1. The Socio-Economic Impact of Migrant Remittances: Pros and Consby
Claremont Kirton
Department of Economics
University of the West Indies, Mona, Jamaica
Caribbean Diaspora Economy Research Group (CDERG)
Presentation to Friedrich Ebert Stiftung (FES) Regional Seminar
on Migration and Human Trafficking in the Caribbean
Kingston, Jamaica November 2008

2. Defining Remittances
International Monetary Fund (IMF) reports remittances in its Balance of Payments Manual as part of current transfers in a country’s balance of payments (BOP) statistics.
Remittances include workers’ remittances and “other current transfers.”
Workers’ remittances: “current transfers by migrants who are employed in new economies and considered residents there. (A migrant is a person who comes to an economy and stays, or is expected to stay, for a year or more.)” 2

3. Measurement Issues
Unrecorded remittance flows through informal channels estimated at 50 per cent larger than recorded flows.
Various informal channels used.
Difficult to measure in-kind and cash remittances.

4. Migration
Over 30 million people have emigrated abroad from Latin America and the Caribbean (LAC).
For LAC, migrants constitute one quarter of their population.
Until recently, the United States was main destination; increasing migration to Europe and intraregional mobility have changed this pattern.

5. Remittances to Latin American and the Caribbean (LAC)
In 2006, US$230 billion remittance flows to developing countries globally
Latin America and Caribbean (LAC) – almost US$68 billion or nearly 1/3 (30%) of total worldwide flows
Mexico (US$24.2b), Brazil (US$7.4b), Colombia ($4.5b) are major remittance receivers in LAC
In Caribbean, Dom. Republic (US$2.7b), Jamaica (US$1.9b), Haiti (US$1.0b) are top three recipients

7. In nominal dollar terms, officially recorded remittance flows to developing countries are estimated to reach $283 billion in 2008, up 6.7 percent from $265 billion in 2007.
In real terms, remittances are expected to fall from 2 percent of GDP in 2007 to 1.8 percent in 2008.

8. The Remittance System: Financial Flows8

9. Remittances channels
Cost, speed, familiarity and service reliability – impact choice of remittance channel.
Informal systems attractive due to lower costs, culture and suitability. 9

10. Market channels Money Transfer Operators (MTOs)/ agents
Commercial banks
Building societies
Credit unions
Other non-bank financial intermediaries
Supermarkets, shops
Informal Funds Transfer Systems 10

13. Remittances/GDP
Haiti (22%), Guyana (17%), Jamaica (15%) have the highest remittances/GDP ratios for 2005
In 2004, of 28 LAC countries, only two Latin American countries (Honduras and El Salvador) have ratios greater than 15% (World Bank Study, 2006)

14. Remittances and Development
Impact on development can be either positive or negative
Remittances may have an impact on:
Poverty and income inequality
Consumption
Investment and household saving
Labour markets
Human capital
Macroeconomic variables

15. Poverty and Inequality
Remittances positively contribute to poverty reduction in the recipient households or may prevent households from falling into poverty:
In Mexico, studies done using national household survey data on income and expenditure indicate that remittance recipients are less likely to be poor
In Guatemala, it is reported that remittances have the largest impact on the depth and severity of poverty, with poverty rates being reduced by roughly 20% (2005 study)
LAC region, remittances reduce poverty headcounts in 6 out of 11 countries studied by the World Bank (Bolivia, Ecuador, El Salvador, Guatemala, Haiti, Honduras)
Impact on income inequality not conclusive as this significantly depends on the income levels of migrants.
Jamaica: percentage of households receiving remittances increased progressively from 30.4% in poorest quintile to 54.9% in richest quintile (2006).

16. Consumption
Consumption can have a positive impact on economic activity through the multiplier effect
Jamaica: 68.7% spent on normal day-to-day expenditure; 10.1% on education; 9.5% on health; 3.2% on entertainment
Positive impact may be minimized if the import content of consumption is high

17. Investment and Saving
Remittances provide the opportunity for investment in new businesses or expansion of existing enterprises
Remittances provide financing opportunities for potential entrepreneurs who typically have difficulty accessing finance from formal financial sector sources
In Mexico, a study of 30 communities indicates that 31% of businesses were initially financed by remittances
In Jamaica, less than 1% used for investment; in a small study of a rural parish, 40% of start up capital for small businesses came from remittances
If remittances are transferred through formal financial sector channels, this may encourage savings among recipients and lead an increase in the pool of domestic savings available for investment

18. Labour Markets
Remittances may have direct impact on the decision of recipients to participate in the labour force:
May create a certain level of dependency among recipients, thus encouraging a disincentive to work:
World Bank study indicates that remittances may reduce both labour force participation as well as hours worked per week by recipients
Reduction in labour supply is less prevalent among recipients with a higher level of schooling

19. Human Capital
Remittances act as a supplement to income thus relaxing income constraints that limit human capital investment
Remittances can facilitate an improvement in household investment in human capital:
Education – greater schooling
Health care expenditure

20. Human Capital
Education - studies indicate that remittances improve educational attainment among children in recipient households:
El Salvador – respective of amount transferred, this lowers the likelihood of dropouts from schools
Health care – particularly important in countries where public health care systems do not offer universal health insurance:
In Guatemala and Nicaragua, children whose parents receive remittances access better health care relative to non-recipients with similar demographic and socioeconomic characteristics

21. Macroeconomic Effects
Improvements to GDP through increased consumption, investment and savings
Helps to alleviate balance of payments constraints
May also be a disincentive to production
May reduce export competitiveness

22. Remittances and Development: Recommendation
Priority - in Caribbean context, need for extensive research on the impact of remittances on development
This research should seek to inform policies on leveraging the development impact of remittances for the region