Migrants Sent Home $300 Billion in 2006

By Karin Brulliard
Washington Post Staff Writer
Thursday, October 18, 2007

Migrants around the globe sent more than $300 billion to their home countries last year, a "staggering" sum that surpassed foreign development aid and foreign direct investment and carries major development potential for poor nations if properly channeled, a report says.

In the first estimate of formal and informal money transfers worldwide, researchers found that 150 million migrants dispatching a few hundred dollars each sustained millions of families in 162 developing nations. But little of the bounty has fueled economic growth in those nations, because most of it is used for small-scale consumer purchases, says the report by the International Fund for Agricultural Development and the Inter-American Development Bank.

"The reason why we can't get leverage out of it is because it still is in the realm of cash-to-cash transactions," said Donald F. Terry, manager of the bank's Multilateral Investment Fund. "We've got to figure out how to move that into the financial system."

Researchers said the sheer volume of the transfers, which they called a conservative estimate, has implications for international development, which has traditionally relied on official development assistance and foreign direct investment. Those sources provided $271 billion last year, the report says.

"This is a real paradigm shift because of the amounts and because it's in private hands," said Kevin Cleaver, assistant president of the agricultural development fund, a United Nations agency. "I bet you the aid architecture is going to change direction in the next 10 years."

Research on money transfers, or remittances, is a fairly new field that has mostly focused on cash flow to Latin America. Using surveys and bank data, the study's authors expanded to a global scale. They concluded that migrant workers, many of them poor and illegal, sent more money -- $114 billion -- to Asia and the Pacific region last year than any other region. Latin America and the Caribbean were next, together receiving $68 billion.

"This is a global phenomenon. . . . This is a globalization of labor markets," Cleaver said. "Walls aren't stopping them. Patrol boats in the Mediterranean aren't stopping them. They're coming to work."

India took in more remittance money last year than any other nation, $24.5 billion. It was closely followed by Mexico, with $24.2 billion, which receives most of its remittances from migrants in the United States, other studies have found.

The money is important to many countries. Of 162 developing nations covered in the report, 45 receive more than 10 percent of their gross domestic product from migrants. And some expatriates appear to fully prop up their homelands. In the West African nation of Guinea-Bissau, money transfers totaled $148 million last year, or 48.7 percent of the GDP, the report says.

Terry said the sum of global remittances grows about 10 percent each year. The increase has been accompanied by a steady drop in transfer fees caused largely by increased competition and government regulation. That means more money is usable.

Still, 80 to 90 percent of the money is used by families for basic needs such as food, shelter and education, the report says. The rest goes mostly toward informal savings setups and investments, such as a stash in a closet or the purchase of a dairy cow.

Although the transfers help families escape poverty, the big challenge is harnessing the money for development, researchers said.

In a previous study, the World Bank found that the impact of remittances on Latin American economies was modest. For every 1 percent increase in the share of remittances to a country's GDP, the fraction of the population living in poverty is reduced by about 0.4 percent.

Those kinds of results might be improved by promoting developing nations' investment climates and expanding banking systems to reach rural areas, Cleaver said yesterday.

The potential is strong in regions including Eastern Europe and Southeast Asia, where nearly all remittances are doled out in cash by banks. The key is to turn receivers there and everywhere into bank customers who open accounts and take out loans, researchers said.

Given the chance, said Terry, of the Multilateral Investment Fund, "poor people will invest their money. And if we do that, we give a better opportunity to a future generation."

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