Remittances

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					               The Role of Remittance
         in Promoting Growth and Reducing
                  Poverty in Asia*)


                                                   Presentation by
                                               Guntur Sugiyarto
           Senior Economist, Economics and Research Department, Asian Development Bank.
                                                  Bogota, 15 January 2011.



*) The views expressed here are those of the author and do not necessarily reflect the views or policies of the ADB.
                   Outline
 Role of Remittances in Development
 Remittance in Asia
 Impact of the Global Crisis
 Effects on Growth and Poverty
 Key Findings and Policy Implications
Remittances for development
   In 2008: 200 million migrants sent $300 billion
       1.5 billion transactions: mostly around $100-$300
       Important also for low-income households
 Recorded remittances: 25% of capital flows to
  developing countries
 ODA: less than half of remittances
 Asia: A net exporter of labor and major recipient
  of remittances
 Remittances to Asia: Official estimates
     $9 billion in 1988                            $162 billion in 2008




Source: World Bank, Outlook for Remittance Flows
 Top 5 recipients in Asia (2008, Share %)


                                                   IND, 15.9


                                                               PRC, 12.4


                                OTHERS,                          PHI, 5.7
                                  61.1

                                                                      BAN, 2.7
                                                                     VIE, 2.2




Source: World Bank, Outlook for Remittance Flows
Top 10 recipients in Asia and Pacific (%)
                                        Average                                           Average
                                      annual growth                                     annual growth
                                       rate, 2000-          Top 10     Share to Total    rate, 2000-
    Top 10 countries   Share to GDP       2008             countries    remittances         2008
   Tajikistan                  45.5            71.7     India                    15.9            19.9
   Tonga                       39.4            10.7     China                    12.4            27.7
   Samoa                       22.8            15.8     Philippines               5.7            12.9
   Kyrgyz Republic             19.1            78.0     Bangladesh                2.7            20.0
   Nepal                       16.8            65.8     Vietnam                   2.2            20.6
   Philippines                 11.3            12.9     Indonesia                 2.1            30.3
   Bangladesh                   9.6                20   Pakistan                  2.1            29.0
   Armenia                      9.2            36.8     Sri Lanka                 0.9            12.1
   Vietnam                      8.0            20.6     Nepal                     0.8            65.8
   Sri Lanka                    7.8            12.1     Malaysia                  0.6             7.8




Source: World Bank, Outlook for Remittance Flows
    Economic Impacts of Remittances
   Positive
       Expanding domestic demand
       Spurring entrepreneurial activity
       Improving labor productivity
       Stimulating investment
   Negative
       Dampening trade competitiveness
       Raise level of inflation
       Disincentives to work among recipients
       Create social problem such as marital conflicts and
        family stress
                  Remittance Flows:
         Counter-cyclical and less volatile

Flows to developing countries
    Effects of the Global Crisis
 Tempered demand for Asian workers, especially
  in cyclical sectors such as: construction, finance,
  manufacturing, retail and tourism
 75% of migrants vulnerable: young, under-
  educated, little work experience (UN)
 Rising hostility towards foreign workers
 Tightening up of immigration rules in some
  destination countries
    Effects Across Countries
 USA, UK, Russia: badly affected by crisis.
 Middle East countries: also affected (combined
  with the effects of decreasing oil prices).
 Migrants cannot easily shift to alternative job or
  country destination: due to all facing crisis and
  other job related factors.
                   Impact on remittance:
                     slowing growth …




Source: World Bank, Outlook for Remittance Flows
Yet resilient in major recipients...




                             Average growth of remittances (%)
                                        BAN     PAK     PHI
                               2008
                                       38.82   18.27   14.24
                               Jan-
                               May
                               2008    43.36   18.37   14.86
                               Jan-
                               May
                               2009    14.87   21.21    2.79


  Source: World Bank 2009.
Implications for Growth and Poverty
Cross-country Analysis :
Growth rate of GDP per capita is a function of
      initial GDP per capita
      remittances as % of GDP
      human capital (primary school enrolment, %)
      investment (gross capital formation, % of GDP)
      inflation rate (GDP deflator, annual %)
      openness (export + imports as % of GDP)
Poverty depends on
      GDP per capita
      remittances as % of GDP
      investment (gross capital formation, % of GDP)
      inflation rate (GDP deflator, annual %)
      openness (export + imports as % of GDP)
                       Study Results:
                Data and Methodology
   Annual data for up to 27 DMCs from 1988 to 2007

   Analysis using a variety of econometric approaches:

       Growth equation using annual data: OLS estimation - fixed effects and
        random effects

       Also presenting results using five year averages

       Instrumental variable estimation to control for endogeneity

       Explore channels (e.g. investment) by which remittances can impact
        growth
        Remittances positively affect home
        country real GDP per capita growth
        Variable               (1)              (2)               (3)                (4)                (5)         (6)
                              0.05             0.12              0.09               0.05                0.15       0.10
Remittances
                             (1.58)          (2.14)**           (2.3)**            (1.57)             (2.7)***   (2.53)***
                                                                                    0.00               -0.05      -0.03
(Remittances)2                  -                -                 -
                                                                                   (-0.33)           (-2.13)**   (-1.44)
                              0.00                              -0.02               0.00                          -0.02
Initial GDP                                      -                                                       -
                             (0.05)                             (-0.2)             (0.03)                        (-0.16)
                              1.02             1.17              1.16               1.02               1.23        1.18
Investment
                            (5.93)***        (5.82)***         (6.4)***           (5.91)***          (6.12)***   (6.51)***
                              0.19             0.59              0.32               0.19                0.48       0.31
Openness
                            (1.96)**         (2.78)***         (2.22)**           (1.96)**            (2.25)**   (2.12)**
                              0.01             0.00              0.00               0.01                0.00       0.00
Inflation
                            (2.33)**          (0.54)            (1.04)            (2.34)**             (0.43)     (0.97)
                               0.00             0.00              0.00              0.00                0.00      0.00
Human Capital
                             (-0.69)          (-0.57)           (-0.42)            (-0.66)            (-0.14)    (-0.19)
Obs.                          199              199               199                199                 199        199
Countries                      -                26               26                  -                  26         26

F / Wald Test                 7.21             9.73             48.35               6.17               9.04       50.96

Note: Dependent variable, Annual GDP growth: (1) And (4) OLS; (2) and (5) Fixed effects; (3) and (6) Random
     effects
                                IV Estimation
                    Variable                        (1)                (2)                    (3)                   (4)
Instrument
Variables:          Remittances                    0.18              0.25                    1.64                  0.41
                                                  (1.08)            (1.82)*                 (1.55)                (1.71)*
crop production
                    Initial GDP                                       0.58                  -2.04                   0.07
index, live stock                                    -              (2.05)**               (-1.32)                 (0.18)
production index    Investment                     1.26               1.37                  2.43                    3.00
and the                                         (4.91)***          (5.49)***              (2.38)**               (3.98)***
government          Openness                      -0.08               -0.30                 -1.04                  -0.39
                                                 (-0.18)             (-1.15)               (-0.88)                (-1.03)
stability index
                    Inflation                      0.01               0.01                   0.00                   0.02
                                                  (0.75)             (0.75)                (-0.04)                 (0.38)

                    Human Capital                  0.01               0.01                   0.02                  0.00
                                                  (1.41)             (1.28)                 (0.69)                (-0.16)
                    Obs.                           101                101                     46                    46
                    Countries                       15                 15                     15                     15
                    F / Wald Test               1303.27              39.67                  88.07                  23.10
                    Note: Dependent Variables: Economic growth; (1) Fixed effects; (2) Random effects; (3) fixed effects with 5-
                         yr average’ (4) random effects with 5-yr average
 Impact of remittances on poverty
            *) depends on the poverty measures
Variable              (1)         (2)          (3)
                                                        1.   Headcount ratio at the national
Remittances
                    -0.08        -0.14        0.00           poverty line - remittances
                   (-1.22)     (-1.67)*      (0.05)          decrease poverty

GDP Per Capita
                    -0.35        -0.91        -1.03     2.   Poverty gap at US$1.25 a day
                   (-0.93)     (-2.6)***   (-3.28)***        (%, PPP) - remittances
                                                             decreases poverty gap
Investment
                     -0.56       0.12         0.24
                  (-3.52)***    (0.81)       (0.92)     3.   Headcount ratio at US$1.25 a
                                                             day (% of population, PPP) - no
Openness
                    -0.10       -0.02        -0.17           effect of remittances on poverty.
                   (-0.38)      (-0.7)      (-0.59)
                     0.00        0.00        0.00       Risk of greater poverty for
Inflation
                    (0.17)       (.9)       (1.83)*     millions of already poor
                                                        recipient households
Obs.                  40          68           68


Countries             20          20           20

F/Wald Test         7.74          8.32        9.27
                       Key Findings
Remittances to Developing Asia
      affect home country real GDP per capita growth positively
      have a significant impact on home country investment
      decrease poverty (determined by national standards)
      have an important role on the household income, expenditure and
       poverty status

Implications of slowing remittance growth
      slowdown new investment and growth
      increase unemployment
      lower household income and expenditure
      raise the risk of greater poverty
           Policy Implications
   Lower transaction costs of remitting
   Use remittances as a mechanism to tackle short run
    fluctuations in output
   Consider remittances as part of household income
    increasing policies
   Facilitate the investment or productive use of
    remittances
   Protect the rights of migrants
   Migration for Development Framework
        Thank You!!!

More info pls contact: gsugiyarto@adb.org

				
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