16 November 2005
Migration can help people dig their way out of poverty
The international "brain drain" can boost the wealth of migrants as well as the countries they originate from, a World Bank report says.
If remittance policies are improved migration can be of all-round benefit, according to its Global Economic Prospects (GEP) report for 2006.
This year recorded remittances worldwide will exceed $232bn (£135bn).
Of this, developing countries received $167bn, more than twice the level of development aid from all sources.
The reports suggests that money sent home sent through informal channels could add at least 50% to the official estimate.
Vital source
This means remittances are the largest source of external capital in many developing countries, beating any cash influx from foreign investment.
Migration is truly a global phenomenon
Dilip Ratha, World Bank report author
Countries receiving the most in recorded remittances are India, China, Mexico, France and the Philippines.
But the sums involved are most significant for smaller countries such as Tonga, Moldova, Lesotho, Haiti and Bosnia and Herzegovina, where the money sent back accounts for the biggest share of the total economy (% of GDP).
Interestingly, money sent home from one developing country to another - the so-called "South-South flows" - represent 30% to 45% of total remittances.
"Migration is truly a global phenomenon," said Dilip Ratha, a co-author of the report.
"Many countries, both developed and developing, both send and receive migrants, and both send and receive remittances."
Helping poverty
The report said an increase in migrants would raise the workforce in high-income countries by 3% in 2025 - the same rate as the last 20 years - would lead to a rise in global real income by 0.6% or $356bn.
This is as great a benefit as the estimated gains from a world trade deal.
"With the number of migrants worldwide now reaching almost £200m, their productivity and earnings are a powerful force for poverty reduction," says Francois Bourguignon, World Bank chief economist.
Meanwhile, analysis shows that remittances are associated with significant drops in poverty in several poorer countries, particularly in Uganda, Bangladesh and Ghana.
In addition, the impact of remittances appears to help households keep their head above water in times of domestic economic crisis.
Money sent back home triggers investment in education and health as well as fuelling entrepreneurship, the report found.
Fees 'too high'
However, the hefty fees charged by remittance service providers are preventing even more money being sent back to friends and families and home.
RECORD REMITTANCES
India - $21.7bn
China - $21.3bn
Mexico - $18.1m
France - $12.7bn
Philippines - $11.6bn
Source: World Bank
Providers have been found to charge as high as 10% to 15% for small transfers, which are typically made by poorer migrants.
The World Bank urged increased competition in the transfer market to encourage lower fees, thereby freeing up the disposable income of poor migrants and boosting the incentive to send more money home.
And it opposed efforts by government to tax remittances and cautioned against providing incentives to direct remittances to specific areas or sectors through matching-fund programmes.
These schemes have met with little success in the past, it said.
"Remittances are hard-earned income that, in most cases, has already been taxed," said World Bank chief economist Francois Bourguignon.
"They should not be taxed again, and governments should not try to count them as development aid."
Bank networks should be expanded, the report said, and domestic banks in origin countries should be allowed to operate overseas to help facilitate a fair an efficient remittance market.
