Home .Migration Migrants' remittances – what are they worth?
Migrants' remittances – what are they worth?
Tuesday, 18 January 2011 12:57

Migrants’ remittances to developing countries in 2010 amounted to some $325 billion, about three times the size of official development assistance.  But how useful are they to economic development?


International migration is the least developed vector of globalization.  Trade, investment and finance are very free and open, and have grown exponentially in recent decades.  International migration is very restricted for lower skilled labor, though much freer for skilled labor.  International migration has still grown relatively strongly these past couple of decades.  Today, the world’s migrants amount to 215 million or 3.2 per cent of the world’s population.


Migrants very often send (“remit”) some of their earnings back home to their families and friends.  These remittances to developing countries have also grown exponentially.  From a mere $55 billion in 1995 and $81 billion in the year 2000, they accelerated to $325 billion in 2008.  With the global financial crisis, they slipped back a little in 2009, and then rebounded back to $325 billion in 2010.  Migrants also send remittances back to advanced OECD countries, such that globally migrants’ remittances amounted to $440 billion in 2010.


Asia’s developing countries receive well over half of migrants’ remittances globally.  The world’s major recipients in 2010 were: India ($55.0 billion), China ($51.0 billion), Mexico ($22.6 billion), Philippines ($21.3 billion), France ($15.9 billion), Germany ($11.6 billion), Bangladesh ($11.1 billion), Belgium ($10.4 billion), Spain ($10.2 billion) and Nigeria ($10.0 billion). 


In terms of GDP, a number of smaller countries dominate the recipient list: Tajikistan (35.1%), Tonga (27.7%), Lesotho (24.8%), Moldova (23.1%), Nepal (22.9%), Lebanon (22.4%), Samoa (22.3%), Honduras (19.3%), Guyana (17.3%) and El Salvador (15.7%).  The top 10 remittance sending countries are: United States ($48.3 billion), Saudi Arabia ($26.0 billion), Switzerland (19.6 billion), Russia ($18.6 billion), Germany ($15.9 billion), Italy ($13.0 billion), Spain ($12.6 billion), Luxembourg ($10.6 billion), Kuwait ($9.9 billion) and Netherlands ($8.1 billion).


So now that migrants’ remittances to developing countries have grown to around three times the size of official development assistance, to what extent are they becoming a motor for economic development?  This is a very complex issue with no straightforward answers.


The evidence shows that migrants’ remittances do reduce poverty for the individuals that receive them.  It also shows that recipients often use remittances to invest in the education of their children, a potential positive for development.  At the same time, there is growing evidence that migrants’ remittances can promote a “dependency culture”.  Many remittance receivers can sit back and live off the life of the sender.


Most regrettably, there is little strong evidence to suggest that remittances foster investment in many receiving countries.  A key factor is clearly the unfavorable investment climate that exists in countries like the Philippines with much red tape, bureaucracy and corruption.  Indeed, lack of economic opportunity at home is one of the reasons why migrants often feel pushed to leave their own country.


In the case of the Philippines, over the past 15-20 years, migrants’ remittances have grown dramatically, while at the same time gross investment has fallen from around 25 to 15 per cent of GDP.  Over the same period, the Philippines current account balance has swung from deficit into surplus.  On the face of it, this may seem like a positive trend for the current account.  But in reality this means that the Philippines is actually exporting capital overseas, while it is in desperate need of investment in infrastructure, industry and education.


One perverse trend in the migrants’ remittances story is that such remittances are very often used to finance the education of young people and then finance their departure from the country.  And when large parts of a country’s population is fully geared up to leaving the country, there is much less pressure on the local government to implement pro-development reforms.  Very often the blockages to reform are privileges accorded to societal elites.  These elites are very happy to feel no pressure to give up privileges such as tolerance of tax evasion and corruption.


Is there anything very positive that one can say about migrants’ remittances and economic development?  There are some countries which arguably have no real developmental hope, which are too small and isolated to have a comparative advantage in anything – countries like the small Pacific Island states of Tonga and Samoa.  International migration and remittances can validly be a key plank in the development strategy of such countries. 


While countries like the Philippines sometimes try to use this argument, it is not sound.  The Philippines is big enough and resource-rich enough to develop if it had a favorable policy environment.  Sadly, its citizens are basically forced to leave the country because of the bankruptcy of the government’s economic policy.


As US Secretary of State Hilary Clinton recently said to Philippine President Aquino regarding Philippine migrants – “But let’s be very honest here. Too many of them feel that they cannot progress in their own country. Too many of them feel that the elite in business and politics basically call the shots, and there’s not much room for someone who’s hardworking, but not connected. Too many of them believe that even if they get the best education they can, that there won’t be an opportunity for them, and so they take that education and help build someone else’s economy, very often here in the United States.”


Could migrants’ remittances ever become an alternative to official development assistance?  Migrants’ remittances are fundamentally a very different thing.  First, they go into private hands, not the public purse, and therefore would not finance important development needs like infrastructure, education or health.  Second, over 90 per cent of migrants’ remittances go to middle income countries.  The one and a half billion people living on less than a dollar a day benefit very little from migrants’ remittances, and are still in desperate need of official development assistance.




World Bank Website, Migration and Remittances, accessed 1 February 2011.


Remarks of Sec Hillary Clinton and President Aquino at signing of new MCC Compact





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