Thursday, February 21, 2008

Remittances, poverty, and employment in South Asia

An interesting paper, authored by Prof. Sudhir K. Khatri, on the role of remittances in poverty alleviation and employment in South Asia. He argues that remittances have played a crucial role in lifting people out of poverty in Nepal, Sri Lanka, and Bangladesh, despite conflict and insurgency. Particularly, noteworthy is the discussion on who migrates and through which channel? He argues that the very poor people, who lack migration information and cannot pay the cost of migration, are usually left out of this cycle. So, despite poverty reduction is taking place due to increasing inflow of remittances, the incidence and intensity of poverty among the poorest is still as rigid as it was before. Also, he argues that workers who go to the Gulf countries remit almost 100% of their savings back home, while workers who go to the USA, the UK, and Australia, among others do not remit in the same proportion. More on remittances by Prof. Khatri here. Interestingly, this pessimistic-sounding paper from the IMF concludes that higher remittances has a negative impact on the quality of institutions in a country.

Notable stats and observations:

...a 10 percent increase of migrant flow from the sending country will lead to 1.6 percent decline in the share of people living on less than $1 a day.

...10 percent increase in the share of remittance in a country’s GDP can lead to a 1.2 percent reduction in poverty.

...the households receiving remittances increased from 23 to 33 percent in the same period, and the share of remittance in total household income increased from 26 to 35 percent during 1996 to 2003 in Nepal.

...migrants in Pakistan avoid investing in areas that they do not know (such as business) in favor of committing their resources to what they know best (namely land).

...restrictions on migration can increase inequality, as has been the case of the unskilled female migrants from Bangladesh who have been forced to use ‘illegal’ methods to migrate and thus become vulnerable to exploitation and subjected to gender income inequality.

...The group going to the Gulf States and Malaysia are the ones that remit the money back home since they cannot keep the money there indefinitely. They are the ones that sustain Nepal’s economy since they send back home 100 percent of the money they save. Those going to UK, USA, Canada, or Australia do not usually remit the money to Nepal.

...In Nepal also the poorest of the poor (20 percent of the population) are not in a position to migrate. Labour migration has taken place from areas that are relatively richer, because it also requires investment.

...One study on Sri Lanka suggests that out of the total income, remittance recipient families spend 56 percent on foods and 18 percent on education, which meets the basic needs of the families trying to move out of poverty.