean Emigrants remit substantial funds, averaging about 8% of GDP to support family members back home.

IMF Questions IMF study asks: Does the loss in population associated with emigration hurt economic growth? Do remittances compensate for this loss and function as engines of growth? Are remittances macroeconomic stabilizers? Do remittances help reduce poverty and inequality?

IMF Findings I First -- Emigration and remittances, taken jointly are not drivers of growth While emigration may reduce real per-capita economic growth (as a result of the decline in labor resources and productivity), remittances can support investment and education and foster commercial linkages The negative impact of emigration on real per-capita growth seems to outweigh growth gains from remittances – especially in the Caribbean

IMF Findings II Second—Remittances are important macroeconomic stabilizers – especially in the Caribbean and Central America One of the most important sources of external financing. Remittances also facilitate a smoothing of private consumption and Help boost financial sector soundness and fiscal space Third – Remittances function as a channel to reduce poverty and inequality since lower income households are more likely to receive them

IMF Findings III Fourth – The effects of migration and remittances vary across Latin America and the Caribbean Mexico a special case – largest source of immigrants into the U.S. and an important hub for emigrants from Central America In contrast for most South American countries, emigration and remittances are less material and do not appear to act as macroeconomic stabilizers Even for those countries in South America that have seen substantial outward migration, remittances tend to be relatively modest and do not produce significant macroeconomic effects

IMF Findings IV Fifth – Labor market developments and changes in host country policies can have a significant impact on migration and remittances With the majority of emigrants from Central America, Mexico and the Caribbean living in the U.S., large shift in the economic cycle and policies could have a particularly far-reaching regional repercussions