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Money Sent Home: A Boost for Many Nations

11/26/2005 - 5:00 AM PST

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Study Highlights Role of Migration in Helping Development

WASHINGTON, D.C., NOV. 26, 2005 (ZENIT) - International migration can be an important tool in helping developing countries, affirmed a World Bank report published Nov. 16. Migrants and the money they send back home, remittances, is the main theme in the annual "Global Economic Prospects report for 2006."

"The challenge facing policy-makers is to fully achieve the potential economic benefits of migration, while managing the associated social and political implications," commented François Bourguignon, World Bank chief economist.

Officially recorded remittances worldwide exceeded $232 billion in 2005. Of this, developing countries received $167 billion, more than twice the level of development aid from all sources. The report estimates that remittances sent through informal channels could add at least 50% to the official tally, making them the largest source of external capital in many developing countries. The report considered that it is plausible that in the coming years, official remittance flows will continue to rise at the 7% to 8% annual rate seen during the 1990s.

The countries receiving the most in recorded remittances are India ($21.7 billion), China ($21.3 billion), Mexico ($18.1 billion), France ($12.7 billion) and the Philippines ($11.6 billion). Those for which remittances account for the largest proportion of gross domestic product are Tonga (31%), Moldova (27.1%), Lesotho (25.8%), Haiti (24.8%) and Bosnia and Herzegovina (22.5%).

Remittances were larger than public and private capital inflows in 36 developing countries in 2004. In another 28 countries, they were larger than the earnings from the most important commodity export. In Mexico, for example, remittances are larger than foreign direct investment, and in Sri Lanka they are larger than tea exports.

The United States was the largest source country, with nearly $39 billion in outward remittances in 2004. But the flow of funds is not just from rich countries. Remittances between developing nations make up between 30% and 45% of the total. This reflects the fact that more than half of migrants from developing countries migrate to other developing countries.

There are also benefits for the countries that receive immigrants. The increased availability of labor boosts returns to capital and reduces the cost of production, the report commented. According to an economic model developed by the World Bank, a rise in migration from developing countries sufficient to raise the labor force of high-income countries by 3% could boost incomes of the native population in high-income countries by 0.4%.

Costs and benefits

The World Bank explained that over the past two decades barriers to cross-border trade and financial transactions have fallen significantly, facilitating the transfer of money. At the same time, despite its economic benefits, migration remains controversial. While it brings benefits for some there can be important losses for other individuals and groups. Some workers may see an erosion of wages or employment, for example, due to the increased numbers of immigrants.

Migrants, too, pay a price, even if they reap economic advantages. Many immigrants, the report explained, particularly the irregular ones, suffer from exploitation and abuse. Then there are costs involved, especially those related to the exorbitant fees paid to traffickers. The family members left behind, particularly children, also suffer, while at the same time they benefit from the extra income that migrants send back home to their families.

The gains can be large for the families receiving money from overseas. Wage levels (adjusted for purchasing power) in high-income countries are about five times those of low-income countries for similar occupations. In effect, migrants can earn salaries that reflect industrial-country prices and spend the money in developing countries, where the prices of goods are much lower.

The exact impact of remittances on growth for the developing countries is unclear, according to the report. Remittances do play an important role in reducing the incidence and severity of poverty, however. They increase the income of the recipient, and appear to be associated with increased household investments in education, entrepreneurship and health.

Mexican children in households with migrants completed significantly more schooling, with the largest impact for girls in homes where the mother has a low level of education. And a survey of 6,000 small firms in 44 urban areas in Mexico shows that remittances are responsible for almost 20% of the total capital in urban micro-enterprises.

On the national scale, by generating a steady stream of foreign exchange earnings, remittances can improve a country's creditworthiness for external borrowing, ...

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