Migrant Remittances to Families Ease Poverty in Poor Countries

In 2008, migrants from developing countries sent some US$305 billion in remittances to families back home.

Remittances are earnings that those working abroad send to their families.

But since the money flows through many formal and informal channels, the real size of remittances isn't known.

For example, Nepalese migrants working abroad send 69% of remittances through informal channels.

Based on available data, developing countries get two times more money through remittances than through official aid, said Dilip Ratha, a World Bank economist. Remittances also make up almost 2/3 of FDI (foreign direct investment) that developing countries get.

Because remittances have become so important, development experts are studying more closely how they help people in the home countries climb out of poverty. Unlike official development aid—money that rich (donor) country governments give to the governments of poor countries—remittances go directly to families who decide how to spend the money.

Which Region Receives Most Remittances?

East Asia and Pacific region is the largest recipient of migrant remittances among all developing regions. South Asia is the second largest recipient among developing regions, slightly ahead of Latin America and the Caribbean. Sub-Saharan Africa is the smallest recipient among developing regions, Remittance flows to the region are grossly underestimated, with wide gaps in data reporting in many countries.

Which Country Receives Most Remittances?

In 2008, India, China and Mexico were the top three recipients of remittances, accounting for nearly one-third of remittances that developing countries received.

In some countries remittances make up more than 25% of the country's GDP. Some of these countries are Tajikistan, Moldova, Tonga and Lesotho.

What Are the Destinations?

There are regional preferences that encourage migrants to go to the most accessible countries. This means choosing countries that are easy to get to, and with which they share cultural and language ties.

Over the last 15 years, Western Europe received 42% of migrants from Central and Eastern Europe as well as growing numbers of migrants from the Former Soviet Union.

Most Mexican and Latin American migrants go to the United States. But people in many South American countries also look toward Europe. Caribbean migrants prefer the United Kingdom as a destination, and many South American migrants choose Spain.

Migrants from the Middle East and North Africa migrate to the resource-rich, labor-seeking Gulf countries or Europe.

Maghreb workers have sought opportunities in Northern Europe and increasingly in Italy and Spain. Egypt and Arab Mashreq countries have gravitated toward the rich Gulf states.

Migration can also create a ripple effect. In the Middle East and North Africa, for example, as Lebanese and Jordanian workers leave for the Gulf countries, Syrians migrate to Lebanon and Egyptians go to Jordan to work on farms.

In South Asia, Nepalese migrants, for example, gravitate toward India, the Gulf states, and Saudi Arabia.

Who Migrates? Who Sends Remittances?

Source: Remittance flows to developing countries are estimated to exceed $300 billion in 2008 (People Move, 2/8/09).

It varies from country to country. Here's an example from Latin America and the Caribbean:

In Mexico and Paraguay, poor and uneducated households are more likely to receive remittances from family members living abroad. But, Peru and Nicaragua have the opposite pattern.

Mexican and other Central American migrants going to the United States tend be less educated than those who stay behind, while for migrants from the Caribbean and South America the opposite is true.

Remittances v. Brain Drain Migration

What's better for a poor country—for its families to receive plenty of remittances (which implies that many of its people have migrated abroad) or for its workforce to remain at home?

As research shows, remittances can help poor families climb out of poverty faster. But what happens if a developing country's educated people migrate in great numbers? For example, more than half of college graduates from Central America and the Caribbean live abroad.

Such massive migration of educated people has become known as brain drain, and it can become a serious obstacle for the development of small, poor countries.

Remittances and the Financial Crisis

Remittances are so far weathering the current global economic downturn, because, according to a recent World Bank story, many countries have a well-established “stock” of migrants who are unlikely to leave the countries where they now live. These migrants will continue to send money home, even if they have to reduce the amount they send. Still, estimates show that all the developing regions except South Asia experienced sharp decline in the growth of remittance inflows in 2008. Flows to the Latin America and the Caribbean region were flat in 2008, and growth of remittances to developing countries in Europe and Central Asia decreased from 31% in 2007 to 5% in 2008. Those to East Asia and the Pacific declined from 23% to 7%, to the Middle East and North Africa from 22% to 8%, and to Sub-Saharan Africa from 44% to 6%. The only exception has been South Asia, where remittances grew by 27% in 2008, down only modestly from 31% growth in 2007.