Growth of global remittances to new highs and the slowdown in official aid has resulted in a growing belief that liberal open door immigration policies in industrialised countries can help make remittances the principal tool to transfer resources to rich countries. So much so that there is a growing belief that less developed countries may replace the slogan ?trade not aid? with ?migration not aid?. Some estimates made by the World Bank even show that an increase in the number of migrants by 3% of the OECG labour force will increase global welfare gains much more than obtained from the removal of all trade barriers.
The growth of remittances in the economy of low income countries has been facilitated by the increase in global migration whose total numbers are likely to be more than 200 million. This has facilitated the global remittance to steadily increase to more than $300 billion by 2006 and its estimated to have touched $433 billion in 2008. Though there have been innumerable studies on the economic impact of migration on the receiving country economies, especially on the labour markets, the links between migration and development in the sending countries have not received the deserved attention. This is because of many reasons the foremost been that the role of remittance in the overall economy has been relatively low in most large developing countries.
But the scenario is likely to change rapidly, especially since the labour force in developed countries are likely to peak by 2010 and decline by 5% in the next two decades. This will push up migration to new highs, especially since the gaps between wages in the developed and developing countries continue to grow. The general belief so far is that migration and the remittances generally alter income distribution in the source countries and improve global output as the workers become more productive in the host countries. The gains are larger when the less skilled workers emigrate. But the evidence of the actual impact is mixed. Many studies even now show that the general presumption that remittances play the same role in development as FDI and other capital flows is still an open question. This argument gains ground because of the general belief that migration also push up the outflow of skilled labour from poor countries resulting in a net decline of positive externalities which would have accrued to the society of their origin by their presence. However, the lack of reliable and extensive data to validate the theoretical questions and policy debates on the impact of brain drain has delayed any finite conclusions in this regard.Some studies show that migration of skilled labour has resulted in ?brain waste?. This is based on evidence from the US where it has been noted that skilled labour from Latin America and eastern Europe are more likely to end up in unskilled jobs as compared to immigrants from Asia, West Asia and Sub Saharan Africa. Other evidence shows that the growth of migration and remittances has a positive impact on the stability of the remittance receiving countries where the volatility of GDP growth has been reduced thus raising overall welfare.
Evidence from India show that remittances have been a stable source of funds which have not been affected by the risk-return considerations to the same extent as capital flows like portfolio investment or even NRI investments and have been a source of strength in the balance of payment position in India. This is validated by the most recent numbers which show that remittances has shot up sharply from $38.7 billion in 2007 to $52 billion in 2008, despite the global slowdown.
But the growing consensus now is that like in the case of decades of foreign aid, whose impact on growth of developing countries has been limited, there is very little evidence that remittances have contributed to economic growth in remittance receiving countries and that it may have even retarded growth. In India?s case Kerala, which has a substantial share of the country?s remittances, is the best example of how such large inflows have had an insignificant impact on development. This is a persuasive argument as experts point out that there is not a single example of a remittances success story, where remittance-led growth has contributed to development.