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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