Topic 3

Defining and Measuring the Level and Trends of International Remittances

The measurement of remittances has been no straightforward affair because states, international organizations, banks, and researchers use varying concepts, definitions, and methods to measure and report remittances (see Kapur 2003 and World Bank 2007). Although there has been a general agreement that migrant remittances have grown and reached substantial levels relative to other international transfers of funds, inconsistencies in definitions and data have contributed to some uncertainty about the magnitude and trends in remittances and their impact on development.

Concepts and methods used to compile data are not the same in all countries.  Some countries report incomplete or no official data while others include data from non-governmental sources such as commercial transfer companies.  Distinctions between investments and remittances can be rather ambiguous.  These inconsistencies pose problems in compiling and comparing national remittance statistics (World Bank 2007).

Another common problem in estimating remittances is that official records capture formal transfers but not informal remittances sent through family, friends, or “black market” operators.  Though the amount of informal transfers is unreported, it has been estimated by the World Bank as roughly equal to formal remittances

The most frequently cited official data on remittances is that provided by the International Monetary Fund based on balance of payments data.  In response to a request from the G7 meeting of 2004 for improved remittance data, the Statistics Department of the IMF, the Development Data Group of the World Bank, and the Statistics Division of the United Nations formed the International Working Group on Improving Data on Remittances, which proposed more unified concepts and definitions for measuring remittances that have since been adopted by the IMF for compiling balance of payments statistics.  According to the new definitions, total remittances include all personal transfers (cash or in kind goods transferred between resident and non-resident households), compensation of employees (wages of workers abroad net of taxes and travel expenses), and social benefits (social security and pension fund payments).  For a history, definitions, and discussions of these recommendations and adoption by the IMF, see World Bank 2007 and IMF 2008.

Household surveys are a useful source for enhancing official data on remittances.  For social scientists, representative household surveys have been extremely valuable in improving the quality of data on remittances for particular populations, particularly of informal transfers, and providing insights into the determinants of remittance flows. Smaller, often non-representative surveys and ethnographic studies have been useful in revealing the nature of various informal remittance transfer systems, such as the hawala and hundi systems, (Kapur 2003; Salomone 2006), and the importance of in-kind remittances.  (For a January, 2008 discussion of the role of household surveys in measuring remittances, which was organized by the United Nations Economic Commission on Europe, World Bank, and US Census Bureau, see:

http://www.unece.org/stats/documents/2008.01.migration.htm ).

Surveys also shed light on the importance of internal remittances, which are probably more frequent within rural households but smaller in value than international remittances (see topic 5 on internal remittances).

Notwithstanding definitional, data, and measurement problems, it is certain that global remittance flows have increased substantially over the past two decades. According to IMF Balance of Payments Statistics data, recorded remittances to developing countries have increased from $31.1 billion in 1990 to $76.8 billion in 2000 to reach $240 billion in 2007 (Ratha et al. 2007). The real increase in remittances is probably lower than these figures suggest because part of the increase in officially recorded remittances reflects improvements in defining and recording remittances, a shift in the sending of remittances from informal to formal channels (Kapur 2003), and a depreciation of the US dollar during that time period.

Registered remittances now amount to well over two times the amount of official development assistance and are widely considered to be a more stable, counter cyclical, and sustainable source of foreign currency than foreign direct investments (Salomone 2006).  Not all remittances originate from wealthy countries. According to recent estimates by Ratha and Shaw (2007), South-South remittances represent 10 to 29 percent of total remittances received in developing countries.

 

Topic 3 – Articles

International Monetary Fund. 2008. Balance of Payments and International Investment Position Manual, Appendix 5: Remittances. 6th Edition. Washington, DC: International Monetary Fund.

This appendix to the Balance of Payments and International Investment Position Manual, presents the economic concept of remittances, describes the components of balance of payments data that are to be used in calculating remittances (“personal transfers” replace the previously used “worker remittances”), and offers three different definitions of remittances that draw on this data:

1- Personal remittances:  household-to-household transfers and the net earnings of nonresident workers;

2- Total remittances:  personal remittances plus social security and pension transfers;

3- Total remittances and transfers to nonprofit institutions serving households:  total remittances plus donations, in cash or kind, from government and enterprise sectors to charitable organizations in another economy that provide cultural and educational resources, such as scholarships, to households.

The appendix considers how to distinguish migrants’ remittances from investments and refines concepts used in defining and compiling remittance data.

Kapur, Devesh. 2003. Remittances: The New Development Mantra? G-24 Discussion Paper Series. New York and Geneva: United Nations: United Nations.

This paper examines the causes and implications of remittance flows. It first highlights the severe limitations in remittance data, in sharp contrast to other sources of external finance. It then examines the key trends in remittance flows, and their importance relative to other sources of external finance. The paper subsequently analyses the many complex economic and political effects of remittances.  It highlights the fact that remittances are the most stable source of external finance and play a critical social insurance role in many countries afflicted by economic and political crises. While remittances are generally pro-poor, their effects are greatest on transient poverty.  However, the long-term effects on structural poverty are less clear, principally because the consequences of remittances on long- term economic development are not well understood. On a critical note, the author warns against naïve optimism about remittance as a lever for development by arguing that attractiveness of remittances is in part a reaction to previous failed development mantras.  The paper concludes by suggesting a role for an international organization to intermediate these flows to lower transaction costs and increase transparency, which would both enhance these flows and maximize their benefits.

Ratha, Dilip, and William Shaw. 2007. South-South Migration and Remittances. Washington, DC: World Bank, Development Prospects Group.

This paper highlights the importance of South-South migration and remittances and sets out some working hypotheses on the determinants and socio-economic implications of South-South migration drawing on a survey of the literature. The authors estimate that 74 million, or nearly half, of the migrants from developing countries reside in other developing countries. Estimates of South-South remittances range from 10 to 29 percent of developing countries’ remittance receipts in 2005. The impact of South-South migration on the income of migrants and natives is smaller than for South-North migration. However, even small increases in income can have substantial welfare implications for the poor. The costs of South-South remittances are even higher than those of North-South remittances, because of lack of competition in the remittance market, a lack of financial development in general, and high foreign exchange commissions at both ends of the transactions.

Ratha, Dilip, Sanket Mohapatra, KM Vijayalakshmi, and Zhimei Xu. 2007. Remittance Trends 2007. Washington, DC: World Bank.

This document analyses recent trends in global remittance flows. Recorded remittances to developing countries are estimated to reach $240 billion in 2007. The true size of remittances including unrecorded flows is even larger. A near stagnation in remittance flows to Mexico and a deceleration in other Latin American countries contributed to a slowdown in the global rate of growth of remittances. Nevertheless, the growth of remittances to developing countries remains robust because of strong growth in Europe and Asia. The remittance industry is experiencing some positive structural changes with the advent of cell phone and internet-based remittance instruments. The diffusion of these changes, however, is slowed by a lack of clarity on key regulations (including those relating to money laundering and other financial crimes). Remittance costs have fallen, but not far enough, especially in the South-South corridors.

Salomone, Sara. 2006. Remittances. Overview of the Existing Literature. In 2006 Florence School on Euro-Mediterranean Migration and Development Conference. Florence: European University Institute, RSCAS.

This report summarizes the outlines the activities and achievements of the International Working Group (IWG) on Improving Data on Remittances, starting with the analysis of data weaknesses, the work program of the IWG, the improvement of concepts and definitions, and the creation of compilation guidance. It discusses data weaknesses and global discrepancies related to remittance data; summarizes the new and improved definitions and concepts; contains a draft outline of the forthcoming compilation guide, and discusses the role of household surveys in further improving remittance data.

World Bank. 2007. Final Report of the International Working Group on Improving Data on Remittances. Washington, DC: World Bank with input from the International Monetary Fund.

This paper reviews the remittance literature. It discusses stability, cyclicality and sustainability of remittances and reviews the literature on behavioural and economic determinants of remittances, concluding that the distinction between such motives is rather blurred.