International Remittance Payments and the Global Economy

Bharati Basu, James T. Bang

• Publisher: Routledge
• Year: 2014
• Print ISBN:
  9780415589949
• eBook ISBN:
  9781317703747
• Topic: Business
• Subtopic: Business General
• Index: Business

International Remittance Payments are described mainly as money sent by immigrants to their families and friends in their home countries. These payments provide an important source of income that is mostly used to provide for a variety of basic needs of the non-migrating members of immigrant families and thus remittance payments can be considered as a tool to reduce the poverty level of the labor sending countries. However, remittances are also used for asset accumulation by some families and for some countries they constitute a good part of foreign funds coming into the country. In-spite of their increasing volume over the last few decades, a lot of things about remittances are not known and studies estimate that about half of these money transfers are not even recorded. Since these payments are shown to reduce poverty and help economic progress in the remittance receiving countries, a better knowledge about remittances would help the debates surrounding immigration, remittances and their relation to the global economy.

This book provides an overview of remittances in different parts of the world over the last thirty years. It looks at the labor sending and labor receiving countries separately. The text examines the trends, uses, motivations behind sending remittances, cost of sending them and how they are affected by the nature and the development level of different institutional factors.

The remittance flows are growing over time and they are used mostly for reducing the uncertainty of life in the less developed parts of the world. However, motivation for sending remittances could be improved and thus remittances could be more conducive to economic development if 1) the relation between the remittance decision and the migration decision is better understood and 2) the costs of international money transfers are reduced. More studies about those issues would benefit the international community. Efforts should be made in all fronts to encourage such international flow of funds not only to have a redistribution of income all over the world, but also to synchronize the efforts towards global economic development and a better integration of the world economy. This book is aimed researchers, policy practitioners and post graduates studying International Economics or International Economic Relations or Political Science or Economic Development.

1 The evolution of remittances, 1980–2009¹

International remittances are defined as the money sent home by immigrants. Officially (in recording of statistics), however, remittances are defined as the sum of two components: money sent home by immigrants and all types of compensation of employees (wages, salaries, benefits) which include seasonal or temporary workers as well as other non-resident workers (such as local staff of embassies). Since remittances are generated mostly by the first category, an analysis of remittances should incorporate history of immigration all over the world. However, before we look into immigration, we should first ask ourselves whether the study of international remittances has any significance for the global economy. To help us to respond to that issue, I first focus on a few facts about international remittances that make the study of evolution of remittance payments, their trends, their use and effects important for the economic performance of certain regions of the world (and thus for the global economy).

In 1980, 2.1% of the world’s population was living outside their country of birth and they were sending billions of dollars (roughly $44 billion) to their home country. That ratio has increased to 3.1% in 2010 and immigrants are sending almost $422 billion to their families back home (see Figures 1.4–1.8 at the end of this chapter for some detailed information about world immigrants and international remittance payments). For many remittance receiving countries, the remittance receipts make up a good percentage of the national income of the country. The countries, for which remittance receipts make up a good share of total inflow of foreign funds and also of export earnings, use the remittances to deal with the balance of payment deficits. These are observed in-spite of the fact that the official statistics available for international remittance payments are underreported (this underreporting results because immigrants for various reasons use unofficial channels to send remittances). Thus, existing studies of international remittances agree that further investigation of these facts would provide us with more information and help formulation of policy structure for the growth of the global economy. In the next few paragraphs, I will look into a brief history of world migration and remittances and point out some of their notable characteristics.

History of immigration notes that from the end of the nineteenth century up to the middle of the twentieth century the world experienced an era of immigration restriction that was flanked by two periods of unrestricted immigration in the sense that immigration was encouraged, financed or subsidized during these periods. The first of these two periods, from the latter half of the nineteenth century till the onset of WWI, is referred to as an era of mass migration and the second one, from the period following WWII and till the onset of the twenty-first century, is called restricted mass migration. This international mobility of people was shaped by political events, economic incidents and structural changes in the world economy. Innovation or invention, technological and scientific progress in communication, transportation methods and the process of production also contributed to this mass migration (Daniels and Graham, 2001).

The initiation of movement of workers across national borders is marked by indentured labor or the slave trade. This form of forced migration is not expected to generate remittance payments and historians didn’t mention any remittance payments in the period when the slave trade was the main tool for the international mobility of workers. The ending of the slave trade, emancipation of slaves in the US and emancipation of British colonies ended this forced migration (mid-nineteenth century). This was followed by migration of mainly family groups of specialized workers like farmers, craftsmen and artisans and these migrants didn’t leave anyone behind to send remittances. Gradually the characteristics of migrants changed. They became young single individuals, mostly males, who didn’t have strong ties with their homeland. Thus, these migrants didn’t raise questions about remittance payments (Hutton and Williamson, 1994).

The post-WWII world saw an increase in migration following the wage growth and narrowing income distribution (see Table 1.1). In the 1960s immigration policies changed in Canada, the US and Oceania which reduced emigration from Europe and increased emigration from Asia. Migration within Europe (intra-European migration) also increased. Emigrants from India, Pakistan, China, Korea and the Philippines went to Western Europe, Southern Europe and the US. Europe also started receiving immigrants from the Middle East and the northern parts of Africa. Although, due to the geographic proximity, it is possible that immigrants from the Middle Eastern and African countries may have sent some forms of financial help to their families back home, the absence of consistent and established record keeping does not allow us to follow the trend or growth of remittances for this region during the 1960s.

Table 1.1 Immigration stock by regions (million)

Source: UNCTAD (United Nations Conference on Trade and Development).

However, in the 1970s following a series of economic events (such as slowing down of wage growth, widening of income distribution and the oil crisis of 1974) we saw the tightening of immigration policy. Anti-immigration sentiment was rising all over the world and issues related to illegal immigration started receiving attention. In-spite of that, the immigrant population was quite huge compared to the pre WWII situation (about seventy-two million). It is important to note that European countries were the source for intercontinental migration before WWII and migrants’ destinations were the US, Canada and Latin American countries. Mexico and Latin America turned out to be the source countries after 1970. Since many of these Mexican and Latin American migrants moved to the US during this period of time, we expect an outflow of remittances from the US during this period. What was more significant around this time is that the US shifted its quota restriction in favor of Asian countries and restricted the flow of immigrants from North Western European countries. The breakdown of family ties that was observed in the period preceding WWI was reversed. This hints towards the possibility of remittance payments. Data from International Monetary Fund show that from 1980 onwards there was more regularity in recording remittances.

In the late 1980s, following the political turbulence in Eastern Europe and in Central Asia, there was an increase in workers’ mobility within Europe. Intra-Europe migration together with the flow of refugees from the countries with political turmoil made the size of migration larger than the migration to North America and Oceania. Although a reversing of trend started around the late 1970s, it was around the 1990s that Europe turned from a source country for migration to a destination country. In addition to the flow of workers from the eastern part of Europe, migrants from Asia, Middle East and Africa comprised a higher proportion of total population in Europe compared to that in the 1970s and 1980s. The guest workers’ provision also added to this volume. In addition, the flow of illegal migration increased also at that time. In the US the Immigration Reform and Control Act of 1986 turned many illegal immigrants into resident aliens and/or documented ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• Foreword
• Preface
• 1 The evolution of remittances, 1980–2009
• 2 How remittances affect the remaining residents of the labor sending country: a theoretical presentation
• 3 A regional summary of remittances in developing countries, 1980–2010
• 4 Remittance behavior in developed regions of the world, 1980–2010
• 5 Motivation for sending remittances and motivation for migration: have we integrated them? A look through the last three decades
• 6 Remittances, family and the decision to migrate
• 7 The gap between the actual amount and the recorded amount of remittances: its evolution over the years
• 8 Causes of aggregate remittances in developing, emerging and advanced economies
• Appendices
• Bibliography
• Index