FEBRUARY 2007
Dr. L. Alan Winters
Director of the Development Research Group
of the World Bank (Washington DC)
on
‘The World Bank’s research and policy agenda
on international migration and development’
Ü Eurasylum Ltd: Whilst international development experts have always acknowledged the role of migration, particularly through the contribution of remittances and the acquisition of new skills, in reducing poverty and enhancing growth, there is today increased recognition of the fact that international migration cannot be a substitute for sound country-led economic development strategies. Over the last couple of years, the World Bank has developed a far-reaching research programme on international migration that includes extensive data-gathering and analysis of its impact on the economic aspects of development. The Bank has also set out to operationalise its research findings within the framework of its poverty and development strategies in its member countries, and to identify migration policies, regulations and institutional reforms that can lead to improved development outcomes. Can you guide us through the key activities and policy priorities of the World Bank�s research programme on international migration?
Ü Dr. L. Alan Winters: Migration has a huge potential to enhance development but it also poses serious economic and social challenges in both developing and developed countries. One early study by Terrie Walmsley and myself suggested that if OECD countries increased the number of workers they admitted from developing countries by an amount equal to three percent of OECD’s labour force, the gains would exceed those from total world trade liberalization. Furthermore, these gains would be shared roughly equally by the OECD and source countries. Allowing workers to move to where they are most productive engenders an enormous increase in aggregate world income and output.
The economics of international migration have been under-researched in the past, due in part to data unavailability and political sensitivities. But they have now become a key area for World Bank research, including the construction of new and improved datasets, empirical analysis of the developmental and financial impacts of migration, and the design of policies and institutions to enhance these. Various World Bank departments and regions are collaborating in these efforts, and researchers have close relationships with counterparts in other international organizations, statistical authorities, and academics working on these issues.
World Bank research to date has emphasised several issues: analysing the trends and composition of migration and remittance flows with a special focus on skilled migration (i.e. the brain drain); assessing the impact of migration and remittances on household welfare; and calculating the macroeconomic and aggregate effects of migration on development. There have been numerous academic papers and books along with regional reports for Latin America, Eastern Europe and former Soviet Union countries. Some new results will be released in a book to be published in the spring including a new database on bilateral migration flows, work on returnee migrants and the analysis of migration policies of several destination countries such as Switzerland and Japan.
The Bank’s future research agenda includes continuing work to improve our data bases, more research on the brain drain, South-South migration and gender-migration linkages, further analysis of temporary migration, and deeper understanding of the links between migration, trade and FDI flows. There are also country and region-specific efforts to analyse migration-related institutions and policies, such as the healthcare delivery regimes in Sub-Saharan Africa, remittance and financial market issues and education policies in various developing countries.
Looking ahead, the Research Group’s agenda will focus on four of these areas. First, we will continue to study the extent and impact of brain drain from developing countries, which I’ll talk more about later.
Second, previous efforts to study the linkages between migration and poverty will be expanded and deepened. Data from new and detailed household surveys in Ghana and of the migration corridor between Japan and Brazil will become available in 2007. An analytical innovation in the latter is experimentation with different survey methods which will contribute to our understanding of best practices in migration surveys in terms of the trade off between data quality on the one hand and cost on the other.
The third area of research is temporary migration. In this context an extensive project on the determinants, impacts and consequences of temporary migration from Sri Lanka is underway, which focuses on policies in destination and origin countries and their impact on the gender composition of migration and on other outcomes at the household level. We are also analysing survey data collected in Kerala, India, and plan to survey the same families more than once to form a panel data to analyse dynamic effects of migration and remittances especially temporary migration to the Persian Gulf area.
Last, we will continue to work on the linkages between migration, trade and FDI, including on the role of migrants in promoting FDI flows to or exports from their home countries, and contrasting the labor market effects of these different modes of integration.
Ü Eurasylum Ltd: The theme of the World Bank’s Global Economic Prospects for 2006 was International Remittances and Migration. The report indicates that remittance flows to developing countries in 2005 might have amounted to about USD 250 billion, a volume that would have largely exceeded the amount of foreign direct investment and official aid received by developing countries. The report also shows that nearly 45 percent of remittances received by developing countries originate in other developing countries. The Global Economic Prospects for 2006 discusses a range of policy recommendations to maximise on the economic benefits of labour migration and remittances, including through the promotion of temporary migration programmes with incentives for return, and the strengthening of competition in the remittance banking sector. Can you review, briefly, some of the World Bank’s key policy recommendations in the field of migrants remittances, and highlight the different institutional actors that could play a role in maximising the development potential of such financial transfers?
Ü Dr. L. Alan Winters: In general, our research has shown that remittances arising from international migration have a beneficial effect on poverty reduction, child health outcomes, and school attendance in the receiving families as well investment on human and physical capital. They also ease credit constraints on small businesses in origin countries. However, the prevalence and magnitude of these positive effects depend very much on the size of the migration flows and their characteristics.
We believe that there is considerable scope for reducing remittances costs faced by poor migrants, especially along the more heavily used migration routes. There are many different ways in which remittances can be transferred from a sender to the beneficiaries. Formal transactions often involve institutional actors such as money transfer operators (MTOs), banks, credit unions, microfinance institutions, merchants, money exchanges, cellular phone companies etc., whereas informal transfers go through friends, relatives, missionaries and other individuals who are willing to carry the money back home. Although there are various actors involved in these transactions, governments, through their regulatory activities, in both destination and origin countries are the most important drivers of change in order to decrease the transaction costs for and increase the safe delivery of migrant remittances.
Governments can improve the access of poor migrants to formal financial services through policies that encourage the expansion of banking networks, allow domestic banks from origin countries to operate overseas, provide identification cards to migrants, and facilitate the participation of microfinance institutions and credit unions in providing low-cost remittance services. They can also support the introduction of new technology in payment systems used by service providers. Remittances, in turn, can be used to support financial products e.g. housing and consumer loans and insurance for poor people.
A second set of policies could improve competition in the remittance transfer market and thereby lower fees. Competition could be increased by lowering capital requirements on remittance services and opening up postal, banking, and retail networks to non-exclusive partnerships with remittance agencies. Disseminating data on remittance fees in important remittance corridors and establishing a voluntary code of conduct for delivering fair-value transfers would improve transparency and reduce prices for remittance transactions. In this context research institutes and multilateral organizations can assist sovereign states to collect data that are comparable on a global level.
Innovative private sector solutions can also increase competition in the remittances market. Card-based instruments, such as stored value cards (similar to phone cards), credit cards, and debit cards, are now frequently used to send remittances to urban locations that have access to card-processing machines. Systems such as iKobo.com use the Internet to make remittances. It is likely that systems such as PayPal and other services to move money between virtual accounts, could develop into tools for transferring remittances. We have for instance seen example of similar technology being used in the Philippines and Kenya to send fast and reportedly cheap remittances using a cell phone.
Of course, the regulatory regime governing remittances must strike a balance between curbing money laundering, terrorist financing, and general financial abuse, and facilitating the flow of funds through efficient formal channels. Policies that encourage formal operators to imitate the best practices of informal transfer systems will benefit poor migrants.
Before concluding on remittances, however, let me register a couple of caveats. Remittances are very much the tail of the migration dog: without migration there would be no international remittances. Remittances are often ordinary transfers within an extended family that just happen to get recorded because they cross an international border. They are useful additions to income, but they are not a substitute for development. Several origin countries have attempted to improve the developmental impact of remittances by introducing incentives to increase flows and to channel them to more productive uses. Such policies pose clear risks. Tax incentives to attract remittance inflows, for example, may also encourage tax evasion, while matching-fund programs to attract remittances from migrant associations may divert funds from other local funding priorities. Efforts to channel remittances to investment, meanwhile, have met with little success. Fundamentally, remittances are private funds that should be treated like other sources of household income. Efforts to increase savings and improve the allocation of expenditures should be accomplished through improvements in the overall investment climate, rather than by targeting remittances. Similarly, because remittances are private funds, they are not substitutes for official development aid.
Ü Eurasylum Ltd: In a report on Skilled migration: the perspective of developing countries published by the World Bank, the authors argue that, whilst the brain drain has gained in magnitude throughout the 1990s, optimal policy responses remain unclear. The report shows, for example, that countries that would impose restrictions on the international mobility of their educated residents, arguing that the emigrantshuman capital would have been largely financed publicly, could in fact decrease the level of their human capital stock in the long run. The report stresses the need to design quality-selective immigration policies that would address the differentiated effects of the brain drain across countries of origin without distorting the whole immigration system. This could be achieved, at least partly, by designing specific incentives to return migration for those countries most negatively affected by the brain drain, and by promoting international cooperation aiming at more brain circulation. At a time when an increasing number of developed countries, particularly within the European Union, have set out to integrate the brain drain variable into their economic migration strategies and regulations, how would you summarise the current state of knowledge on the benefits and potential risks of highly skilled migration, from the point of view of both the source and receiving countries ?
Ü Dr. L. Alan Winters: The debate on the brain drain is an old, but so far incomplete, one. Partly that is because until 2005, reliable and comparable data with which to find answers to the theoretical questions were not available. A major contribution of the World Bank has been to publish the most comprehensive and rigorous database to date on skilled labor migration from all countries into each OECD destination country for the years 1990 and 2000 (created by F. Docquier and A. Marfouk).
This dataset is helping us to understand the magnitude of brain drain and it unveils 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. 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.
We are now extending the database to cover the age at which migration occurred, the location in which education was acquired and the migrant’s gender. We are also working to identify foreign born physicians in the 16 most important OECD destination countries.
Knowledge of the impact of skilled migration has improved substantially during the past few years. It is clear that the implications for poor sending countries can be stark. Among the positive externalities that are lost with the emigration of educated workers are (i) the positive effects on the productivity of colleagues, employees and other workers, (ii) the provision of key public services with positive externalities, such as education and health, (iii) the fiscal externalities associated with the fact that the taxes they pay are larger than the value of the public services they consume and the public funds invested in their education, and (iv) their contribution to the debate on important social issues and their impact on policy and institutions.
However, there are some benefits for source countries as well. It is likely that some of those who migrate return with greater skills, and we are currently researching both the factual and policy dimensions of such return. Some argue that the cost of the skilled migrants departure may be small because those who leave would have been unemployed or underemployed at home. Other positive effects from the emigration of skilled workers are remittances, inward investment, technology transfers, increased trade flows and the charitable activities of the diaspora communities. However, these transfers are often conditioned upon an overall good investment climate in the country of origin.
Finally, some scholars argue that the prospect of being able to emigrate increases incentives to acquire education and that if not all of the additional trainees actual emigrate the source country could end up with a net increase in available skills. Overall we do not find this so-called beneficial brain drain hypothesis particularly plausible. Moreover, we have uncovered cases where the chance to migrate to take up a better-paid unskilled job causes developing country residents to ignore the skills they have already acquired and, in the long run, to take less education.
I hypothesize that the net impact of the migration of skilled workers is worst for mid-sized countries. Very small countries cannot usually offer sufficient opportunities for very skilled workers; at the other extreme, very large countries such as China and India face only small proportionate losses while their diasporas are absolutely large enough to generate significant benefits. For mid-sized countries, however, proportionately large outflows occur, possibly preventing the creation of a critical mass of skilled workers at home while being insufficient to generate large diaspora benefits.
The intuitive response to the brain drain is to try to plug the drain. However, seeking to limit mobility may not be efficient given the considerable benefits that migration can deliver to global efficiency. It also compromises the individual migrant’s human right. Better approaches to decreasing the brain drain and mitigating its impacts include the creation of incentive packages for skilled workers to stay in their country of origin voluntarily, changing educational priorities to feed the demand for workers at home rather than in the West, and allowing dual citizenship policies in order to foster return. One current research project aiming to operationalize recent advances on the brain drain seeks to identify incentive packages that could be provided to physicians in Ghana in order to reduce emigration.
