Migration, Remittances, Poverty and Inequality
Ernesto M. Pernia
The paper looks into the effects of international migration and remittances on household incomes and well-being, poverty reduction, human capital investment, saving, and regional development in the home country. Remittances appear to raise average incomes for all income groups but more so for the richer households than for the poorer ones, a finding that is consistent with that in several Latin American countries. Such eyeballing of the data is supported by econometric analysis which further reveals that remittances enhance household savings, spending on education and health care, and help the poor move out of poverty. Analysis at the regional level shows that, ceteris paribus, remittances also appear to contribute importantly to regional development, although overall increases in regional incomes do not seem to benefit low income households as much as the upper income ones.
Migration, Remittances, Poverty and Inequality The Philippines By Ernesto M. Pernia*
* Professor of Economics, University of the Philippines, Diliman, Quezon City 1101. Very able research assistance was provided by Jackson L. Ubias, Ph.D. candidate at the U.P. School of Economics. 1. Introduction
The movement of peoples from the less developed countries to the more developed ones is an age-old phenomenon. Over time, with socioeconomic inequalities persisting across nations, globalization, and demographic structural shifts in the more advanced economies, migration across national borders has picked up speed. More recently, the remittances associated with migration have become a salient issue in academic and policy discussions, as well as in the media, for a number of reasons. First, the amounts have increased sharply, at rates even faster than the departure of migrant workers. Second, for many developing countries, remittances have begun to significantly exceed foreign direct investment (FDI), capital market flows, or official development assistance (ODA). Third, remittances provide timely support to otherwise shaky balance of payments and fiscal positions. Finally, remittances appear to contribute importantly to lifting households out of poverty, as well as benefit the wider community through the multiplier effects of increased spending on consumption or investment. The Philippines is now reputed to be the world’s fourth highest remittance recipient country after India, China, and Mexico. In 2006, remittances were officially recorded at U.S.$12.8 billion – up 20% from the preceding year and are estimated to hit $14 billion by the end of 2007. This amount compares with 2005 estimates of $23.5 billion for India, $22.4 billion for China, and $21.7 billion for Mexico (World Bank 2006). However, relative to GDP, remittances for the Philippines represent just over 10% of GDP – the highest among the four countries. Clearly, remittances flowing from the Filipino diaspora have become a major facet in the economic and social life of the country. This paper focuses on the effects of international migration and remittances on household incomes and well-being, poverty reduction, human capital investment, and regional development in the home country. The next two sections review the international and local literature on the consequences of migration and remittances. The fourth section discusses remittances in relation to domestic incomes and poverty reduction in the Philippines. The fifth section enhances the descriptive analysis with a bit of econometrics that extends the analysis further to investment in human capital, work force participation, saving,
and regional development. The paper concludes with the main points and some implications for policy. 2. Migration It is axiomatic to say that migration is an investment that typically results in benefits which more than compensate for the costs involved. This is clearly borne out by the unabated movement of...