Ofelia Scanlon Lily Tso

 Trends  Senders and Receivers  Problems with Transfer System  Potential of Remittances  Problems of Remittances

Remittance  A transfer of money by a foreign worker to his home country.  Money sent home by migrants constitutes the second largest financial inflow to many developing countries.

 Family remittances - This is money sent by individual immigrants to family and friends back home.  Community remittances - This is money sent by individual immigrants and by hometown associations to communities in their home country.

 Can help to reduce poverty  Help smooth household consumption  Lead to increase household expenditures Remittances:

Source:

Country$ billion Mexico25.0 Colombia4.6 Brazil4.5 Guatemala4.1 El Salvador3.6 Dominican Republic3.2 Ecuador3.2 Honduras2.6 Jamaica2.0 Peru2.0 Source: World Bank Migration and Remittances Factbook 2008

Country% of GDP Honduras25.6 Guyana24.3 Haiti21.6 Jamaica18.5 El Salvador18.2 Nicaragua12.2 Guatemala10.3 Dominican Republic10.0 Ecuador7.2 Bolivia5.5 Source: World Bank Migration and Remittances Factbook 2008

Trends  Remittances began to slow down in the third quarter of  This slowdown is expected to deepen further in 2009 in response to the global financial crisis.

 Florida 73% - 50%  Georgia 85% - 53%  Utah & New Mexico 57% -31%  North Carolina & Virginia 88% - 59%

Remittance Flows to Developing Countries,

Senders According to the Pew Hispanic Center:  60% of U.S remittance senders are male.  47% of all Hispanics born outside the U.S regularly send money to their country of origin.  About 64% of remittance senders have less expectations of permanently staying in the foreign country.

 60% of 16.5 million sent estimated $30 billion during 2004  Sent approximately 10% of household income  “Traditional sending” states: ◦ New York, California, Texas, Florida, Illinois, New Jersey

 Two–thirds of all recipients of foreign remittances are women.  Remittance money received is normally spent on necessities.  Remittances 50-80% of household income.

 Formal vs. Informal Channels  Cost of Transfer  Inadequate Financial Infrastructure

 Formal ◦ Banks ◦ Money Transfer Operators  Informal ◦ Mail ◦ Friends ◦ Self

 15-20% of total  MTOs charge more for smaller amounts  Other fees ◦ Currency conversion fees ◦ Expedite fees ◦ Recipient fees

 Financial institutions lacking in rural areas  Smaller institutions fill market  Financial education needed

 More stable than capital flows  Some countries use remittance flows as guarantees to obtain loans  Two types: ◦ Family remittances ◦ Collective/community remittances

Source:

Type of remittance SenderReceiverUses Family remittances Individual migrants Relatives in the country of origin Coverage of basic needs of the families Relatives, partners or the same migrant Investment in small businesses and enterprises Collective or community remittances Migrants’ groups Organizations or leaders in communities of origin. Local governments Social projects: Small-scale infrastructure projects. Partners/ investors Productive investments in small- and medium- size enterprises.

 Governments want to harness the potential of remittances.  Can teach recipients about the potential of remittances.  Ultimately, remittances are private.

 “Ghost-town” phenomenon  “Easy money”  Inequality

 Long-run effects of remittances inconclusive  Short-term effects vary from country to country  Remittance flows might decrease as migrants return to country of origin