THE SOCIAL, ECONOMIC AND POLITICAL IMPACT OF REMITTANCES October 2009

“Beyond Small Change” IDB  Worldwide $300B in ‘06 by 150M migrants (WB $309, $380 & $433B in 06, 07 & 08).  $68B to LAC ‘06. For some countries, more than sum FDI/ODA. Must add “goods”.  More than $60B sent by LAC migrants living in USA (more than 60% of total living in USA send remittances). Rest mostly from Spain. 7% decrease expected in ‘09.  They send 12% of their salary ($ ) almost thirteen times every year.  Worldwide $300B in ‘06 by 150M migrants (WB $309, $380 & $433B in 06, 07 & 08).  $68B to LAC ‘06. For some countries, more than sum FDI/ODA. Must add “goods”.  More than $60B sent by LAC migrants living in USA (more than 60% of total living in USA send remittances). Rest mostly from Spain. 7% decrease expected in ‘09.  They send 12% of their salary ($ ) almost thirteen times every year.

Widespread origin  Remittances come from nearly every State.  CA $13.2B, TX $5.2B, NY $3.6B,, FL $3.1B, IL $2.6B, NJ $1.9B, GA $1.7B, AZ $1.4B, NC $1.2BM, VA $1.1BM.  MD $921M, CO $646M, NV $618M, MA $579M, PA $517M, WA $504M.  TN $407M, IN $386M, OR $383M, NM $370M, MI $337M, WI $335M, SC $322M, CT $301M, MN $292M, UT $258M, AR $253M, OK $226M, AL $219M, KS $215M, OH $214M.  All the rest, save MT & WV, also participated.  Remittances come from nearly every State.  CA $13.2B, TX $5.2B, NY $3.6B,, FL $3.1B, IL $2.6B, NJ $1.9B, GA $1.7B, AZ $1.4B, NC $1.2BM, VA $1.1BM.  MD $921M, CO $646M, NV $618M, MA $579M, PA $517M, WA $504M.  TN $407M, IN $386M, OR $383M, NM $370M, MI $337M, WI $335M, SC $322M, CT $301M, MN $292M, UT $258M, AR $253M, OK $226M, AL $219M, KS $215M, OH $214M.  All the rest, save MT & WV, also participated.

Widespread destination  They go to nearly every country (2006).  MEX $24.3B, BRA $7.4B, COL $4.5B, GTM $3.6B, SLV $3.3B, EC $3.2B, DR $2.7B, PER $2.9B, HND $2.3B, JAM $1.9B, ARG $1.7B, CHL $1B, HAI $1B.  BOL $972M, VEN $950M, NIC $800M, PAR $650M, PAN $479M, URU $479M, CRI $444M, GUY $270M.  They go to nearly every country (2006).  MEX $24.3B, BRA $7.4B, COL $4.5B, GTM $3.6B, SLV $3.3B, EC $3.2B, DR $2.7B, PER $2.9B, HND $2.3B, JAM $1.9B, ARG $1.7B, CHL $1B, HAI $1B.  BOL $972M, VEN $950M, NIC $800M, PAR $650M, PAN $479M, URU $479M, CRI $444M, GUY $270M.

Putting it in Perspective  Remittances as % of GDP (2006):  BR CO DR ES GU HA HO ME NI   Remittances as % of exports (2004):  BR CO DR ES GU HA HO ME NI   Remittances as % of GDP (2006):  BR CO DR ES GU HA HO ME NI   Remittances as % of exports (2004):  BR CO DR ES GU HA HO ME NI 

The Importance of Remittances

Causes of Migration  Internecine conflicts (SLV, NIC, GTM).  Natural disasters (Mitch, earthquakes).  Economic hardship in home country.  Employment opportunities in host country (3Ds, jobs that are dirty, difficult, dangerous)  Migrants respond to comparative advantages. Rational “insurance” policy.  Internecine conflicts (SLV, NIC, GTM).  Natural disasters (Mitch, earthquakes).  Economic hardship in home country.  Employment opportunities in host country (3Ds, jobs that are dirty, difficult, dangerous)  Migrants respond to comparative advantages. Rational “insurance” policy.

Why do people remit?  Altruistic reasons.  Exchange reasons: remitter needs family members for tasks at home & pays for them; family seeks insurance (diversify income) & finances family member’s trip; so that family can hire services that the remitter provided before; to reserve place in family or obtain larger inheritance.  In practice, difficult to distinguish between two reasons.  Altruistic reasons.  Exchange reasons: remitter needs family members for tasks at home & pays for them; family seeks insurance (diversify income) & finances family member’s trip; so that family can hire services that the remitter provided before; to reserve place in family or obtain larger inheritance.  In practice, difficult to distinguish between two reasons.

Compensatory or Opportunistic?  Evidence suggests that they are sent to compensate for situations at home. They are thus counter-cyclical. They reduce amounts sent when a devaluation occurs in home country and increase them in bad times.  Occasionally they are opportunistic (as capital flows), that is, sent to take advantage of an opportunity at home (investment opportunity, such as higher interest rate in the host country).  Evidence suggests that they are sent to compensate for situations at home. They are thus counter-cyclical. They reduce amounts sent when a devaluation occurs in home country and increase them in bad times.  Occasionally they are opportunistic (as capital flows), that is, sent to take advantage of an opportunity at home (investment opportunity, such as higher interest rate in the host country).

Uses of Remittances  Significant portion, often the majority, for consumption (60 to 80% in LAC).  Smaller portion to investment, usually land &/or housing.  HTAs used to promote investment in MEX (3x1) and SLV (2x1). Not very successful. Distrust of government.  Significant portion, often the majority, for consumption (60 to 80% in LAC).  Smaller portion to investment, usually land &/or housing.  HTAs used to promote investment in MEX (3x1) and SLV (2x1). Not very successful. Distrust of government.

Social Consequences  A very dangerous journey.  Brain, brawn and entrepreneurial drain.  Family separation and breakdown.  Disruption of labor markets.  The dependency syndrome.  Youth gangs.  Backlash in host countries.  Impact on remitters (poverty, schooling).  A very dangerous journey.  Brain, brawn and entrepreneurial drain.  Family separation and breakdown.  Disruption of labor markets.  The dependency syndrome.  Youth gangs.  Backlash in host countries.  Impact on remitters (poverty, schooling).

Positive Economic Consequences  Contribute to poverty alleviation, but not related to GDP growth rate. Not economic growth program.  Increase demand (local purchases, tourism, transportation, telecoms, nostalgic trade.)  Support education, housing and business development.  Reduce exchange rate volatility, country risk.  Increase foreign exchange reserves (finance needed imports) & debt sustainability.  Constant (low volatility), long lasting (more than ten years). Countercyclical. Negatively correlated with FDI & other private flows.  Contribute to poverty alleviation, but not related to GDP growth rate. Not economic growth program.  Increase demand (local purchases, tourism, transportation, telecoms, nostalgic trade.)  Support education, housing and business development.  Reduce exchange rate volatility, country risk.  Increase foreign exchange reserves (finance needed imports) & debt sustainability.  Constant (low volatility), long lasting (more than ten years). Countercyclical. Negatively correlated with FDI & other private flows.

Negative Economic Consequences  “Dutch disease”: loss of X competitiveness.  Higher interest rates in LC. De facto dollarization.  Weaken government’s will to maintain fiscal discipline (they may consume/borrow more).  Governments overspend hoping for growing flows.  Reduce labor force (migration & willingness to work).  Little correlation between GDP growth & volume of remittances. Idem for inflation.  “Dutch disease”: loss of X competitiveness.  Higher interest rates in LC. De facto dollarization.  Weaken government’s will to maintain fiscal discipline (they may consume/borrow more).  Governments overspend hoping for growing flows.  Reduce labor force (migration & willingness to work).  Little correlation between GDP growth & volume of remittances. Idem for inflation.

Political Consequences  Several countries have unilaterally granted dual citizenship (Mexico, Guatemala, Honduras, El Salvador, Nicaragua).  Others (Mexico, Honduras) have allowed their migrants to vote in their elections (restricted to Presidential candidates).  Scant participation (0.5% for Mexico and Honduras).  Several countries have unilaterally granted dual citizenship (Mexico, Guatemala, Honduras, El Salvador, Nicaragua).  Others (Mexico, Honduras) have allowed their migrants to vote in their elections (restricted to Presidential candidates).  Scant participation (0.5% for Mexico and Honduras).

Other (More Important) Political Consequences  Manipulation of the fear of deportation.  Influencing home politics thru relatives.  Influencing home politics thru fear of loss of remittances.  Influencing host country politics.  Is politics for migrants also “local”?  Will politics be affected through culture change?  Manipulation of the fear of deportation.  Influencing home politics thru relatives.  Influencing home politics thru fear of loss of remittances.  Influencing host country politics.  Is politics for migrants also “local”?  Will politics be affected through culture change?

Migration  Throughout time, people have migrated  Migration will continue and with it come remittances.  Close to a billion persons benefit from migration and remittances.  Thank you!  Throughout time, people have migrated  Migration will continue and with it come remittances.  Close to a billion persons benefit from migration and remittances.  Thank you!