Global Economic Prospects 2006 Economic Implications of Remittances and Migration Press launch Washington November 16, 2005

GEP06 Focus Mainly on remittances – migration as the necessary accompaniment Focus on South-North migration (little South-South or internal migration) Focus on economically-motivated migration (not refugees or asylum seekers)

Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms.

Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. The possibility of a large and disruptive rise in interest rates also poses a serious risk.

Growth in developing countries is still strong Real GDP annual change % Developing High-income Forecast 2007

Longer-term prospects: GDP per-capita Real GDP per capita, annual average percentage change s 0.0

Poverty forecast Poverty forecast Share of population living on $1/day, millions

% of total possible gains Full liberalization o/w Agriculture w/ 2% exclusions Further reforms, including Doha, are crucial to future growth prospects Tiered cuts w/ SDT

Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes.

Poor oil-importing countries now more vulnerable m7 Sub-Saharan Terms-of-trade impact (% of GDP) Low-income

Outlook for the global economy Despite a cyclical slowdown, GDP continues to grow rapidly in developing countries, underpinned by past policy reforms. Low-income oil importers have only recently started to feel the squeeze of high oil prices and are vulnerable to further spikes. The possibility of a large and disruptive rise in interest rates also poses a serious risk.

Basis points Low spreads have supported growth, but…

Basis points Low spreads have supported growth, but…

Policy priorities Long-term prospects of developing economies will depend importantly on further reforms, including a successful Doha round. Policy must promote not impede oil-sector adjustment mechanisms. Increased public and private savings in the U.S., supportive policy in Europe and continued balance sheet vigilance by emerging markets will reduce global interest rate risks.

Development implications of migration and remittances Migration and remittances continue to increase Migration generates substantial welfare gains and reduces poverty The development gains from low-skilled emigration are clear cut, while high-skilled emigration has more complex effects Benefits to countries of origin are mostly through remittances There is considerable scope for reducing remittance costs faced by poor migrants

International migration has increased Stock of migrants as share of destination countries population (%) Source: UN

Private debt and portfolio equity FDI ODA Recorded remittances Remittances have continued to increase

Top recipients of remittances, 2004 $ billion% of GDP

Top sources of remittances, 2004 $ billion % of GDP

Income differences are a powerful motivation for migration Median wage levels for workers in the same occupation, relative to high-income economies ( , adjusted for purchasing power) Source: Freeman and Oostendorp 2000

Migration boosts welfare for most households Change in real income in 2025 $billion Percentage increase from baseline Global gains of $356 billion or 0.6 percent

Sources of gains for origin countries (Composition of percent change in real income in 2025)

Critical assumptions behind model results Differentiation between native and foreign workers Share of income sent home by migrants Distribution of profits Impact on government budget

Low skilled migration reduces poverty If a poor person migrates Through improvements in labor market conditions Through remittances

Impact of high-skilled migration on origin countries is complex High-skilled emigration also generates remittances and diaspora benefits However, countries lose: –Skilled workers –Opportunities for training –Improved governance

High-skilled emigration rates are high in some countries # of countries share of developing country population (%)

Remittances reduce poverty Evidence from household surveys shows significant poverty reduction effects of remittances Cross-country evidence shows that a 10% increase in per capita official remittances leads to a 3.5% decline in the share of poor people Remittances also finance education and health expenditures, and ease credit constraints on small businesses

Remittances tend to rise following crisis, natural disaster, or conflict Remittances as % of private consumption

Remittances improve countries access to capital Present value of external debt as % of exports of goods, services, and remittances

Large remittance flows may lead to currency appreciation and adverse effects on exports Remittances may create dependency Remittance channels may be misused for money laundering and financing of terror Downside

Remittance fees are high, and regressive Fee and foreign exchange commission as % of principal, U.S.-Mexico corridor

Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration A significant opportunity exists to increase low-skill migration through managed programs for temporary migration Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration A significant opportunity exists to increase low-skill migration through managed programs for temporary migration Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration A significant opportunity exists to increase low-skill migration through managed programs for temporary migration Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration A significant opportunity exists to increase low-skill migration through managed programs for temporary migration Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances

Policy priorities Governments can provide information and regulate intermediaries to reduce risks, costs of migration A significant opportunity exists to increase low-skill migration through managed programs for temporary migration Investments in infrastructure and R&D, along with improved working conditions, would limit brain drain High remittance costs faced by poor migrants can be reduced by increasing access to banking and strengthening competition in the remittance industry Governments should not tax remittances or direct the allocation of expenditures financed by remittances