Migrants Solving Global Poverty? A Nice Idea But…

By Elizabeth Boyle, Associate Professor of Sociology & Law, IHRC affiliate

When my Grandfather Cianciaruso was a young man, he worked as a shoe repairman in Iowa, and every month he sent most of the money he earned back to his mother in Italy. At that time, it was common for migrants to send money back to family members (these payments are called "remittances"). And remittances are still exceedingly common among new migrants today. The more things stay the same, the more things change, however. Today, remittances are viewed as a possible solution to global inequality and poverty. From where does this view come, and how realistic is it?

The international financial system, including the World Bank, is the source of this new vision of remittances. International investors believe they can harness remittances to provide security for loans to poor countries (World Bank, 50). Better security means lower interest rates for borrowing countries and more steady interest payments for lenders/investors. Remittances may also provide basic services that governments are unable to afford in poor countries. What seems to get lost in these discussions is that migrants’ financial support of their families is not a new source of income. The pie can be cut into new shapes and slices, but in the end the size of the pie does not increase (unless migration increases, a point I will return to below).

The overly optimistic message about remittances has been getting lots of attention recently, as newspapers have been filled with remittance success stories. The New York Times, using Inter-American Development Bank statistics, reported that remittances are the "largest and most direct poverty reduction program" in Latin America, greatly exceeding the amount of foreign aid doled out by the United States to countries in that region. Celia Dugger reported in another Times article that remittances were a factor in reducing poverty in Nepal from 42 percent of the population to only (?) 31 percent. Meanwhile, the South Florida Sun-Sentinel covered the story of Guatemala President Oscar Berger Perdamo's visit to Jupiter, Florida. During a meeting with Guatemalan expatriates, the President exclaimed, "Thanks for those blessed remittances. They have allowed your families to rise from poverty." There is no doubt that remittances are important. For families that receive them, they can even make the difference between life and death.

But can remittances solve the problem of poverty globally? Despite the hype, the answer is no. First, consider that while Grandpa Cianciaruso regularly sent money to Italy, neither I nor any of his other grandchildren picked up that burden. Remittances are common for first-generation immigrants, but become very rare by the third generation. Unless they are continuous and replenished, remittances will only be beneficial to the poor in the short term. Consider that remittances have been around for a long time—and so has global poverty.

The second reason that remittances cannot solve global inequality is that they tend to track existing wealth patterns rather than change them. To better understand the flow of remittances, the World Bank divided countries into four groups based on their GDP in 2005—high-income, upper-middle income, lower-middle income, and low-income (World Bank, 91). The organization found that the remittances going to individuals in the high-income group of countries ($125.3 billion) dwarfed the remittances going to individuals in all of the other groups combined ($24.1 billion) (World Bank, 91). The top five national recipients of remittances in 2004 were India, China, Mexico, France, and the Philippines—not the poorest countries in the world by a long shot. When remittances are measured as a percentage of GDP rather than in raw numbers, more poor countries are among the top recipients (such as Haiti). Nevertheless, the fact remains that most migrants' money goes to the wealthiest countries. The World Bank’s own report on remittances to Latin America concludes that remittances are “neither ‘manna from heaven’ nor a substitute for sound development policies? (xii).

Yet another problem is the unhealthy incentives that chasing remittances place on national governments in poorer countries. The lure of remittances from former residents prompts countries to encourage emigration. The Stabroek News reports that the “most common Caribbean export is not sugar, rice, coffee, bananas, bauxite, but its people.? In the Nepali case “success story? above, remittances came at a high price. Remittances quadrupled from 1996 to 2004, but by the end of that period, 1 out of every 11 adult Nepali men was working abroad. The outward flow of a country's most talented citizens will hurt that country in the long run. Encouraging emigration to enhance remittances also tends to undermine cooperation between countries, such as the U.S. and Mexico, to limit undocumented migration. Thus, chasing remittances leads to some troubling policy outcomes. It may be helpful in the short term, but it takes a serious toll in the long term.

Sending money to less fortunate loved-ones is a wonderful, generous act. It illustrates what many of us see every day—that migrants have a strong work ethic and are deeply devoted to their families. Remittances offer desperately-needed relief and special opportunities to many individuals in poor countries. Despite their benefits, however, remittances are not a cure for global poverty. They did not lead to greater economic equality a century ago; they will not do so today. And the cost of formally encouraging remittances has a high price tag; a cost that will have to be paid by poor countries eventually.

Elizabeth Heger Boyle
Associate Professor of Sociology & Law
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About this Entry

This page contains a single entry by Dan Ott published on March 2, 2007 1:02 PM.

What’s Faith Got to Do with It?: Immigration and Religion in the U.S. was the previous entry in this blog.

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