Tuesday, November 30, 2010


In the U.S. we don't focus much on remittances -  many people don't even know what they are. Worker remittances are money payments sent by immigrant individuals (not businesses) back to their home countries.  The World Bank also counts as remittances the compensation of employees who are migrant or border workers who live for less than a year in the host country. (*see note at end for World Bank's official definition).  In 2009, U.S. inflow remittances (from U.S. residents crossing the border to work in Mexico and Canada) were neglibile (2,947 million). The outflow remittances from the U.S. in 2009 were very small compared to the U.S. GDP (48,304 million) - only about .3% of GDP - but still made the U.S. the top source for remittances in the world. Source: the World Bank 2011 report on remittances cited below and U.S. BEA's published GDP estimates.  

For some countries, remittances from the U.S. count for a major portion of their income. Remittances from the U.S. were equal to 17% of El Salvador's GDP in 2008, and almost a quarter of El Salvador's families received remittances from the U.S. (Source: the U.S. Department of State report on El Salvador (http://www.state.gov/r/pa/ei/bgn/2033.htm).   The World Bank 2011 report on remittances finds that global remittances are more than two times greater than official aid.

Below highlighted in blue is a summary from the World Bank's Migration and Remittances Factbook 2011:  Published November 4, 2010 by World Bank, ISBN: 978-0-8213-8218-9; SKU: 18218. Access with graphs and maps online at

Worldwide remittance flows are estimated to have exceeded $414 billion in 2009, of which developing countries received $307 billion (This represents a small decline of 6 percent from the level in 2008). The true size, including unrecorded flows through formal and informal channels, is believed to be significantly larger. Recorded remittances are more than twice as large as official aid and nearly two-thirds of foreign direct investment (FDI) flows to developing countries.

In 2009, the top recipient countries of recorded remittances were India, China, Mexico, the Philippines, and Poland. As a share of GDP, however, smaller countries such as Tajikistan (50 percent), Tonga (38 percent), Moldova (31 percent), the Kyrgyz Republic (28 percent), and Lesotho (27 percent) were the largest recipients in 2008.

Rich countries are the main source of remittances. The United States is by far the largest, with $46 billion in recorded outward flows in 2008. Russia ranks as the second largest, followed by Switzerland and Saudi Arabia.

An excerpt (highlighted in blue) from another World Bank report from Remittances and Development: Lessons from Latin AmericaApril 2008 Pablo Fajnzylber and Humberto Lopez al discusses the economic impact 
of remittances. (http://go.worldbank.org/MYSC3YO560 )
One of the main conclusions of Remittances and Development is that remittances do tend to reduce poverty and inequality and they have several positive growth-enhancing effects – e.g. higher savings, human capital investments, entrepreneurship, and bank deposits. However, these positive effects tend to be relatively modest compared to the development challenges faced by most countries in the region. Moreover, remittances can also reduce labor supply and lead to real exchange rate over-valuations. Overall, it appears that a healthy policy stance is that of combining measures to minimize negative effects on competitiveness and maximize the impact of remittances on access to financial services among the poor, while making improvements in the regulatory environment aimed at promoting secure and low cost remittances services and maintaining the focus on complementary growth-enhancing policies.

In terms of the simple AD & AS graph, remittances can be viewed as alternative to lending as an extra source to boost C & I. Thus assuming all else equal (including labor effort and nominal exchange rates), an increase in remittances should shift the AD curve right, increasing output and prices.

link to video clip above (2.5 minutes) 

World Bank Official Definition of remittances: Workers' remittances and compensation of employees comprise current transfers by migrant workers and wages and salaries earned by nonresident workers. Data are the sum of three items defined in the fifth edition of the IMF's Balance of Payments Manual: workers' remittances, compensation of employees, and migrants' transfers. Remittances are classified as current private transfers from migrant workers resident in the host country for more than a year, irrespective of their immigration status, to recipients in their country of origin. Migrants' transfers are defined as the net worth of migrants who are expected to remain in the host country for more than one year that is transferred from one country to another at the time of migration. Compensation of employees is the income of migrants who have lived in the host country for less than a year. Data are in current U.S. dollars.
World Bank staff estimates based on IMF balance of payments data.
World Development Indicators

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