International Migration, Remittances and Development in Europe and Central Asia
Dilip RathaDevelopment Prospects GroupWorld Bank
GDLN Migration Policy Series: Europe and Central Asia February 5, 2009Washington DC
Development implications of migration and remittances
Migration and remittances continue to increase. South-South migration may be as large as South-North migration
Migration generates substantial welfare gains and reduces poverty. Benefits to countries of origin are mostly through remittances
Migration and remittances can be leveraged for the development of poor countries, but they are not a substitute for development at home
3027
2419
11 10 9 9 9 7
05
101520253035
Top recipients of remittances
4638 35
2924 24 24 23 20 19
0
10
20
30
40
50
$ billion, 2008e % of GDP, 2007
Within ECA59%
High-income OECD29%
Other high-income4%
Other South8%
Destination of migrants from ECA
Source: Ratha and Shaw (2006)
Stock of emigrants: 47.6 million or 10% of population
Europe and Central Asia top migration corridorsMillions
Source: Ratha and Shaw (2007)
4.8 3.6 2.7 2.6 1.80.9 0.9 0.9 0.9 0.7
-100
0
100
200
300
400
500
600
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Private debt and portfolio equity
FDI
ODA
RecordedRemittances
Remittances to developing countries are large, have continued to increase
US$ billion
020406080
100120140160180200
2000 2001 2002 2003 2004 2005 2006 2007 2008
Private debt and portfolio equity
FDI
ODA
RecordedRemittances
Remittances and other resource flows to ECA
US$ billion
Emigration from ECA countries
Millions
Source: Ratha and Shaw (2007)
0.2 0.1 0.1 0.10.6 0.7 0.6 0.5
2.5
8.9
0123456789
10
Russia Armenia Tajikistan Moldova KyrgyzRepublic
Within ECA
Out of ECA
High-skilled emigration (of tertiary educated) from Europe and Central Asia
Percent of tertiary educated in the origin country
28.6
13.914.115.317.42020.9
29.4
12.3 12.1
05
101520253035
Croatia
Bosnia
& Herz
egov
ina
Macedo
nia FYR
Albania
Serbia
& Monte
negro
Slovak Rep
ublic
Romania
Estonia
Poland
Hungar
y
Remittances in Europe and Central Asia, 2007
US$ billion % of GDP
45.538.3
1913.5
0.3
Tajikistan Moldova KyrgyzRepublic
Armenia Russia
4.5
1.31.8 1.6
0.7
Russia Armenia Tajikistan Moldova KyrgyzRepublic
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 have reduced poverty in Nepal
23
42
32 31
15
20
25
30
35
40
45
% of householdreceiving remittances
Poverty headcount rate%
1995/62003/4
Source: World Bank, DFID, ADB Study 2006, Glinskaya and others 2006
Remittances help reduce poverty in Sri Lanka
0 0 1
1620
83 5
-1-7
-10
-5
0
5
10
15
20
25
1 2 3 4 5 6 7 8 9 10
% of Sri Lankan households that moved up to a higher income decile after receiving remittances, 1999-2000*
Income Decile
Remittances tend to rise following crisis, natural disaster, or conflict
Remittances as % of private consumption
0.5
1.7
1.21.4
2.0 2.0
1.0
1.82.0
Indonesia Thailand Mexico
year beforeyear of crisisyear after
Downside of remittances
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
Migration also increases trade and investment links Diaspora networks facilitate:
– Trade
– Investment
– Skill and technology transfer
Reduce remittance costs
- Outward remittances not allowed in many countries in the region
- Money order charges are very high in India or Nepal
- Domestic remittance markets well developed – inefficiency in the sending end
Policy implications
Reduce remittance costs
Prudential banking regulations and AML/CFT regulations may need rebalancing
Leverage for financial access of households
Policy implications
Reduce remittance costs
Prudential banking regulations and AML/CFT regulations may need rebalancing
Leverage for financial access of households
Policy implications
Remittances sent through banks can bring benefits Account-to-account transfers promote savings
compared to cash transfers or hand-carry
Allows migrants and remittance recipients to develop a credit history based on past transfers
Banks can provide their remittance clients housing and business loans, insurance, pension products
... however, implicit cost of "free" bank transfers often high
Reduce remittance costs
Prudential banking regulations and AML/CFT regulations may need rebalancing
Leverage for financial access of households
Leverage for foreign borrowing and reducing country risk
Policy implications
Policy recommendations Diaspora bonds can potentially raise development
financing
1
3
5
7
9
11
13
15 PercentUS Treasury 10-year
Israel DCI bond
Discount on Israel diaspora bonds
Policy recommendations Governments should not tax remittances or direct the
allocation of expenditures financed by remittances
Remittances are not a substitute for official aid
Know your diaspora
Provide training and support to potential and existing migrants
Help potential migrants acquire globally marketable skills
Improve transparency in recruitment process
But migration is not a substitute for employment creation at home
Policy recommendations
International Remittances
Agenda
1. Monitoring, analysis, projection
2. Retail payment systems
3. Financial access
4. Capital market access
International Remittances
Agenda
1. Monitoring, analysis, projection- Size, corridors, channels- Counter-cyclicality - Effects on poverty, education, health,
investmen- Policy (costs, competition, exchange
controls)
2. Retail payment systems- Payment platforms/instruments- Regulation (clearing and settlement, capital
adequacy, exchange controls, disclosure, cross-border arbitration)
- Anti-money laundering/Countering financing of terrorism (AML/CFT)
3. Financial access- Deposit and saving products- Loan products (mortgages,
consumer loans, microfinance)
- Credit history for MFI clients- Insurance products
4. Capital market access- Private banks and
corporations (securitization)
- Governments (diaspora bonds)
- Sovereign credit rating
www.worldbank.org/prospects/migrationandremittances