Large-Scale Migration and Remittances: Benefits and Costs
Hisanobu Shishido
Policy Cluster LeaderWorld Bank
The scale of migration and remittances in Nepal is
staggering
• Almost half of Nepali households have at least one migrant abroad or returnee
• Remittances constitute 1/4 of income of all Nepali households
• 1/3 of working male population may be abroad remitting 25 percent of GDP
Nepal is the Largest Remittance RecipientAmong Countries with At Least 10 million Population more than even Bangladesh and Philippines
Nepal Bangladesh Philippines Senegal Vietnam Morocco Sri Lanka
Remittances Now the Biggest Foreign Exchange Earner
Recorded Remittances Exports of goods and services
Official development assistance Tourism Receipts
Disposal Income Growth Fluctuates
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10R 2010/11P*
Real growth rates of GDP and GNDI FY05-11 (In percent change)
GDP growth rate GNDI growth rate
0
50000
100000
150000
200000
250000
300000
350000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*
Saudi Arabia Qatar U. A. E. Malaysia OthersSource:DoFE. *First ten monts data only for FY 2011
Annual Departures by Destination
2.1 million
total migrants
India - 867000Gulf - 810000
Malaysia - 245000
Others - 186000Unknown - 29000
Ages 20-44 Migrate
Wealth and Migration0
.1.2
.3.4
.5
0 20 40 60 80 100Centiles of Wealth Index
Any Work Migrant
in Nepal Abroad
0
.05
.1.1
5.2
.25
0 20 40 60 80 100Centiles of Wealth Index
in India in the Gulf
in Malaysia in other CountryPro
babili
ty o
f a H
ouse
hold
havi
ng
a w
ork
mig
rant:
Migration Probability and Household Wealth
Migrant Destinations Differby their Place of Origin
Migrant Destinations Differby their Place of Origin
Migrant Destinations Differby their Place of Origin
Migrant Destinations Differby their Place of Origin
FY 09 remittances were $2.5 billion, 20 percent of GDP, coming from:
48.9
19.2
10.5
21.4
Gulf India Malaysia Others
Total Remittances by Districts
Remittance Share of Household Income by District
Returnees: Most Returned Recently
0
20,000
40,000
60,000
80,000
100000
120000
140000
160000
180000
200000
>2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*
*Only till May-Jul
India Gulf
Malaysia Others
And Many Would Like to Go Back Abroad Very Soon
37
20
9
34
0
5
10
15
20
25
30
35
40
Very likely Somewhat likely Rather unlikely Very unlikely
Most Come Back to their Previous Jobs: Agriculture and Inactivity
28
39
1 2
8
2 1
14
5
20
48
2 1
64
1
10 9
49
34
4
02 1
0
46
0
10
20
30
40
50
60
Inactive Agriculture Office / Professionals
Guards/ Army Technical Workers
Drivers, Helpers Cook/ Waiter Daily Wage Laborers
Others
Before (returnees) Currrent (returnees) Current (Non-migrants)
And from Agriculture and Inactivity, They Migrate Again
19
50
0 0
5 4
2
16
4
16
43
5
1
6 6
0
6
17
0
10
20
30
40
50
60
Inactive Agriculture *Office / Professional
Guards/ Army Technical Workers Drivers, Helpers *Cook/ Waiter *Daily Wage Laborers
*Others
Actual Response
Very likely to migrate again Very unlikely to migrate again
Benefits of Migration
and Remittances Huge
• At household level
• At macro level
Household Level Benefits• Poverty reduction from 42 % (NLSS-I) to 31 %
(NLSS II) and much less (NLSS III)
• Almost everyone migrate – the rich, the poor, people from the Mountains, Hills, and Terai, and from all the development regions
• Appears to have contributed to declining income inequality
• Provides jobs to those who could not have otherwise obtained work (at the wage levels)
More on Benefits at Household Level
• More income to a large number of population
• More consumption
• More leisure - Males of remittance-receiving households have reduced own labor supply by almost 15 %
• More education to children
• Better healthcare
• Improvement in houses
• Investing in real estate
Macro Level Benefits
• Provides foreign exchange and supports BOP stability– Allow more imports
– Allow maintaining foreign reserves even with higher imports
• Helps maintain currency peg with India
• Disposable income increases—higher aggregate consumption, higher investment possible
But, at what cost?
At Household Level
• Social cost of family separation (option vsnecessity)
• Poor recruitment process/abuses Overcharging Misinformation different understanding Trafficking and other abuses
• Expensive remittance services
At Macroeconomic level
• Loss of external competitiveness (DD)
• Declining manufacturing/agriculture sectors (DD)
• Laxity of policy reforms
• Real estate bubble (?)
• Cost of declining remittance very high
Overcharging: Migrant Recruitment
AirfareNR25,000
36%
Recruitment Agency’s Profit
NR8,64012%
InsuranceNR3,000
4%
Airport TaxNR1,160
2%
Welfare FundNR1,000
1%
OrientationNR700
1%
Government feeNR500
1%
Commission to Recruitment Service
Company or Middleman in Qatar
NR30,00043%
Qatar Example
Dutch Disease
• Demand increases. This causes overall prices to go up, but as import/export prices are fixed by the exchange rates and foreign prices, relative prices of non-tradable services and wages rise. This raises the cost of producing exportables or import substitutes. Loss of competitiveness.
• Wages can also rise due to a decline in labor supply—through out-migration and reduced willingness to work because remittance increases family income of those at home
Is Dutch Disease Happening?
More Worrisome: Vicious Policy Cycle
More remittances
Little pressureto improve
policyweaknesses
InadequateInvestment
Climate
Low Private InvestmentLow Growth
Limited Job Opportunities
More Migration
Policies to Reduce Costs
• Recruitment Processes
• Remittance Services
• Macroeconomic and Economy-wide Policies
Policy Recommendations: Recruitment
• Enhance dialogue between govts of India, Gulf states, and Malaysia to enforce mutual laws and agreed guidelines for migrant recruitment
• Enter into bilateral agreements with more countries
• Strengthen role of Nepali embassies in destination countries and ask them to open embassies in Nepal
Policy Recommendations: Recruitment
• Provide information to potential migrants on recruitment process to raise awareness
• Provide effective orientation/training programs (focus on basic information, financial literacy, language and customs)
• Effectively monitor recruitment companies and penalize malpractices
• Simplify and systematize the process
Policy Recommendations: Remittance Services
• Develop efficient electric transfer mechanism• Introduce mobile phone banking and prepaid
cards, while encouraging involvement of post offices
• Improve legal regulatory frameworks for remittance service providers
• Improve communication with destination country authorities—request issuing ID cards for migrants to open bank account at the destination
• Pre-departure orientation to strengthen migrants’ financial literacy
What to do with Dutch Disease?
• Cannot fight inflows of 25-30 percent of GDP
• Lean against the wind, do not exacerbate.
Prudent macroeconomic management (especially fiscal)
Improve investment climate (increase job opportunities at home)
Better Investment Climate Will Also Help Reduce RiskNow and in the Future
• Ensures remittance flows will be invested productively• Increased (incentive for) domestic investment and domestic job creation
Make migration an option
rather than necessity for survival
THANK YOU
