Migrants' remittances reduce poverty in developing countries, but massive emigration of highly-skilled citizens poses troubling dilemmas for many smaller low-income countries, a new World Bank research study finds.
International Migration, Remittances and the Brain Drain, a study produced by the Bank's research department, includes a detailed analysis of household survey data in Mexico, Guatemala and the Philippines---all countries that produce millions of migrants---which concludes that families whose members include migrants living abroad have higher incomes than those with no migrants."The studies show that remittances reduce poverty and increase spending on education, health and investment," said World Bank economist Maurice Schiff, who co-edited the book with Caglar Ozden, also an economist at the Bank. "The findings are consistent in all three country studies in this volume, and further studies are under way to see if they apply in other countries."
Close to 200 million people are living in countries other than the ones in which they were born, and remittances are estimated to reach about $225 billion in 2005, according to a forthcoming World Bank publication, Global Economic Prospects 2006. This makes remittances the biggest source of foreign exchange in many countries and has major implications for strategies to reduce poverty in developing nations.
"In Mexico, the larger the share of households with migrants in a region, the more favorable the effect of increases in remittances on rural poverty," concludes one of the book's eight studies, by researchers Jorge Mora and J. Edward Taylor. And in Guatemala, says another chapter by Richard H. Adams Jr., remittances reduce the level, depth and severity of poverty. The greatest impact was on the severity of poverty, with remittances accounting for over half the income of the poorest 10 percent of families.
It is no accident that the main sources of migrants to Europe are from Africa and the Middle East, while the dominant source regions for migrants to the United States are from Mexico, Central America, and the Caribbean. Proximity to the destination country matters to potential migrants, the study says, especially those who are poor and unskilled, as it costs less to migrate to a nearby country than to a distant one. In addition, a chapter in the book by David McKenzie finds that the presence of migrant networks in the destination country encourages further migration, as they further reduce the cost of migrating, while also providing contacts needed to find jobs.
"As a larger share of the community migrates, migration costs fall and relatively poorer members are able to migrate, and to benefit from the larger network as well," McKenzie concludes.
On a larger scale, migration dramatically increases global economic output by enabling workers to move to locations where they are more productive, and as a result, earn much higher wages than they would have in their developing home countries. A large portion of these economic gains accrues to the migrants and to their families back at home through the remittances they send.
"Economic modeling can give a good idea of the global economic gains to be obtained from international migration," said François Bourguignon, the World Bank's Chief Economist and Senior Vice President for Development Economics. "But the household survey evidence presented in this book demonstrates a direct link between migration and poverty reduction. It is groundbreaking work that is essential to sound policymaking in this area."
While remittances increase incomes and reduce poverty, the book shows that their impact—and the impact of migration, more broadly—on education differs between Mexico and Guatemala. In Guatemala, (both rural and urban) households receiving remittances spend relatively more on education, and proportionately less on day-to-day consumption. But in rural Mexico, children in migrant families acquire less education than the non-migrants, probably because they aim to follow their parents' example and migrate to unskilled jobs in the U.S., for which more education is neither necessary nor rewarded.
Brain drain: a complex picture
While the data and analysis on migrants' remittances highlight migration's positive impact on development, a more complex picture emerges when the study's focus shifts to the educated migrants from developing countries, the so-called "brain drain".
A chapter by Frederic Docquier and Abdeslam Marfouk unveils the most comprehensive database to date, based on census and survey data from OECD countries, tracing a massive exodus of professionals from some of the world's most vulnerable low-income countries. Eight out of ten Haitians and Jamaicans who have college degrees live outside their country. In Sierra Leone and Ghana, the same ratio is five out of ten. Many countries in Central America and Sub-Saharan Africa, as well as some island nations in the Caribbean and the Pacific, show rates of migration among professionals over 50 percent. This is in sharp contrast to much bigger countries such as China and India, from which only three to five percent of graduates are abroad, as well as Brazil, Indonesia, and the former Soviet Union, which also have low migration rates among the educated.
In Sub-Saharan Africa as a whole, although skilled workers account for just four percent of the region's labor force, they account for 40 percent of its migrants. The data reveal that 20 percent of Sub-Saharan Africa's skilled workers have migrated. "These new data need to be analyzed in greater depth," the co-editors conclude. "The massive scale of the brain drain in some countries suggests an urgent need to find incentives that would reduce the loss of much-needed skills—possibly by increasing cooperation between sending and receiving countries on this front, and by introducing policies that boost potential income for these professionals in their home countries."
It has been said that the prospect of migration may actually increase the sending country's level of education and welfare, by providing an incentive to people to seek more education in the hopes of boosting their employment options as migrants. This contention is challenged in the chapter by Schiff. "Our analysis shows only a small so-called 'brain gain', or increase in the average level of education in the sending country, due to anticipated migration." This result is reinforced by Ozden, whose chapter points out that skilled migrants in the US often fail to obtain jobs that match their education levels. This indicates both differences in the quality of education and a "brain waste" due to difficulties faced by migrants in obtaining requisite licenses to practice in certain professions.
Not all migrant brains are "wasted" however. A chapter by Gnanaraj Chellaraj, Keith Maskus and Aaditya Mattoo examines the contributions of skilled migrants and foreign students to the United States. It estimates that a 10 percent increase in the number of foreign graduate students raises patent applications in the U.S. by 4.7 percent, university patent grants by 5.3 percent, and non-university patent grants by 6.7 percent.
This World Bank research study will be complemented by the release in November of Global Economic Prospects 2006, which examines policy options to increase the poverty-reducing impact of international migration and remittances.
Skilled emigration rates (selected countries)
Country with Skilled emigration rate (%)
El Salvador 31.0
Sri Lanka 29.7