Development Implications of Migration and
Remittances: The International Remittances
Agenda
Dilip Ratha
Development Prospects Group
World Bank
Annual Meeting of the International Agricultural Trade Research
Consortium: Immigration and Labor in a Global Economy
Washington, DC
January 7, 2008
Development implications of migration
and remittances
Migration and remittances continue to increase.
South-South migration may be as large as SouthNorth migration
Migration generates substantial welfare gains and
reduces poverty. Benefits to countries of origin are
mostly through remittances
There is considerable scope for leveraging
remittances for development
Development implications of migration
and remittances
Migration and remittances continue to increase.
South-South migration may be as large as SouthNorth migration
Migration generates substantial welfare gains and
reduces poverty. Benefits to countries of origin are
mostly through remittances
There is considerable scope for leveraging
remittances for development
Global migrant stock is rising
Number of migrants in millions
91
78
51
48
22
11
1985
2005
South (Developing
countries)
Source: United Nations
1985 2005
1985
2005
North (High-Income North (High-Income
OECD)
excl. OECD)
South-South migration is almost as
large as South-North migration
(millions,
2005)
South
Migrant stock in
North
North
Total
(HI OECD) (HI non-OECD)
Migrants from:
South
74
62
20
156
North
3
25
1.2
30
1
4
0.3
5
78
91
22
191
(HI OECD)
North
(HI non-OECD)
TOTAL
Source: Ratha and others (2006)
South-South migration is almost as large as
South-North migration
Destination of migrants from the South
North (HInon-OECD)
13%
South
47%
North (HIOECD)
40%
Source: Ratha and Shaw (2007)
Top migration corridors include several SouthSouth corridors (excluding the FSU)
Mexico-US
Bangladesh-India
Turkey-Germany
India-UAE
Philippines-US
Afghanistan-Iran
Algeria-France
India-Saudi Arabia
Egypt-Saudi Arabia
Pakistan-India
India-US
China-US
Vietnam-US
India-Bangladesh
Malaysia-Singapore
Burkina Faso-Cote
Cuba-US
10.4
South-South
South-North
0
1
Source: University of Sussex and World Bank
2
3
millions of migrants
4
Former Soviet Union corridors are among the
largest South-South corridors
Russia-Ukraine
Ukraine-Russia
KazakhstanRussia
RussiaKazakhstan
millions of migrants
0
1
2
Source: University of Sussex and World Bank
3
4
5
Main messages
Remittances are the most tangible and least
controversial link between migration and
development
• Remittances are large, relatively stable - they
reduce poverty
Reducing remittance costs would benefit all retail
payments
Remittances can be leveraged for financial access
of households, and capital market access of
financial intermediaries
• Anti-money laundering and other regulations need
to be further clarified
Remittances are large, have continued to
increase
$ billion
375
Private debt
and portfolio
equity
325
275
225
175
FDI
Recorded
Remittances
125
75
ODA
25
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
20 06
07
e
-25
Remittances are large, have continued
to increase
($ billion)
1995
Recorded remittances
58
2007
estimate
240
ODA*
59
104
FDI*
105
368
Pvt. debt & portfolio equity*
122
322
* 2006
Global flows of remittances (US$ billion)
2000
2006
2007e
Change
2006-07
All developing countries
85
221
240
8%
107%
East Asia and Pacific
Europe and Central Asia
Latin America and Carib.
Middle-East and N Africa
South Asia
Sub-Saharan Africa
High income OECD
17
13
20
13
17
5
46
53
35
57
27
40
10
72
58
39
60
28
44
11
74
10%
10%
6%
7%
10%
5%
3%
97%
175%
115%
86%
81%
116%
40%
132
297
318
7%
87%
2006
44
136
27
207
Change
2005-06
23%
10%
15%
13%
Change
2001-06
226%
64%
20%
74%
INFLOWS
World
OUTFLOWS
All developing countries
High income OECD
High income non-OECD
World
2000
12
76
23
110
2005
36
124
24
183
Change
2002-07
Remittances flows outside LAC continue to
grow
45
Year-on-year growth (%)
35
Bangladesh
25
15
Philippines
5
Mexico
-5
Jan05
Apr05
Jul05
Oct05
Jan06
Apr06
Jul06
Oct06
Jan07
Note: Year-on-year growth rate (%) of 3-month moving average
Apr07
Jul07
Oct07
Remittances reduce poverty
Evidence from a few household surveys shows that
remittances reduce poverty
Cross-country evidence shows that a 10% increase
in per capita remittances leads to a 3.5% decline in
the share of poor people
Remittances also finance education and health
expenditures, and ease credit constraints on small
businesses
Remittances tend to rise following
crisis, natural disaster, or conflict
Remittances as % of private consumption
2.0
1.7
2.0 2.0
1.8
1.4
1.2
1.0
0.5
Indonesia
Thailand
Mexico
year before
year of crisis
year after
Large countries receive more remittances in
dollar terms…
Top recipients of remittances, 2007 estimated ($ bn)
27.0
25.7
25.0
17.0
12.5
7.0
7.0
6.8
U
.K
.
R
om
an
ia
7.2
Sp
ai
n
B
el
gi
um
G
er
m
an
y
C
hi
na
M
ex
ic
Ph
o
ili
pp
in
es
Fr
an
ce
In
di
a
8.9
…but smaller countries receive more as a
share of GDP
Top recipients of remittances, 2006 (% of GDP)
36
36
32
27
26
25
24
23
p
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22
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20
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Remittances improve countries’ access to
capital
Present value of external debt as % of exports of
goods, services, and remittances
800
700
600
Excluding remittances
500
Including remittances
400
300
200
100
al
a
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Downside
Large remittance flows may lead to currency
appreciation and adverse effects on exports; but
sterilization of inflows may not be an appropriate
policy response
Remittances may create dependency
Remittance channels may be misused for money
laundering and financing of terror
Policy implications
Reduce remittance costs
Prudential banking regulations and
AML/CFT regulations may need
rebalancing
Leverage for financial access of
households
Leverage for capital market access of
intermediaries
Policy implications
Reduce remittance costs
Prudential banking regulations and
AML/CFT regulations may need
rebalancing
Leverage for financial access of
households
Leverage for capital market access of
intermediaries
Remittance fees are high, and regressive
Fee as % of principal *
16
14
12
10
Western Union
Moneygram
Dolex
8
6
4
2
0
$100
* As of November 2006
$200
$300
$400
$500
$600
Remittance fees are falling, but not fast enough
30
26
Fee for sending $300 from
U.S. to Mexico, left-scale
Remittance flows to Mexico,
$ bn, right scale
30
25
22
20
18
15
14
10
10
6
5
2
0
1999
2000
2001
Source: Condusef, Mexico
2002
2003
2004
2005
2006
2007
South-South remittance costs tend to be
higher than North-South costs
Fee and FX commission $
$29
London-Lagos
Cotonou-Lagos
$35
South-South
Singapore-Jakarta
Kuala Lumpur-Jakarta
$10
North-South
$12
$27
Jakarta-Kuala Lumpur
Los Angeles-Mexico City
Guatemala City-Mexico City
Mexico City-Guatemala City
$13
$23
$24
Policy implications
Reduce remittance costs
Prudential banking regulations and
AML/CFT regulations may need
rebalancing
Leverage for financial access of
households
Leverage for capital market access of
intermediaries
Policy recommendations
1. Country risk analysis should account for remittances
Remittances can help obtain and improve
credit rating
Lebanon
Remittances
Rating
Rating
Spread
(% of GDP,
excluding including reduction
2004)
remittances remittances (basis
pts)
14
B+
BB150
Haiti*
28
CCC
B-
334
Nicaragua*
11
CCC+
B-
209
Uganda*
5
B-
B
161
* Calculated using a model similar to Cantor and Packer (1995), see
Ra tha, De and Mohapatra (2007)
Policy recommendations
1. Country risk analysis should account for remittances
2. Financial institutions can securitize future remittances
for raising capital from international markets
Securitization of future remittances can
improve credit rating above investment
grade
Year
Issuer
Amount
(US$ mn)
Transaction
rating
Country
rating
1998 Banco Cuscatlan
50
BBB
BB
2002 Banco do Brasil
250
BBB+
BB-
Remittance securitization structure
Remittance senders
Beneficiary
Correspondent bank
Local bank
Foreign
Local
Remittance securitization structure
Remittance senders
Beneficiary
Correspondent bank
Local bank
Special trustee
Foreign
Local
Policy recommendations
1. Country risk analysis should account for remittances
2. Financial institutions can securitize future remittances
for raising capital from international markets
3. Diaspora bonds can potentially raise development
financing
Diaspora bonds to tap into the wealth
of the diaspora
Israel and India have raised nearly $40 billion
financing, often in times of crisis
There is scope for other countries with large
diaspora abroad to issue diaspora bonds for
financing development. . .
. . . At a discount
Discount on Israel diaspora bonds is
decreasing
15 Percent
US Treasury 10-year
13
11
9
7
5
3
Israel DCI
bond
20
03
19
98
19
93
19
88
19
83
19
78
19
73
19
68
19
63
19
58
19
53
1
Policy recommendations
1. Country risk analysis should account for remittances
2. Financial institutions can securitize future remittances
for raising capital from international markets
3. Diaspora bonds can potentially raise development
financing
4. Governments should not tax remittances or direct the
allocation of expenditures financed by remittance
Policy recommendations
1. Country risk analysis should account for remittances
2. Financial institutions can securitize future remittances
for raising capital from international markets
3. Diaspora bonds can potentially raise development
financing
4. Governments should not tax remittances or direct the
allocation of expenditures financed by remittances
5. Remittances are not a substitute for official aid
Migration
Remittances
Remittances are the most tangible – and non-controversial link between migration and development
The International Remittances Agenda
1. Monitoring,
analysis, projection
3. Financial
access
4. Capital
International market access
Remittances
Agenda
2. Retail payment
systems
1. Monitoring, analysis, projection
- Size, corridors, channels
- Counter-cyclicality
- Effects on poverty, education, health,
investmen
- Policy (costs, competition, exchange
controls)
3. Financial access
- Deposit and saving products
- Loan products (mortgages,
consumer loans,
microfinance)
- Credit history for MFI clients
- Insurance products
International
Remittances
Agenda
4. Capital market access
- Private banks and
corporations
(securitization)
- Governments (diaspora
bonds)
- Sovereign credit rating
2. Retail payment systems
- Payment platforms/instruments
- Regulation (clearing and settlement, capital
adequacy, exchange controls, disclosure, crossborder arbitration)
- Anti-money laundering/Countering financing of
terrorism (AML/CFT)
Latest data available at
www.worldbank.org/prospects/migrationandremittances