Saturday, October 9, 2010

Global economic crisis, migration & remittances

In a new book (here is a general summary of the book which argues that developing countries will come to the rescue of the world economy in the post-crisis period) published by the WB, Sanket Mohapatra and Dilip Ratha have a chapter on the impact of the global financial crisis on migration and remittances. They discuss recent trends in and the outlook for migration and remittance flows for 2010-11. Remittance to developing countries is estimated to decline by 6 percent in 2009. Remittances amounted to US$223 billion in 2008 (3x larger than ODA to developing countries). Remittances account for more than one-third of GDP in Lesotho, Moldova, Tajikistan, and Tonga.

Remittance inflows to South Asia is estimated to be US$82.8 billion in 2011 from  US$71.7 billion in 2008. Remittance inflow to developing countries is estimated to be US$359.1 billion in 2011.Total world remittance flows is estimated to be US$464.9 billion in 2011. East Asia and the Pacific is expected to see the highest growth of remittances in 2010 (9.8 percent) and 2011 (9.2 percent) following negative growth rate of 0.4 percent in 2009. Remittances is expected to amount US$102.7 billion in East Asia and Pacific in 2011.

The factors that affected migration and remittance flows in 2009 were:
  • effects of the economic crisis on migrant stock,
  • diversification of migration destinations,
  • currency effects, and
  • the link between barriers to labor mobility and the impact of economic cycles on remittances. If the barriers to labor mobility is low, then economy cycles and remittances are strongly related.

Existing migrants are unwilling to return back to their home countries, so remittances is expected to increase. Meanwhile, low demand for labor in the Gulf countries would reduce the stock of migrants from Nepal, Pakistan, India, and Bangladesh, among others.

The countries that have the most diverse migration destinations have better chances of remittances being more resilient. Additionally, the total value of remittance inflows to developing countries depends on the prevailing exchange rate, usually between US dollar and their domestic currency. The Indian rupee depreciated by almost 25 percent against the US dollar, leading to a surge in remittance flows and an increase in spending in housing sector, and in bank deposits and stocks.

Similar signs of investment-related remittance flows were seen in Nepal, Bangladesh, Pakistan, Tajikistan, Ethiopia, Moldova, and the Philippines.

One notable feature of remittances have been its impact on offsetting balance of trade deficit. It is particularly true in Nepal, the Philippines, Bangladesh, and Mexico.