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From The World Bank Group
Global Economic Prospects 2006
Economic Implications of Remittances and Migration

Migration Can Deliver Welfare Gains, Reduce Poverty, Says Global Economic Prospects 2006

WASHINGTON, November 16, 2005 — International migration can generate substantial welfare gains for migrants and their families, as well as their origin and destination countries, if policies to better manage the flow of migrants and facilitate the transfer of remittances are pursued, says the World Bank's annual Global Economic Prospects (GEP) report for 2006.

“With the number of migrants worldwide now reaching almost 200 million, their productivity and earnings are a powerful force for poverty reduction,” said François Bourguignon, World Bank Chief Economist and Senior Vice President for Development Economics. “Remittances, in particular, are an important way out of extreme poverty for a large number of people. The challenge facing policymakers is to fully achieve the potential economic benefits of migration, while managing the associated social and political implications.”

Global Economic Prospects 2006
  • Cover
  • Table of contents
  • Abbreviations
  • Overview
  • Overview and Global Perspectives
  • Ch.1: Prospects for the Global Economy (200k pdf)
  • Ch.2: The Potential Gains from International Migration (225k pdf)
    International migration can generate substantial welfare gains for migrants, their countries of origin, and the countries to which they migrate. The main focus of this report is on gains from the remittances that migrants send home (discussed in chapters 4–6); chapters 2 and 3 address the economic costs and benefits of migration and the impact of migration on poverty. In this chapter, we use an economic model to estimate the size of the welfare gains resulting from migration from developing to high-income countries.1 It must be recognized at the outset that the model fails to capture some known costs and benefits of migration; that the results are dependent on the specification of the model and its key parameters; and that the model cannot incorporate social or political considerations.2 The results of this simulation do not provide a precise forecast of the likely impact of migration; instead, they provide a consistent framework that offers insights into (a) the economic gains that can be expected from changes in policy or circumstances, and (b) the channels through which migration affects welfare—and both are difficult to measure in reality. The conclusions drawn from the model are supported by several empirical studies, and they hold up well under various alternative assumptions for model specification and parameters. In chapter 3, we complement this modelbased approach to measuring the gains from migration with a review of the economic literature, which covers the implications for migrants and for their origin countries. Here we can refer to a broader range of economic issues than are captured by the model, although without the ability to quantify that the model-based simulation provides.
  • Ch.3: The Policy Challenges Of Migration: The Origin Countries’ Perspective (200k pdf)
    In evaluating the impact of remittances, the main subject of this report, it is important to take into account the implications of the initial decision to emigrate. This chapter will analyze the implications for migrants and origin countries of migration for economic gain from developing to high-income countries.1 Focusing on this form of migration can highlight some key policy dilemmas that governments face in improving the developmental impact of migration. Migration is an extremely diverse phenomenon. Its economic impact on each origin country, and the impact of policy, will depend on many circumstances—among them the skills and former employment of migrants, the history of migration (the existence and location of a large diaspora), the sectors affected, patterns of trade and production, the investment climate, and the size and geographical location of the country. For example, migration policies appropriate for a large developing country with substantial low-skilled emigration and effective institutions will differ from the policies for a small island economy with substantial high-skilled emigration and weak institutions. Migration is as complex as it is diverse, so predicting the impact of policy changes will be problematic until more research is done and better data obtained. In particular, the gender implications of migration are poorly understood and require more research. Migration also has important social and political implications,
  • Ch.4: Trends, Determinants, and Macroeconomic Effects of Remittances (225k pdf)
    Chapter 3 reviewed the trends, opportunities, and policy challenges associated with international migration. It also introduced the economic importance of the funds that international migrants send back to their country of origin. In recent years, those funds have emerged as a major source of external financing in developing countries. Although there is no universal agreement yet on how to measure international migrants’ remittances to developing countries, a comprehensive measure of certain officially recorded flows—workers’ remittances, compensation of employees, and migrant transfers—produced an estimate of $167 billion for 2005, up from $160 billion in 2004. Given measurement uncertainties, notably the unknown extent of unrecorded flows through formal and informal channels, the true size of remittance flows may be much higher—perhaps 50 percent or more. Because of their volume and their potential to reduce poverty, remittances are attracting growing attention from policymakers at the highest levels in both developed and developing countries.1 This chapter and chapters 5 and 6 consider remittances from several angles. The organizing framework is driven by three items on the international policy agenda: (1) understanding the true size and trends in remittance flows to developing countries, as well as their macroeconomic impact; (2) evaluating the impact of remittances on the households that receive them; and (3) designing policies to reduce the transaction costs of remittances, strengthen the formal financial infrastructure supporting remittances, and leverage remittances to improve access to financial services in recipient economies. Officially recorded remittance estimates may significantly underestimate the real magnitude of remittances. Model-based estimates and household surveys suggest that informal flows could add at least 50 percent to the official estimate, with significant regional and country variation. The true size of remittance flows could be even larger, in view of substantial underrecording of flows through formal channels. Despite the prominence given to remittances from developed countries, South–South remittance flows make up 30–45 percent of total remittances received by developing countries, reflecting the fact that over half of migrants from developing countries migrate to other developing countries. Remittance flows to poor countries originate largely in the middle-income developing countries.
  • Ch.5: Remittances, Households, and Poverty (140k pdf)
    Chapter 4 presented evidence on the macroeconomic dimensions of remittance flows— their overall size, determinants of their composition (formal versus informal), the role of government policies in determining their magnitude and use, and their macroeconomic impacts—to developing countries. But as previously noted, these aggregate flows are comprised of millions of individual remittance transfers among private households, all undertaken by senders and receivers striving to improve household welfare. This chapter considers the impact of remittance flows at the micro-level, in particular on the welfare and opportunities of the recipient households and their members. Evaluating household impact depends on data and analysis carried out at the household level, often through household surveys. Surveys are available for many countries and periods, and many of these have common or comparable structures, but substantial differences in coverage and circumstances complicate their interpretation. Such caveats notwithstanding, the evidence presented in this chapter suggests that remittances can: • Reduce poverty, even where they appear to have little impact on measured inequality; • Help smooth household consumption by responding positively to adverse shocks (for example, crop failure, job loss, or a health crisis); • Ease working capital constraints on farms and small-scale entrepreneurs; • Lead to increased household expenditures in areas considered to be important for development, particularly education, entrepreneurship, and health.
  • Appendix: Regional Economic Prospects (170k pdf)

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