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

Global Economic Prospects 2006 Economic Implications of Remittances and Migration

Press launchWashingtonNovember 16, 2005

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.

0

1

2

3

4

5

6

7

1980 1985 1990 1995 2000 2005

Growth in developing countries is still strongReal GDP annual change %

Developing

High-income

Forecast

2007

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

-2.0

0.0

2.0

4.0

6.0

8.0

High-income East and South Asia Other developing Sub-Saharan Africa

2000-052000-05

2006-152006-151980-90s1980-90s

0.0

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

0

5

10

15

20

25

30

35

40

45

50

East and South Asia Other Sub-Saharan Africa

19902002

2015

0

10

20

30

40

50

60

70

80

90

100

% 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

-3

-2

-1

0

1

2

2000-03 2004-05m7

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.

0

400

800

1200

1600

1991 1993 1995 1997 1999 2001 2003 2005

Basis points

Low spreads have supported growth, but…

0

400

800

1200

1600

1991 1993 1995 1997 1999 2001 2003 2005

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 (%)

2.2

4.3

1.6 1.6

2.9

8.3

1.81.3

World Industrial countries Developingcountries

Developingcountries, excl.

USSR

1970 2000

Source: UN

0

25

50

75

100

125

150

175$ billion

Private debt and portfolio equity

FDI

ODA

Recordedremittances

Remittances have continued to increase

22 21

18

1312

India China Mexico France Phili-ppines

Top recipients of remittances, 2004

31

27 26 2523

Tonga Moldova Lesotho Haiti Bosnia-Herz.

$ billion % of GDP

Migration boosts welfare for most householdsChange in real income in 2025$billion

-100

-50

0

50

100

150

200

Natives in highincome

countries

'Old' migrants inhigh income

countries

Natives indevelopingcountries

New migrants

Percentage increase from baseline

0.4

-6.0

0.9200

.

Global gains of $356 billion or 0.6 percent

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

-0.3

0.60.5

0.9

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Capita

l

Labor

Remitt

ance

sTota

l

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

62

33

16

28

< 10% 10%-20% 20%-30% > 30%

High-skilled emigration rate

High-skilled emigration rates are high in some countries

75%

19%

3% 3%

< 10% 10%-20% 20%-30% > 30%

High-skilled emigration rate

# 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

0.5

1.2

1.7

1.4

2.0 2.0

1.0

2.0

1.8

Indonesia Mexico Thailand

year before

year of crisis

year after

Remittances improve countries’ access to capital

0

100

200

300

400

500

600

700

800

Excluding remittances

Including remittances

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

0

5

10

15

20

$100 $200 $300 $400 $500 $600

Western Union

Moneygram

Vigo

Dolex

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