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Importance of remittance in economic development
Md. Abdul Jabbar

          ABOUT 3.0 per cent of the world's populations are migrants, which translates into the fact that 175 million people are living outside their countries of origin. For example, foreign-born nationals account for 10 per cent of the total population in the United States and 5.0 per cent in Europe. If all migrants lived in the same place, it would be world's fifth largest country. Still, this number reflects neither people who have undocumented status, nor cross-border workers.
Migration has increased since the 1800s. The period between 1870 and the First World War witnessed massive legal migration. More than 50 million Europeans left their continent for the United States, Canada, Latin America, Australia and New Zealand. In addition, some 50 to 60 million poor Asian immigrants migrated to the West Indies, Africa and elsewhere.
International migration slowed down during 1965-1975, the increase being only by 1.16 per cent annually relative to the world population increase. Yet in the last 15 years, the percentage has been increasing rapidly. During 1985-1990, the annual rate of growth of the population of migrants was 2.6 per cent, more than twice the level recorded in 1960s. According to IOM's World Migration (2003) report, the total number of migrants in 2050 is estimated to be at 2.6 per cent of the world's population.
Long before the world had heard of international investment or even trade, people were choosing migration as a way to escape poverty and find a better life. It was, after all, the emigration of primitive hunting-people from central Africa who settled in the fertile valleys of Egypt and Mesopotamia that gave rise to civilisation itself. Ever since then, migrants have made room for themselves wherever dynamic and productive economies have emerged around the world, making those
economies still more dynamic and productive.
Remittances from the recent migrants are emerging as an important source of external development finance. These inward flows of money have been growing in both absolute volumes, as well as relative to other sources of external finance. Perhaps even more important, remittances are the most stable source of external finance and are providing crucial social insurance in many countries afflicted by economic and political crises.
The frequency and intensity of economic and financial crisis in many developing countries over the past two decades has increased the need for social safety nets, amplifying the demand for remittances. Some of the reported increase in remittances is in all likelihood a statistical artefact. For one reason, data quality has improved. Furthermore, changes in economic policies of many developing countries, especially with regard to foreign exchange controls, have sharply reduced the black market premium for foreign exchange. As a result, part of the increase in officially recorded remittances reflects a shift in remittances from informal to formal channels. Where remittances continue to go through informal channels, either because of foreign exchange controls in countries such as Myanmar and Zimbabwe, or because of an absence of state machinery, as in Afghanistan, or suppression of currency value making the informal channel rewarding, this problem persists.
The evidence regarding the direct impact of remittances on economic development and growth is limited. It is observed that the bulk of remittances are spent on consumption. In the case of poor families, it is hardly surprising that remittances are used to augment subsistence consumption, and therefore little is saved and very little invested in projects that could stimulate economic growth. Nonetheless in so far as remittances finance the consumption of domestically produced goods and
services such as housing, there are wider multiplier effects. Moreover, additional consumption also increases indirect tax receipts. There is some suggestion that the propensity to save is higher among
remittance-receiving households than in others. If true, it suggests that remittances could be leveraged for broader economic development by helping augment national savings.
Global remittances transferred through formal channels increased by more than 20 per cent from 2001 to 2003, reaching an estimated amount of $93bn in 2003. An IMF study shows that the official worker remittances have increased at a rate of 3.86 per cent annually. On the other hand, the Official Development Assistance (ODA) has been falling. Hence, remittances are currently a much larger source of income for developing countries than the ODA.
Furthermore, remittances appear to be a much more stable source of income than private flows, i.e. foreign direct investment (FDI) and portfolio investments, which tend to be more volatile and flow into a limited set of countries. Lower-middle income countries receive the highest amount of remittances, even though remittances constitute a much higher share of total international flows to low-income countries.
In many countries, the money from the expatriates has exceeded that from exports and foreign aid. Of the 190 million or so migrants in the world today, almost 50 per cent are females; many, possibly the majority having moved from and within developing countries. Of the $160 billion or so migrant remittances sent home to developing countries in 2004, which reached more than $166 billion in 2005, it is likely that the major portion was received by women.
In fact, the total amount of remittances flowing into the developing world from the groups of immigrants living and working in various parts of the developed world is now about $175 billion a year. That credit does not go to a nation, but to the expatriate community which sends money back home.
This is twice the amount of total foreign aid provided by rich nations to poor countries and about a quarter of the annual flow of foreign direct investment into the developing world.
The fact that governments in the developing world invest so much time and effort in maintaining good relations with the providers of development assistance but spend practically no time at all for the welfare of their expatriates or working with them is a good indication of the ignorance about the important role these communities are playing -- or could play -- in the development of their homelands.
The precise interest of the expatriate communities in their homelands is the product of several factors. These include the economic and social background of the immigrants, the nature and scope of types of ties the overseas communities maintain with the countries of their origin, the types of financial instruments that are available to the remitters, and the way the communities living and working abroad view their home countries' economic prospects. The life of expatriates is gruesome: it involves years-long separation from families, miserable living conditions, and the threat of deportation for the many who are working illegally. All the same, remittances play a vital role in recycling money from the rich world to the poor one.
Vital though the flow of remittances may be, it cannot, on its own, lift all nations out of poverty. Remittances to poor countries can also mask the fact that they don't produce much at home. When it comes to Kerala, the second observation is right, but the first one is not. The Non-Resident Indians' (NRIs') money has lifted the state of Kerala from poverty and if you walk around you will not find a single beggar there. But then once the umbilical cord from the Gulf countries is cut off, the state may slip back into poverty.
Governments, international banks, lending agencies, and non-government organisations (NGOs) interested in creative development strategies are increasingly interested in remittance payments as a source of financing for grassroots economic development, especially in communities where poverty is so endemic that people migrate abroad to support their families. An understanding of the geographies of both migration and remittance payments is becoming an important component of development studies in the 21st century.
The increasing volume of remittance in a debt-ridden country contributes to the stability of the macroeconomic management by way of raising capacity of import payment, keeping the currency value stable and enjoying multiple effects of consumption at the consumer's level. For some countries, remittances can represent between 6.0 and 15 per cent of the GDP. Remittances can be equal to 30 to 50 per cent of the value of exports, and between 10 and 33 per cent of the value of imports. Compared with the volume of remittance payments, crude oil is the only commodity that generates a larger volume of money flows between countries each year. Coffee, the largest non-oil primary commodity in world trade, generates considerably less.
In fact, in 2003 total remittance flows of $140 billion were substantially larger than all net foreign direct investment (FDI), which amounted to $86 billion and all government and other aid of $33 billion to less developed countries-combined.
The IMF reported Mexico to be the number one country in terms of remittance flows in 1996. Currently, the only country receiving more remittance payments than Mexico is India. These characteristics make Mexico an ideal place to study the effects of remittances on local
communities as well as an ideal place to invest in transfer systems to make these flows more efficient and less costly.
Our policy makers both at government and private level should allocate more time and resources for research and to treat the remittances as an important variable of the macro-economy, raise the capacity of the country and thus reap the benefits from it so as to bring the impact of globalisation for the development of the country's economy.
The writer is Sr. Vice President of the International Banking Wing of Islami Bank Bangladesh


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