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Remittances as a Driver for Economic

Growth and Poverty


Reduction
Naoyuki Yoshino, Dean
Peter J. Morgan, Senior Consultant for Research
Asian Development Bank Institute
ADB International Forum on
Promoting Remittance for Development Finance
ADB HQ, Manila, 18-19 March 2015

Outline
1. Overview of remittances data for Asia
2. Review of literature/evidence on impacts of
remittances on growth and poverty reduction
3. Transmission of remittances on economic
activities
4. Are remittances win-win for host and home
countries?
5. Unofficial vs. official channels for remittances
6. Conclusions
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1. Overview of remittances data for Asia


Size
India, PRC and Philippines have largest absolute amounts
9 Asia-Pacific economies have remittances of over 10% of
GDP
Another 14 A-P economies have remittances of 1%-10% of
GDP

Growth
Remittances have consistently grown faster than GDP

Sources: tend to be concentrated in top 5 countries

Size of Remittances received by Asia

Source: World Bank Migration and Remittances Database

Importance to the economy

Source: World Bank Migration and Remittances Database

Remittances outpacing GDP growth

Source: World Bank Migration and Remittances Database

Sources of flows - patterns


Origin of remittances to Asia is fairly concentrated
65% to 75% of each countrys flows come from their top 5
sources
Viet Nam is exception with higher concentration (84%),
especially US = 57%

Healthy mix of intra-Asia and outside-Asia sources


US, UK and Canada are main outside sources
Other main sources are Gulf States (S. Arabia, UAE and
others) and intra-South Asia (India, Bangladesh)
Viet Nam is the exception with mainly outside-Asia sources

PRC sources from non-oil and high-income


countries
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2. Review of literature/evidence on
impacts of remittances
Consumption: some impact on food spending
Investment: mixed evidence on impacts on
education, health and housing
Growth impacts: evidence mixed
Some find positive effect, others not
Problem of simultaneity
Impact of volatility also mixed

Greater consensus on positive impact on


poverty reduction
Mixed evidence on inequality
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Consumption and investment


Consumption impacts (Mixed results)
Some studies found negative impacts on food
consumption
Some found significant impact on overall consumption

Investment (Yes)
A number of studies find increased spending on health
care, education and housing
Some find increased investment in human capital and
entrepreneurship in home country

Economic growth and volatility


Economic growth (Mostly Yes)
A number of studies found positive impacts on
economic growth
A few found negative impacts due to moral hazard
issue
Some found no impact

Macroeconomic volatility (Mixed)


Some studies found remittances can be a source of
macroeconomic shocks
But others found potential as shock absorber to
reduce current account reversals
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Poverty reduction and income inequality


Poverty reduction (Yes)
The great majority of studies find positive impacts
on reducing the level, depth and severity of poverty
Some found no impact on poverty rate, only on depth of
poverty

Income inequality (Mixed results)


Some studies found reduced inequality
But others found a (slight) increase in inequality

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3. Transmission of Remittances on
Economic Activities
Aggregate Demand Effect
Remittances Households Income Consumption Increase in sales
Increase in sales of companies Increase in investment

Y = C + I + G + EXP IMP

Aggregate Supply Effect

Y=AxF(N,K)

Increase in Sales Increase in capital stock higher rate of return on capital


Increase in employment lower unemployment rate

Increase in Capital Inflow from Abroad by Remittances


Current account deficits will be reduced
Current account = (EXP-IMP)+Capital flows+Remittances

4. Are remittances win-win for host and


home countries?
Host country
Higher labor force, taxable income
Migrants tend to contribute as much in taxes as native-born
population, and do not proportionately consume more benefits
Migrants may need hotline or other protection measures

Home country

Important source of foreign exchange, income


Studies find reduced labor supply at home
Reduced domestic tax base
Brain drain
Social issues (family relations, etc.)
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5. Unofficial vs. official channels for


remittances
Remittances via unofficial channels
Higher cost
But tax evasion possible

Remittances via official channels


Lower cost
Can be monitored by tax officials

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Cost of sending remittances

Source: World Bank Remittance Prices Worldwide Database

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5. Conclusions
Remittances very important for a number of Asia-Pacific
economies
Evidence on impacts is mixed

Consumption: Impact on food-related spending


Investment: Impacts on education, health care and housing
Economic growth and volatility: Mixed results
Poverty reduction: Generally positive impact
Income inequality: Mixed results
Labor force participation: Some reduction

Both home and host countries benefit, i.e., win-win, but may
need protection measures for migrants
More efforts needed to reduce transfer costs
Need to provide expanded investment/savings opportunities
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Background Information

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Consumption and investment


Main findings
Consumption
Remittances negatively influence food
consumption

Remittances increased household income


and consumption remarkably
Investment
Remittances do not have a significant
influence on investment spending such as
education and health care

Studies
Ang, et al (2009) (Philippines), Adams
and Cuecuecha (2010) (Guatemala),
Adams (2007) (115 developing
countries)
Viet (2008) ( Viet Nam)

Ang, et al (2009) (Philippines)

Remittances lead households to spend more Adams and Cuecuecha (2010)


on two investment-related goodseducation (Guatemala), Adams (2007) (115
and housing
developing countries)
Positive migrant shocks lead to enhanced
human capital accumulation and
entrepreneurship in origin households.
Source: Authors compilation

Yang (2008) (Philippines)

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Growth and volatility


Main findings
Economic growth
Remittances have a negative effect on
growth due to the moral hazard problem.

Studies

Remittances contribute to better economic


performance

Giuliano et al (2005) (Global), Imai et al


(2011) (24 Asia/Pacific countries),
Quayyum et al (2008) (Pakistan),
Acosta (2007) (Latin America)

At best, remittances have no impact on


economic growth.

Barajas et al (2009) (Global)

Shock transmission
Remittances can be a source of output
shocks.

Chami et al (2003) (Global), VargasSilva et al (2009) (20 Asian countries)

Imai et al (2011) (24 Asia-Pacific


countries)

Remittances can help reduce the probability Bugamelli and Patern (2005)(110
of current account reversals.
developing economies)

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Source: Authors compilation

Poverty reduction and income inequality


Poverty reduction
Remittances significantly reduce the level, depth, Adams and Page (2005) (global), Gupta et
and severity of poverty in the developing world.
al, (2007) (Sub-Saharan Africa), Imai et al
(2011) (24 Asia-Pacific countries), Ratha
(2013) (survey), Quayyum et al (2008)
(Pakistan)Acosta (2007) (Latin America),
Adams (2007) (115 developing countries),
Anyawu et al (2010) (Africa), Lopez-Cordova
and Omedo (2006) (Latin America and
Caribbean countries), Viet (2008) ( Viet
Nam)
Remittances only have a negligible effect on the
overall poverty rate, but tend to decrease the
poverty gap and ameliorate the depth of poverty.

Vargas-Silva et al (2009) (20 Asian


countries)

Remittances have no effect on the poverty rate


Inequality
Remittances reduce inequality

Nguyen et al (2013) (Viet Nam)


Acosta (2007) (Latin America), Phuong et al
(2008) (Viet Nam)

Remittances increase inequality, albeit only slightly Viet (2008) ( Viet Nam)
Source: Authors compilation
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Labor force participation and home-host


country issues
Main findings
Studies
Labor force participation in home country
Migrants reduce the labor supply of
Rodriguez and Tiongson (2001)
nonmigrant relatives, which translates into (Philippines), Kim (2007) (Jamaica)
lower earnings from local labor markets
Home country vs. host country
1) No evidence that migrant workers
Barbone et.al (2009) (European
contribute much less in taxes than the
Union)
native-born population, or consume
significantly higher benefits.
2) Migrant workers make a net
contribution to the national tax and benefit
systems of European Union-13 countries.

Source: Authors compilation

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Thank you
Asian Development Bank Institute
www.adbi.org

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