City view of Dhaka, Bangladesh. (UN Photo/Kibae Park)
City view of Dhaka, Bangladesh. (UN Photo/Kibae Park)

I find it interesting that migrant remittances have been in the business and financial media headlines lately. Globally, despite sluggish economic growth, remittances hit a record high in 2012.[i] In 2012 migrant remittances received by developing countries exceeded $406 billion; 6.5 percent higher than 2011.  Global trends show that these financial flows are predominantly going to low and lower middle income countries. Among the new top ten remittance receiving countries reported by the migration and development unit of the World Bank, one is low income (Bangladesh), six are lower middle income (India, Philippines, Nigeria, Egypt, Pakistan, Vietnam) and three are upper middle income (China, Mexico, Lebanon). The World Bank projects that remittances to developing countries will grow by 7.9 percent in 2013, 10.1 percent in 2014, and surpass $685 billion by 2015.[ii] These transfers are already  almost as large as Foreign Direct Investment (FDI) and twice the size of Official Development Assistance (ODA). However,  remittance data reported by the World Bank only captures the monetary flows that move through official channels, missing the substantial portion transferred through informal channels. Therefore, the actual remittance flow is much higher.

Interestingly, a number of financial crises in recent years have reinforced our understanding about the resilience of remittances compared to other financial flows. The 2008 financial crisis quickly went global, and since many migrant destinations are in the industrialized and emerging economies there was a fear migrant remittances would be severely affected. However, we witnessed the remarkable resilience of this form of capital transfer, especially when compared to the one-third drop that occurred in foreign direct investment, and the almost total collapse of private portfolio flows.  Remittances arguably helped many of these recipient economies to build up solid international reserves, offset large trade deficits, and reduce current account deficits. The recent surge in remittances has proved how responsive these flows are to the recipients’ welfare during periods of economic downturn and crisis.

Despite remittances becoming one of the most beneficial private transactions in the global economy,  the theoretical and empirical work on the impact of remittances is surprisingly inconclusive.  Remittances are a proven potential source of savings, investment and asset accumulation, thereby reducing poverty and providing a safety net that reduces a household’s vulnerability to shocks. Conversely, a body of macroeconomic literature using multiple country regression analysis of aggregate official remittance data  shows that remittances may be harmful to the receiving end through two processes: ‘Dutch disease effect’ and the ‘moral hazard problem’. The argument is that remittances are non-market private transfers.  An increase in remittance flow may therefore lead to a decline in the recipient’s labour market and civic participation activities, and an increase in their consumption demand  towards non-tradables such as housing. We should keep in mind however, that remittances are not purely economic transactions, and various forms of social interactions are linked with these transfers. In addition, remittances also contribute to consumption smoothing and risk coping, especially in relation to food security. Migrants’ remittances may have a direct income effect on food consumption, and the remittance-receiving households thus appear  better able to withstand food related shocks, such as a sudden increase in food prices. Households’ consumption stability through remittances suggests an important human development impact.

At the recent Migration, Urbanization and Food Security conference held in Cape Town, South Africa organized by the African Food Security and Urbanization Network (AFSUN), several research papers examined how cash remittances are used for paying daily household expenses, including food, clothing, debt repayment, rent, and medical expenses.[iii] The reality is that remittances have a positive impact on health and nutritional outcomes in the long run. A number of studies show that health and child ‘anthropometric’ parameters are better in remittance receiving households than non-receiving households.

My current research on Bangladesh, based on a 10,673 Household Remittance Survey dataset,[iv] shows that Bangladesh’s transnational labour migration is a debt-induced process, and that remittances have become critical components of current livelihood strategies that offer an important coping mechanism for households to maintain food security and protect against ‘consumption instability’. As remittances constitute a substantial portion of households’ income, they raise and improve access to sufficient and nutritious food and nutritional diversity. Migrants’ remittances have a direct effect on food consumption and the remittance-receiving households appear to be better able to withstand food related shocks, such as a sudden increase in food prices. This ‘consumption stability’ has human development impacts and may reduce unfavourable effects. In light of my ongoing research, and that of some of our colleagues here at CIGI and the Balsillie School, [v]  migration and food security may be the next big remittance story the media needs to pick up on.

Mohammad Moniruzzaman is a doctoral student working with Dr. Margaret Walton-Roberts in the department of Geography and Environmental Studies at Wilfrid Laurier University. His areas of research include global mobility of labor and capital, the effect of migration and remittances on food security and development.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.