Trade Adjustment Costs in Developing Countries: - World Bank ...

202Gordon H HansonWho benefits from the increase in income that migrants enjoy? Through remittances,migrants share a portion of their extra income with family membersat home. Table 12.4 shows workers’ remittances received from abroad as a shareof GDP by geographic region. Remittances have increased markedly in East Asiaand the Pacific, Latin America and the Caribbean, South Asia, and Sub-SaharanAfrica. As of 2005, remittances exceeded official development assistance in all regionsexcept Sub-Saharan Africa and were greater than 65 per cent of foreign directinvestment inflows in all regions except Europe and Central Asia. Among thesmaller countries of Central America, the Caribbean, and the South Pacific, remittancesaccount for a large share of national income, ranging from 10 per centto 17 per cent of GDP in the Dominican Republic, Guatemala, El Salvador, Honduras,Jamaica, and Nicaragua, and represent an astounding 53 per cent of GDPin Haiti (Acosta, et al., 2007). Remittances appear to have fallen sharply with therecent global economic downturn.Having migrants abroad provides insurance to households, helping themsmooth consumption in response to income shocks. Yang (2007) examineschanges in remittances to households in the Philippines before and after the Asianfinancial crisis. As of 1997, 6 per cent of Philippine households had a memberwho had migrated abroad. Some had gone to countries in the Middle East, whosecurrencies appreciated sharply against the Philippine peso in 1997–98, while othershad gone to East Asia, where currencies appreciated less sharply or even depreciated.Consistent with consumption-smoothing, remittances increased morefor households whose migrants resided in countries that experienced strongercurrency appreciation against the peso. Since income shocks associated withmovements in exchange rates are largely transitory in nature, the response of remittancesreveals the extent to which migrants share transitory income gainswith family members at home. A 10 per cent depreciation of the Philippine pesois associated with a 6 per cent increase in remittances.There is some evidence that increases in remittances are associated with increasedexpenditure on education and health. Yang (2007) also examines changesin household expenditure and labor supply in the Philippines. Households withmigrants in countries experiencing stronger currency appreciation vis-à-vis thepeso had larger increases in spending on child education, spending on durablegoods (televisions and motor vehicles), children’s school attendance, and entre-Table 12.4: Workers’ Remittances and Compensation of Employees, % of GDPRegion 1992 1996 2000 2006East Asia and Pacific 0.55 0.69 0.97 1.46Europe and Central Asia 0.32 1.04 1.45 1.42Latin America and Caribbean 0.66 0.71 0.99 1.92Middle East and North Africa 5.67 3.32 2.87 3.64South Asia 1.74 2.39 2.83 3.47Sub-Saharan Africa 0.68 0.94 1.35 1.45Source: World Development Indicators