Washington File Listing
World Bank Focuses on Remittances to Developing Nations
New study examines money transfers to Mexico, Guatemala, the Philippines
By Eric Green
Washington File Staff Writer
Washington -- A new study by the World Bank finds that remittances (money transfers) are a mixed blessing for the world's developing nations.
In an October 24 statement, the World Bank said its study found that
remittances reduce poverty in developing nations, but can lead to a massive "brain drain" in which highly skilled citizens leave their homelands for better opportunities abroad. The study noted that many workers from the developing world emigrate to other countries for economic reasons and send remittances to their families back home.
The study includes a detailed analysis of remittances in Mexico, Guatemala and the Philippines -- all countries where millions of their citizens go elsewhere for work. See related article.)
On the positive side, the study, titled International Migration, Remittances and the Brain Drain, concludes that remittances can spur a developing country to increase its spending on education, health and investment.
MITIGATING EFFECT ON POVERTY
Close to 200 million people are living in countries other than the ones in which they were born, says the study. It predicted that remittances will total $225 billion in 2005, a sum that would make remittances the biggest source of foreign exchange in many countries. This scenario has major implications for strategies to reduce poverty in developing nations.
The World Bank said that in Mexico, "the larger the share of households with migrants in a region, the more favorable the effect of increases in remittances on rural poverty."
In Guatemala, remittances reduce the level, depth and severity of poverty, and account for over half the income of the poorest 10 percent of families.
In the Philippines, the study found that remittances result in fewer children having to work, increased levels of child schooling, more hours worked in self-employment, and more people starting capital-intensive enterprises.
More than 6 percent of all Filipino households had one or more household members working in the United States. Saudi Arabia is the largest single destination for Filipino workers, with 28.4 percent of Philippine households having at least one member employed in that Middle Eastern country.
IMPACT ON EDUCATION DIFFERS
Remittances increase incomes and reduce poverty, but the study found that their effect on education differs among countries, citing Mexico and Guatemala as a case in point. In Guatemala, households receiving remittances spend relatively more on education, and proportionately less on day-to-day consumption.
In rural Mexico, however, children in families receiving remittances acquire less education than those that do not receive remittances. This is probably because children in "remittance families" aim to follow their parents' example and leave for unskilled jobs in the United States, for which additional education is neither necessary nor rewarded, the World Bank said.
The "dominant source" of foreign workers in the United States is Mexico, Central America and the Caribbean, the World Bank said, explaining out that "proximity to the destination country matters to potential migrants."
Proximity is especially a factor for the poor and unskilled because it costs less to migrate to a nearby country than to a distant one.
The study says migration dramatically increases global economic output by enabling workers to move to locations where they are more productive, and as a result, they earn much higher wages than they would have earned in their developing home countries.
BRAIN DRAIN AND BRAIN WASTE
On the negative side, the study traces a massive exodus of professionals from some of the world's most vulnerable low-income countries. For example, eight of 10 Haitians and Jamaicans who have college degrees live outside their country. In Sierra Leone and Ghana, the percentage from that same group is five out of 10.
Many countries in Central America and sub-Saharan Africa, as well as some island nations in the Caribbean and the Pacific, show rates of migration among professionals at over 50 percent. This is in sharp contrast to the rate in much bigger countries, such as China and India, from which only three percent to five percent of college graduates are living abroad, as well as Brazil, Indonesia, and the nations of the former Soviet Union, which also have low migration rates among the educated.
The study also found that skilled foreign workers in the United States often fail to obtain jobs that match their education levels. This phenomenon might result in a "brain waste" due to difficulties faced by foreign workers in the United States in obtaining requisite licenses to practice in certain professions.
The study said the consequences of the brain drain could be serious for many developing countries. Understanding the brain drain remains one of the highest priorities for development research in the future, said the World Bank.
On a related issue regarding remittances, the United States has said that although the costs of sending remittances are falling, those costs remain too high, particularly in an era of electronic transfer of funds.
To address that problem, President Bush and the other leaders of the Western Hemisphere, meeting in Monterrey, Mexico, at the 2004 Special Summit of the Americas, set a 2008 goal of cutting the cost of sending home a remittance by 50 percent. For more about the Monterrey summit, see the Past Summits page of the Summit of the Americas collection.
The United States also made this issue a priority in 2001 by co-sponsoring, with Mexico, an initiative known as the U.S.-Mexico Partnership for Prosperity. That partnership has resulted in a significant reduction in the cost of remittances from the United States to Mexico. (See fact sheet.)
International Migration, Remittances and the Brain Drain is available at the World Bank Web site.