MPI Study: Overseas Workers Aid in Developing Their Home Countries

America enjoys the great good fortune of being a top destination for the world’s best and brightest. Our universities, our culture, our companies – indeed our entire economy – are all the richer for it: immigrant entrepreneurs are the creative force behind countless new technologies – even entirely new industries – and this means more jobs for everyone.

But what’s in it for countries that send their most talented people here, and to other industrialized nations? As we discussed in a recent blog post, the fear that “brain drain” was detrimental to developing countries has proven to be unfounded, as researchers have discovered a host of benefits that accrue to sending countries. [See MPI Study: Debunking the “Brain Drain” Myth, MurthyBlog, 01.Oct.2013.]

One key benefit to the sending countries: remittances – money sent home by their nationals who live and work overseas. A recent study from the Migration Policy Institute, a nonpartisan Washington think tank, discusses the role of remittances as a tool for international development, calling them “a major vehicle for reducing the scale and severity of poverty in the developing world.” [See The Impact of Remittances on Economic Growth and Poverty Reduction, by Dilip Ratha, Migration Policy Institute (MPI), Sep.2013.]

How major? The MPI study reports that foreign workers sent home $401 billion in remittances in 2012, and that number is projected to increase on a steep curve until at least 2015, according to the study’s author, Dilip Ratha, Lead Economist and Manager of the Migration and Remittances Unit at the World Bank.

The top recipients of international remittances were India, which received $70 billion in 2012, closely followed by China, which received $66 billion. India’s share was almost three times that of the third- and fourth-ranked recipient countries: the Philippines and Mexico, each with $24 billion in remittances.

According to MPI, the evidence show that remittances play a crucial role in supporting macro-scale economic development by providing additional resources to individual households – resources that can be invested in education, health care, and the alleviation of poverty. Among the study’s key findings:

  • “Families spend remittances disproportionately on human capital-building areas, compared to how they spend other forms of income.” Contrary to those who view remittances as “one-off” windfalls for the recipients – merely an opportunity for a family to squander money on luxuries they otherwise couldn’t afford – MPI found that families tend to maximize the long-term benefits of their remittances by investing in health care and education.
  • “Remittances increase household incomes and are therefore a powerful anti-poverty force in developing countries.” MPI cites the example of Nepal, where remittances from overseas account for one-third to one-half of the overall reduction in poverty, which dropped from 42 percent in1995-96 to 31 percent in 2003-04.”
  • Remittances relieve the receiving families of the burden of “scrambling for their basic sustenance,” and “allows households to engage in high-risk but possibly more profitable economic activities that reduce poverty…” In other words, it spurs entrepreneurship and small business development that otherwise would not have been possible, and helps families lay the groundwork for a more sustainable economic future.

The study concludes with a series of recommendations that would help the development community to harness remittances more effectively as a tool of international development. It’s an illuminating work of scholarship, because it underscores the value of free-market labor mobility to both the sending countries and the receiving countries. Well worth a read!

Copyright © 2013, MURTHY LAW FIRM. All Rights Reserved

Disclaimer: The information provided here is of a general nature and may not apply to any specific or particular circumstance. It is not to be construed as legal advice nor presumed indefinitely up to date.