remittances: the perpetual migration machine remittances: the perpetual migration machine

Remittances: The Perpetual Migration Machine 37

Remittances: The Perpetual Migration MachineMichele Wucker

In the late nineteenth century, wealthyBritish families exiled their wayward secondsons to far-off colonies with the promise of amonthly allowance. In return, these black-sheep “Remittance Men,” immortalized byMark Twain in his travelogue, Following theEquator, pledged to stay out of trouble andout of the way. Today’s remittance men (andwomen) are not the black sheep of theirfamilies but the workaday heroes of the de-veloping world. Families in developing na-tions send their best and brightest membersabroad to find jobs and send money home.In countries like Mexico, India, Turkey, andthe Philippines, the mantra is no longer,“Go away and stay away,” but “Go and don’tforget us.”

Prime Minister Rajiv Gandhi oncecalled Indians abroad a bank “from whichone could make withdrawals from time totime.” Today, developing countries are mak-ing withdrawals from the “bank” of globalmigrant worker remittances at an increas-ing rate. In 2003, migrant workers livingabroad sent more than $100 billion in re-mittances to their home countries—a sourceof funds that is being hailed as the greatnew hope for the developing world.1

Last year, migrant worker remittances,which are growing at a double-digit annualrate, amounted to nearly twice the amountof global development aid ($56 billion). The$38 billion in remittances sent to LatinAmerica in 2003 were nearly equal to allforeign investment in private companies inthe region. Remittances account for morethan 10 percent of the gross domestic prod-uct (GDP) of six Latin American nations, and

for over 29 percent of Nicaragua’s GDP. InHaiti and Jamaica, remittances generatemore revenues than does foreign trade. InHonduras and Nicaragua, average annual re-mittances per household amount to morethan double annual per capita GDP; in Haiti,they amount to more than three times percapita GDP. Nor is this a phenomenon seenonly in poor countries; in the late 1990s,émigrés owned one of every five dollars inthe Portuguese banking system.

By comparison to the notoriouslyvolatile capital markets, remittances are re-markably steady. Indeed, they often riseduring economic crises, when receivingcountries are having the hardest time at-tracting capital. These funds often supportnot just the person who receives them, butentire families, and local communities bene-fit from the multiplier effect as money cir-culates among businesses.

Ironically, the better off immigrants are,the less likely they are to send remittances.Thus, it is the poorest workers who are mostresponsible for keeping their home countriesgoing. The moral implications of this situa-tion are complicated further by the practicesof the financial firms that skim sometimesexcessive commissions and fees from thisflow of money.

Money transfers from émigrés—whatBangladesh calls “manpower exports”—arehelping the least developed countries stayafloat, for now. Yet remittances have side ef-fects that may create other problems in thefuture. For one thing, although many devel-opment economists see these transfers as astable source of income,2 the flow of remit-

Michele Wucker is a senior fellow at the World Policy Institute and the author of Why Cocks Fight: Dominicans,Haitians, and the Struggle for Hispaniola.

38 WORLD POLICY JOURNAL • SUMMER 2004

tances is vulnerable to political and econom-ic shocks abroad. Even more worrying is thefact that developing nations may see thisflow of cash as an excuse for not undertak-ing needed development projects.

But the biggest side effect of remit-tances on policy considerations is this: themoney eventually stops coming unless peo-ple continue to emigrate. By adding a hugefinancial incentive to the traditional func-tion of emigration as a social safety valve,remittances discourage governments frommaking the changes needed for people tostay home—and, indeed, reward them forencouraging people to leave. In other words,remittances feed a perpetual migration machine.

This machine can rob a country of itsability to improve itself if the best andbrightest of its citizens go abroad. It is cru-cial, therefore, that receiving countries han-dle remittance flows wisely in order to beable to end their reliance on manpower ex-ports as a means of survival and induceskilled émigrés to return home.

Flying MoneyThe oldest references to remittances comefrom the late Tang dynasty (A.D. 618–907),when Chinese tax collectors devised the feiqian “flying money” system. Under this sys-tem, government liaison offices in the capi-tal would issue certificates to provincialmerchants who sold their goods in the capi-tal. The merchants could later redeem thesecertificates for cash when they returnedhome. This system meant that merchantsdid not have to worry about being robbed oftheir profits on the perilous journey home.A similar system, chop, is named for thestone seal dipped in red ink and used tostamp a document that is then torn in two.One of the pieces is sent to a broker in thereceiving country and the other to the in-tended recipient of funds. When the lattertakes his half to the broker with the match-ing half, he is able to collect his money. To-day, the hundi (India), hawala (Pakistan and

various Muslim nations), and poey kuan(Thailand) systems all employ a code orpass-document to match the sender and thereceiver of funds.

The chit, (the word is a diminutive ofthe Hindi chiiti, or certificate), was intro-duced to China by British colonialists in thenineteenth century. British workers wantingto buy goods from local merchants wouldwrite chits that merchants could cash withthe Chinese comprador who managed an es-crow account into which British workers’salaries had been deposited.3

Remittances, which are now less oftensent by such informal systems, have becomea big and highly lucrative business, withprofit margins as high as 30 percent. Mi-grant workers now rely on money transmit-ters like Western Union and MoneyGram,smaller regional or national transfer compa-nies, and, to a small but growing extent,banks. The principle remains the same: inreturn for a fee, the sending company ac-cepts the money the worker wants to send,then notifies its representative in the recipi-ent’s locale, who pays the recipient in localcurrency.

Until the last few years, most bankshandled mainly large flows of funds, leavingthe small remittances to the money-transferfirms. But, eyeing a market that the finan-cial services market research firm CelentCommunications estimates will generatemore than $15 billion in annual revenues by2006, banks are upgrading their technologyto compete with money-transfer companies.Their twenty-first-century version of chopsand chits is the ATM card, which migrantworkers can send home to allow familymembers to withdraw funds from cash ma-chines. Gwenn Bézard, an analyst at CelentCommunications, projects that by 2013there will be 13 million holders of remit-tance debit cards.4

Heavy Burden, Slight ShouldersA global money-transfer industry has arisenfrom the diligence and loyalty of migrant

workers, who as recently as the mid-1990spaid fees as high as 30 percent of the fundstransferred to send money home. Althoughfees fell to an average of 15 percent by theend of the decade, they continue to take a significant bite out of the money sent back to developing countries. Today, the average cost to send $200 or less—a typicalamount—to Latin America is 7.6 percent.The percentage charged generally falls as theamount of the transfer increases, but mostémigrés are unable to send enough to lowerthe bite significantly.

Only 19 percent of workers who earnmore than $50,000 a year send remittances,while 46 percent of those who earn less than$30,000 do so.5 Thus, generally speaking,individuals who send money home are thevery people least able to bear the transactioncosts: low-income migrants who are morelikely to lack legal documentation and lesslikely to understand how the financial sys-tem works. In a 2001 study, only one inthree Latino immigrants in the UnitedStates knew that some of the money theywere sending to their families was beingeaten up by fees, commissions, and oftenunfavorable exchange rates.6

The flow of remittances from low-income senders may be disrupted by short-term shocks, as happened when over a million (mostly Arab and South Asian) for-eign guest workers fled the Middle Eastwith the onset of the first Gulf war in 1990. In the wake of September 11, senders in theUnited States faced unemployment amid the ensuing backlash against immigrantsand an economic slump. In 2002, transfers via the thousand-year-old hawala transfermechanism were cut off abruptly when theU.S. government banned unlicensed moneytransfers. The new rule also shut down al-Barakat, one of three transfer firms thatwere keeping Somalia from going underwith an estimated $500 million in annualremittances. Government officials allegedthat al-Qaeda had used al-Barakat to financeterrorist activities.7 Such disruptions in the

flow of funds show how variable remittancescan be as a source of income.

In the United States, according to astudy by the Pew Hispanic Center and theMultilateral Investment Fund, 6 millionpeople, or 42 percent of adult, foreign-bornLatinos send remittances home. Moreover, as the study shows, this creates a self-rein-forcing pattern: in Mexico, for example, 26 percent of those surveyed who receivedremittances were considering migratingthemselves, compared to 17 percent of those who did not receive money fromabroad. In Ecuador, 83 percent of respon-dents agreed with the statement, “One ofthe principal reasons that people leave is so that they can send money back to theirfamilies.”8

While remittances provide an incentiveto leave, they are not a permanent solutionto home-country financial hardship. Overthe course of decades remittance flows tendto slow as families in the home country dieor emigrate, and ties weaken from lack offamily contact. About half of Latino immi-grants who have been in the United Statesfor ten years or less send money home, ac-cording to the Pew study. For those whohave been here for 20 to 30 years, that num-ber drops to 23 percent. As migrants inte-grate into the host country, their earningpower passes to the second generation, andgreater portions of savings remain in thehost country.

For remittances to stay at the same levels, therefore, people have to keep leav-ing their homelands. There is every reasonto believe that they will continue trying todo so, because as remittances come in, morepeople want to leave. Part of the reason forthis is the keeping-up-with-the-Joneses ef-fect that remittances create: they fuel infla-tion locally, especially of real estate prices,and so it becomes even harder for a familyto survive if it does not receive money fromabroad.

This is the catch-22 of remittances: theyboost the economies of the labor-exporting


countries, which gives their citizens thehope of being able to remain at home, yet at the same time they contribute to thepressures that make people leave.

Who Stays and Who Leaves?Remittances are also problematic because of a phenomenon that the economist PhilipMartin has called the “migration hump.”9

Emigration increases once per capita incomerises enough (often through remittances) forpeople to afford to get out. Emigration doesnot slow again until per capita incomereaches the other side of the “hump,” thatis, until it increases to a level at which citi-zens no longer expect moving to anothercountry will improve their quality of lifeenough to be worth the trauma of dislocat-ing. This phenomenon means that a devel-oping country is exporting its nascent mid-dle class.

The economist B. Lindsay Lowell hascalculated that losing high school– and college-educated nationals slows economicgrowth, albeit slightly. On the other hand,the emigration of those with only a gradeschool education accelerates a country’seconomy—though again, very slightly. This data suggests that ensuring the returnof educated émigrés would benefit labor-exporting nations. “Employing developingcountry nationals (or returnees) at a higherwage would induce return migration, in-crease the permanent skill level of the sourcecountry, and increase source countrygrowth,” Lowell argues.10

The impact of remittances and migra-tion on brain drain varies considerablyamong countries. The World Bank’sRichard Adams, Jr., has argued that formost countries, migration does not cause a significant brain drain; less than 10 per-cent of the college-educated populations inlabor-exporting countries have emigratedoverall. For a few countries, however, espe-cially those with wealthy neighbors, highproportions of the most highly educatedleave (these include the Dominican Re-

public, El Salvador, Guatemala, Jamaica,Mexico, Morocco, Tunisia, Turkey, and Sri Lanka).11

Getting over the HumpThe challenge for sending countries with respect to the migration hump is twofold:first, governments need to channel remit-tances in such a way that they improve the quality of life at home; second, theyneed to figure out how to lure educatedémigrés to return home and use the skillsthey gained abroad to help the economygrow.

“Channeling” remittances, however, isproblematic, for these funds are and shouldremain private. Some countries, in trying touse remittances to strengthen their hardcurrency reserves and at the same time lureworkers back, have committed spectacularpolicy blunders. Bangladesh, South Korea,Pakistan, and the Philippines all have madeattempts to require workers to send manda-tory amounts home through formal bankingchannels. Only the Korean government hassucceeded, and only because so many Kore-an migrant workers were employed by Ko-rean companies in the Middle East. In re-turn for the government’s assistance in win-ning contracts abroad, these companies de-posited wages in Korean banks.12 In the1970s, Turkey encouraged its guest work-ers in Germany to keep their savings indeutschemark accounts in Turkey, but whenthe Turkish economy collapsed, the govern-ment would only convert the funds intoTurkish lira at an unfavorable rate, decimat-ing the workers’ nest eggs.

Perhaps the most notorious case of agovernment manipulating remittances forits own purposes involved the 4.5 millionbracero agricultural guest workers who cameto the United States in a special govern-ment-sponsored program to deal with amanpower shortage after the outbreak of theSecond World War. The United States with-held 10 percent of these workers’ wages, to be paid once they returned to Mexico.


Somehow, the money disappeared. TheUnited States says Mexico was at fault, but there is some evidence that at least partof this money never made it out of theUnited States. Workers and their descen-dents are still fighting to win back $500million in wages and interest, and in March2001 they filed a lawsuit against the U.S.and Mexican governments, the Wells Fargobank, and three Mexican banks. In August2002, a San Francisco judge threw the caseout, partly on statute-of-limitation and ju-risdictional grounds. But even the not nec-essarily immigrant-friendly California StateLegislature thought this was unjust and in January 2003 it extended the statute oflimitations to allow the workers to presstheir case.13

At the opposite end of the spectrum offailed policies, some countries have barredémigrés from holding home-country bankaccounts. Colombia, for example, did notend this practice until late in 2003.14

Policymakers have learned that there areways to increase the impact of remittanceson the home country without killing thegoose that lays the golden egg. The mostsuccessful programs are a mix of public andprivate initiatives. Morocco, for example,subsidizes the cost of sending remittancesthrough its state-owned Banco Popular.This gives migrant workers an incentive touse the formal system, but workers actuallyuse it only because they have confidencethat the system will work—unlike the dis-astrous Turkish example. Remittance flowsthus create a positive feedback loop that canencourage governments to maintain respon-sible monetary policies.

Encouraging workers to send remit-tances through formal financial channels can help reduce costs to the workers them-selves as well as increase the receiving coun-try’s hard currency reserves, strengthen lo-cal financial systems, and make more creditavailable to nurture local economies. En-couraging competition among money trans-mitters and promoting better use of tech-

nology will further reduce the costs of trans-fers and thus increase the amount of moneyavailable to developing countries.

According to the Inter-American Dia-logue Task Force on Remittances, “the sin-gle most important task, for both govern-ments and non-governmental agencies, is toencourage senders and recipients to makeuse of banks and other financial institu-tions.”15 The task force recommends thatgovernments open the remittance market tosuch financial institutions as credit coopera-tives and micro-finance organizations, pub-lish regular analyses of services provided byfirms so that users can compare costs andchoose accordingly, and compile market re-search to help develop strategies to increaseparticipation in formal financial services.

Until 2001, when the United Statesbanned unlicensed money transmitters, justover half of the remittances sent from theUnited States went through informal moneytransfer systems, which often were muchcheaper than formal sending mechanisms.16

Before September 11, 2001, hawala fees, forexample, were typically between 0.5 percentand 3 percent of the money sent. The trade-off now is higher fees for individuals in re-turn for greater protections against moneylaundering and terrorist financing, andstronger banking systems in the receivingcountries. In view of the meager resources ofmany sending migrants, however, fees needto come down.

Luckily, as banks have begun to competewith money transfer companies, remittancecosts have fallen considerably. They vary bycountry and are as low as 4 percent in ElSalvador and 5 percent in Mexico. However,the fees to remit funds to the DominicanRepublic and Jamaica, the highest in theCaribbean region, average 8 percent and 12percent, respectively.17

The International Remittance Network(IRNet) run by the World Council of CreditUnions (WOCCU), charges between $6.50and $10 for transfers of up to $1,500. Atpresent, only members of credit unions may


send money, but WOCCU has proposed to theU.S. Congress that credit unions be allowedto provide such services to nonmembers.18

Financial institutions have also been de-vising new ways to send money, which theyoften advertise as lowering the costs of do-ing so (although it can be difficult to calcu-late the true costs of sending money). TheSafeSend card from Bank of America, for example, is a stored-value card that can besent to relatives or other recipients in LatinAmerica and used to withdraw cash fromautomatic teller machines (ATMs) or to makepurchases in stores. The bank offers lowersending fees to customers who also openbank accounts, including a new low-costpackage designed for customers who typi-cally do not maintain balances high enoughto avoid maintenance fees on regular ac-counts. American Cash Exchange, based inNew Jersey, has announced its “Poni PIN

Card,” which works in ATMs. The purchaserof a Poni card scratches the back of the cardto reveal a personal identification number(PIN), which he relays to the intended recipi-ent by means of a free five-minute phonecall that comes with the card; the recipientcan access the funds by using a similar cardobtained locally and the transmitted PIN.The company charges a $12 commission forthe card, which on its smallest denomina-tion, 1,000 pesos (roughly $90), is stillhigh.

Last year, Democrat Charles Schumer in-troduced the Money WIRE Act in the Senate,which would force companies to disclosetheir fees on receipts and in their advertis-ing. Luis Gutierrez, a Democrat from Illi-nois, has introduced a similar bill, the WireTransfer Fairness and Disclosure Act, in the House of Representatives. Both are in-tended to keep immigrants from being over-charged. Neither has yet passed.

Meanwhile, officials in both sending and receiving countries have been trying tolower costs for money transfers in the hopethat transmitters will pass on the savings totheir customers. The Inter-American Devel-

opment Bank has been helping the Domini-can Republic, El Salvador, Jamaica, andMexico put in place electronic systems thatwill help local banks link up to their foreigncounterparts, lowering the costs of transfer-ring money.

In an initiative modeled on U.S.-Cana-dian arrangements, the U.S. Federal ReserveBank and the Bank of Mexico in 2003 cre-ated an automated clearinghouse that willreduce the costs of sending the roughly $14billion that Mexicans in the U.S. wire torelatives back home each year—Mexico’ssecond-largest source of foreign exchange af-ter oil. And under Treasurer RosarioMarin—who emigrated from Mexico to theUnited States as a child—the U.S. TreasuryDepartment has partnered with Mexico’sfederal savings bank, BANSEFI, to create aninternet-based “People’s Network” programto channel remittances inexpensively to 3.8million rural Mexicans. The program has al-so promoted micro-finance initiatives, an-other way of leveraging remittances to pro-mote economic growth. In Mexico, it ap-pears that remittance receivers are morelikely to use the formal financial system.According to the Pew survey, 33 percent ofremittance receivers in Mexico have bankaccounts, as opposed to 22 percent of thegeneral population.

Efforts to bring immigrants into the fi-nancial mainstream are under way in theUnited States as well, where as many as halfof Latino immigrants do not have bank ac-counts. Unfortunately, these efforts have be-come highly politicized, especially for un-documented immigrants. Since 2002, whenthe Mexican government redesigned its ma-tricula consular identification cards issued toMexicans abroad to make them more secure,roughly 300 U.S. banks have begun to ac-cept them as proof of identity for opening abank account. This aroused the ire of HouseImmigration Reform Caucus chairman TomTancredo, a Republican from Colorado, whoclaimed that the ID cards legitimized illegalimmigrants. In May 2003, Colorado became



the first state to bar the use of Mexican con-sular cards and sparked a national anti-im-migrationist furor that prompted congres-sional hearings on the issue. Last fall, theU.S. Treasury reendorsed the use of matricu-las, but the controversy has continued asmany states debate possible laws to allow or deny the practice.

In an environment that is often hostileto immigrants, the question inevitablycomes up: does it hurt U.S. communitieswhen remittance money leaves the country?In short, no. Though the funds are signifi-cant for receiving economies, they are a dropin the bucket in the overall U.S. economy,roughly equal to the dollar value of sharestraded on the New York Stock Exchange injust two days. Moreover, remittances pale incomparison to the benefits to the UnitedStates from the lower wages paid to immi-grant workers and the steady supply of laborthey represent. To be sure, the money senthome might instead be used to better thelives of immigrants here. However, accord-ing to a new study by the Inter-AmericanDevelopment Bank, 93 percent of the $450billion that U.S. Latino immigrants earn isspent here.19

The economist J. Edward Taylor has argued that those who send remittances are likely to be able to afford to do so. Forone thing, he has found that families withchildren in the United States are likely tosend less money back home than workerswithout children.20 He also notes that home-country family ties provide a social safetynet. This suggests remittances are wellspent, in the sense that they reduce the cost to the U.S. economy when an immi-grant facing health problems or other diffi-culties can return to his family in his homecountry.

Savings, Investment, and CommunityEconomists estimate that 90 percent of re-mittances are spent on consumer goods, andbecause of the multiplier effect that occursas this money passes from one business to

another, the impact of remittances on eco-nomic growth is probably close to doublethe actual amount sent. While this appearsto be good news, many experts would notagree. This is because they say that moneyspent on consumer goods would be betterspent on economic development.

However, the problem may not be asbad as it appears. First of all, a growingnumber of recipients surveyed by Pew—between a quarter and a third—put someportion of the money they receive in remit-tances into savings or small investments.Second, by some estimates, as much as athird of remittances go to housing con-struction, which is really investment, notmerely consumption. Finally, policymakersare finding ways to use remittance flows—even those used for consumption—to openup sources of credit. The Inter-AmericanDevelopment Bank, for example, is test-ing a program that would allow applicantsto count remittance income in their loan applications and thus increase their eligi-bility for credit. In several countries, remit-tance flows are adding to the amount ofcredit available to local businesses and consumers by allowing the banks thatprocess them to borrow from the interna-tional capital markets at lower interest rates. By making use of a legal mechanismcalled securitization, which essentially guar-antees that the hard currency generated byremittances will be dedicated to repayinginvestors, banks in Brazil, El Salvador, and Mexico have already raised hundreds of millions of dollars less expensively than they would have been able to do otherwise.21

Another question related to remittancesis How can developing countries harness theresources available to émigrés on the higherend of the income scale, who are less likelythan low-income migrants to send remit-tances but who are likely to be interested ininvestment or philanthropy for communitydevelopment? Governments should—andare beginning to—make it easier for these


immigrants to invest in their communitiesback home.

The Pan-American Development Foun-dation, a nongovernmental organization af-filiated with the Organization of AmericanStates, works with hometown associationsand other immigrant outreach groups thathave been created to channel émigré dollarsinto development projects such as the build-ing of churches, sanitation systems, roads,and hospitals, particularly in Haiti, El Sal-vador, and Mexico. Donations that immi-grants make to the Transnational Commu-nity Development Fund are tax deductiblein the United States, and some generatematching funds from the U.S. Agency forInternational Development. Similarly, theMexican government matches, three for one,community or hometown association dona-tions to local public works projects. So far,this governmental program has channeled $60 million into development projects.22

Under the Unidos por la Solidaridad (United in Solidarity) program run by ElSalvador’s development agency, FISDL, andthe government’s directorate for citizensabroad, DGACE, Salvadoran hometown asso-ciations can apply for matching federal de-velopment funds for social infrastructureprojects. So far the hometown associations have donated $2.1 million for 45 projects,matched by $6.9 million in governmentfunds.23

To harness the migration machine fordevelopment, countries must find ways toharness the skills of better-off émigrés aswell as their financial contributions, thusturning brain drain into “brain circulation.”India and China have had some success inthis regard. A Public Policy Institute ofCalifornia study of 2,300 foreign-born Silicon Valley engineers found that 51 percent had been involved with founding or running a start-up company in theirhome countries. Half traveled to their na-tive countries at least once a year on busi-ness, and four out of five shared technologyinformation and tips about U.S. job and

business opportunities with colleagues backhome.24

Policymakers in other countries, like the Dominican Republic and Pakistan, areworking on adapting such strategies to theirown circumstances. Mexico’s “GodfatherProgram” seeks to lure Mexican émigré in-vestments. Colombia’s Foreign Ministry hashad some initial success with the ColombiaNos Une (Colombia Unites Us) program topromote technology transfer and investmentfrom the 4.3 million Colombians abroadand the 440 homeland associations theyhave formed.

More than a dozen programs worldwideoffer financial support to help returning mi-grants start businesses. France, for example,pays voluntary Malian returnees roughly theamount that it would have cost for the po-lice to have deported them forcibly.25 Whilesuch programs focus on deportable mi-grants, the principle of facilitating entrepre-neurship in the homeland could be appliedon a broader scale, and perhaps used to fi-nance home-country training centers aswell. This could be a cost-effective way ofencouraging return migration and creatingthe jobs necessary for deterring future migration.

Various initiatives have attempted, withvarying success, to train returning migrantsto start and run businesses, and to providefinancing for such endeavors. These includea joint program established in 1982 by theSri Lankan Ministry of Labor and the Mer-chant Bank of Sri Lanka; an investment ad-visory service offered by Thailand’s BangkokBank in the 1980s; a technical assistanceservice created by the Overseas PakistanisFoundation to help returnees channel sav-ings, obtain credit, and navigate govern-ment bureaucracies; and the PhilippineOverseas Employment Administration’s centers for training and financial support.However, these programs were successfulonly among returnees who had high skillsand where the pool of local savings was deepenough to provide returnees with sufficient

credit.26 This brings us back to the pointmade earlier about the importance of chan-neling remittances into the formal financialsystem.

A Way ForwardThough remittances offer a powerful tool fordevelopment, they are no panacea, for theydo have negative side effects. Because somany people in poor and developing coun-tries have come to depend on them, they induce the flow of people across borders.Unless forward-looking policies are put inplace, this migrant flow will continue indef-initely, along with the accompanying trau-ma to families and the social stresses onboth sending and receiving countries.

Both sending and receiving countriesmust focus on the problems surrounding re-mittances. Governments should continuetheir efforts to reduce the bite that fees takeout of remittances by promoting competi-tion in the remittance market and encourageimmigrants to use formal financial channels.They should dedicate more funds to match-ing-grant development programs and con-tinue to subsidize home-country associationefforts to improve the living conditions andeconomies of sending countries, so that theircitizens do not feel compelled to migrate.Remittance flows can and should be used topromote savings and investment. And gov-ernments should encourage skilled migrantsto return home and reverse the brain drainthat occurs when countries have no choicebut to send their most able citizens abroadto make ends meet.•This is the first part of a two-part article on re-mittances. The second part, which will appear in our fall issue, will focus on the political im-pact of global remittances in both home and host countries.

Notes1. The World Bank estimates that remittances

in 2003 amounted to $93 billion. The Nilson Report,

which tracks the global payments industry, puts the2003 figure at $145 billion.

2. See Dilip Ratha, “Workers’ Remittances: An Important and Stable Source of External Devel-opment Finance,” in Global Development Finance 2003 (Washington, D.C.: World Bank, 2004); see also Devesh Kapur and John McHale, “Migration’sNew Payoff,” Foreign Policy, November/December2003.

3. Leonides Buencamino and Sergei Gorbunov,“Informal Money Transfer Systems: Opportunitiesand Challenges for Development Finance,” UnitedNations DESA Discussion Paper No. 26, ST/ESA/2002/DP/26, November 2002.

4. Gwenn Bézard, “Global Money Transfers:Exploring the Remittance Gold Mine,” Celent Com-munications, Boston, August 2002.

5. Robert Suro, “Remittance Senders and Re-ceivers: Tracking the Transnational Channels” (Wash-ington, D.C., Multilateral Investment Fund/PewHispanic Center, November 24, 2003).

6. Bendixen & Associates, “Survey of Remit-tance Senders: U.S. to Latin America” (Washington,D.C.: Inter-American Development Bank/Multilat-eral Investment Fund, November/December 2001).

7. For an account of the Somali case, see CindyHorst and Nick van Hear, “Counting the Cost:Refugees, Remittances and the ‘War Against Terror-ism,’” Forced Migration Review, no. 14 (July 2002).

8. Suro, “Remittance Senders and Receivers.”9. Philip L. Martin, Trade and Migration: NAF-

TA and Agriculture (Washington, D.C.: Institute forInternational Economics, 1993); see also Philip L.Martin and Thomas Straubhaar, “Best Practices toReduce Migration Pressures,” International Migration,vol. 40, no. 3 (2002), pp. 5–23.

10. B. Lindsay Lowell, “Some DevelopmentalEffects of the International Migration of HighlySkilled Persons,” International Migration Paper 46(Geneva: International Labor Organization, 2002).

11. Richard H. Adams, Jr., “International Mi-gration, Remittances, and the Brain Drain: A Studyof 24 Labor-Exporting Countries,” Working PaperNo. 3069 (Washington, D.C.: World Bank, June,2003).

12. Buencamino and Gorbunov, “Informal Money Transfer Systems,” p. 7.


13. Tyche Hendricks, “Bush Guestworker PlanRecalls Bracero Program,” San Francisco Chronicle,January 16, 2004.

14. Felipe Ossa, “Colombian E-Cash Boom,”LatAm Securitization Report, January 26, 2004.

15. All in the Family: Latin America’s Most Impor-tant International Financial Flow, Report of the Inter-American Dialogue Task Force on Remittances(Washington, D.C., January 2004).

16. Bézard, “Global Money Transfers.”17. All in the Family, Report of the Inter-Ameri-

can Dialogue Task Force on Remittances.18. See www.cuna.org/gov_affairs/congress_

briefing.html. 19. Inter-American Development Bank/Multi-

lateral Investment Fund, “Sending Money Home:Remittance to Latin America and the Caribbean”(Washington, D.C., January 26, 2004).

20. J. Edward Taylor, “Do Government Pro-grams ‘Crowd In’ Remittances?” Inter-American Dialogue and Tomás Rivera Policy Institute workingpaper, January 2000.

21. LatAm Securitization Report, January 12,2004.

22. Alfredo Corchado, “Public-Private EffortsInject Life across the Border,” Dallas Morning News,September 29, 2003.

23. Manuel Orozco, “The Salvadoran Diaspora:Remittances, Transnationalism and Government Re-sponses,” working paper, Tomás Rivera Policy Insti-tute, 2004.

24. AnnaLee Saxenian. “Local and Global Net-works of Immigrant Professionals in Silicon Valley”(San Francisco: Public Policy Institute of California,2002).

25. United Nations Development Program,“Immigration and Migrant Labor: Some Lessons fromGlobal Experience,” October 2002.

26. Shivani Puri and Tineke Ritzema, “MigrantWorker Remittances, Micro-Finance and the Infor-mal Economy: Prospects and Issues,” InternationalLabor Organization Working Paper 21, Geneva,1999.


remittances: the perpetual migration machine remittances: the perpetual migration machine

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