PRB

(October 2008) It is a familiar story to millions worldwide: Strained by economic hardship, a mother or father is forced leave their community and migrate to another country for work opportunities. Soon, money is sent back home to support family and friends. The number of cross-border migrants and the amount of cash flows across borders to support home communities continue to grow every year. Remittances, as these flows of money are known, are among the fastest-growing international financial flows.

Formal remittances doubled between the late 1980s and mid-1990s to almost $60 billion a year, doubled again by 2002, and almost doubled yet again to $208 billion by 2006. The World Bank estimates that recorded remittance flows worldwide added up to $318 billion in 2007. However, the total amount is even larger. Although estimates vary widely, informal flows of remittances through friends and relatives or through unregulated transfer agents (rather than through banks or regulated financial institutions) make up a significant portion of total global remittances. This unprecedented transfer of cash raises new possibilities for economic growth and has captured the interest of policymakers.

The rise of remittances goes hand-in-hand with the cross-border migration that is increasingly symptomatic of the demographic and economic shifts of globalization. More people are moving out of their home countries than ever before, pushed by economic and demographic inequalities, pulled by opportunities in other countries, and facilitated by ever-expanding communications and transportation infrastructures. According to Philip Martin and Gottfried Zürcher’s “Managing Migration: The Global Challenge,” the number of international migrants in industrialized countries alone more than doubled between 1985 and 2005 – from 55 million to 120 million. There were 191 million international migrants worldwide in 2005.¹

India, China, Mexico, and Philippines Top Recipients

The World Bank’s Migration and Remittances Factbook 2008 provides data on the trends of worldwide flows of people and remittances. The top four recipient countries of migrant remittances in 2007 were India ($27 billion), China ($26 billion), Mexico ($25 billion) and the Philippines ($17 billion).

However, as a per capita share of gross domestic product (GDP), smaller countries such as Tajikistan, Moldova, Tonga, the Kyrgyz Republic, and Honduras were the largest recipients of remittances in 2006.

Industrialized and oil-producing countries are the main source of gross remittances, with the United States as the largest by far (with $42 billion in formal outward remittance flows in 2006), followed by Saudi Arabia, Switzerland, and Germany.

World Remittances

Source: World Bank, Migration and Remittances Factbook 2008.

Remittances as a Tool For Poverty Reduction

Remittances have become the subject of increased interest for development aid agencies and policymakers. Cash flows from migrants back to their home countries now far exceed direct aid flows from donor nations, about $104 billion a year, or foreign direct investment, about $167 billion.² What are the implications for development?

Remittances can have a multiplier effect. When migrants deposit their savings in banks in their home countries, these banks are able to lend remittance deposits for infrastructure and business development projects, benefiting the country as a whole.

However, all too often the poorest people do not benefit from remittances. Sound fundamental economic policies and institutions are required for remittances to truly affect developing country populations as a whole, and the least developed countries often lack these prerequisites.³

A Need for Coherent Policies

Often, economic policies contradict each other and lessen the benefits of remittances. For example, industrialized countries provide aid for development but enact trade policies that block imports from migrant-sending countries. In 2006, the UN’s high-level dialogue on international migration and development acknowledged the importance of remittances for international development. The Global Forum on Migration and Development, a non-UN body, was launched in the wake of the meeting to bring governments together to promote coherent policies across countries.

Recognizing the benefits of remittances on development, many international development organizations such as the World Bank advocate more labor migration. But for migrant-sending countries to fully benefit from remittances, fundamental economic policies including an appropriate exchange rate and an efficient banking system are essential.

As migration continues to rise, there is little reason to believe that remittances will slow anytime in the near future. The challenge is how to translate these billions of dollars into sustainable practices that benefit developing country populations as a whole.

Eric Zuehlke is an editor at the Population Reference Bureau.

References

1. Philip Martin and Gottfried Zürcher, “Managing Migration: The Global Challenge,” Population Bulletin 63, no. 1 (2008).
2. “Remittances Cash ‘Tops World Aid,’ ” BBC News, Oct. 18, 2007.
3. “Send Me a Number,” The Economist, Jan. 3, 2008.