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April 18, 2006
World Bank Economist David McKenzie Speaks on the Socio-Economic Impact of Remittances and Migration
As more and more people move across borders to find more rewarding work and a better life, the money these migrants send home now has an impact “bigger than foreign aid,” David McKenzie, an economist in the Development Research Group of the Growth and Investment Unit at the World Bank said at a seminar at The Fletcher School.
McKenzie spoke to Fletcher students and faculty on March 30 on “The Socio-Economic Impact of Remittances in Mexico” as part of the 2006 Speaker Series on Remittances and Development in Latin America.
According to McKenzie, the volume of remittances recorded in 2005 was five times more than in 1990, and increased 73% between 2001 and 2005. .
“This reflects a growth in migration, a shift in employment from the informal to formal channels, and less regulations on, and falling costs of, moving for work,” he said.
McKenzie is part of the team working on the World Development Report 2007 on Youth and Development, where he will be writing a section on youth and migration. He has written a number of papers looking at the impact of migration from Mexico on child health, education and inequality, and is working on a study of migration from the Pacific islands of Tonga to New Zealand.
McKenzie said that while remittances were earlier thought of as creating a cycle of dependency among families, recent studies show that “even if said families devote the remittances which they receive on other costs which may or may not benefit them, they can spend some of their own income on other uses, including productive investments.”
In his study of migrant workers in New Zealand who were sending money back home to their families in Tonga, McKenzie approached the issue of remittances and migration from two angles.
Under his first approach, McKenzie looked at the economic effects of remittances on families who were regularly receiving them.
McKenzie said the families see the regular remittances which they receive as manna from heaven. “Remittances change the spending patterns of families. They consume differently once they begin receiving remittances, mainly because the money being sent is usually devoted for specific purposes, such as tuition fees, parties, or other expenses,” he said.
McKenzie also said that the expectation of receiving remittances declines over time for almost all families. “Households view remittances as being temporary in nature, perhaps because the family member who is overseas is expected to return home after some time, or for other reasons,” he said. Citing the permanent income theory, which states that households will save a larger fraction of their temporary income, McKenzie said that households are expected to save or invest the remittance money they receive from abroad than they would for wage income.
McKenzie's second approach to the issue looks at the overall socio-economic effect of migration.
“The study found that remittances alleviate credit constraints among the families. They get better health care and health awareness, leading to lower infant mortality rate in migrant households. They buy more of everything, including schooling,” said McKenzie, adding, though, that children in migrant households unfortunately end up getting less schooling than those in non-migrant households.
“Since their parents are absent, the children are sometimes required to do housework in lieu of the parents,” he said.
McKenzie also noted there was an improvement in mental health among the migrant workers. “The improvement was mainly for women and for people with poor mental health prior to their migration,” he added.
Migration also has a ripple effect in communities, McKenzie argued. “Households in areas with higher migration rates are more likely to have a migrant that those in areas with lower migration rates.”
“Certainly, migration has a number of socio-economic effects which differ from the pure effects of remittances,” he added.
McKenzie said he expects migration and its impact to continue to increase for as long as policies are not in place that would encourage people stay in their home countries.
“But if this cannot be achieved in the meantime, governments should at least encourage their workers who are leaving to gain skills abroad and later on, to come back to their countries or invest there,” he said.
By Sharon R. Rivera, MALD '07
Posted by fletcher at April 18, 2006 04:53 PM
