A Question of Money

Is the Allure of Remittances Fading?

Questioning orthodoxy is often the hardest, least rewarded task. Everyone hates a whiner, and even the most artful of dissenters rarely appreciate the value of their own kind. But only by pushing and prodding can we expand our understanding of the way things are, always with the aim of shifting them towards the way things should be. When J.K. Galbraith coined the term ‘conventional wisdom’ in the 1950s he did so in the belief that there was “a persistent and never-ending competition between what is right and what is merely acceptable”. He wanted to root out and analyse ideas that were popular only because they could be understood within a broad social consensus, regardless of their content. They were persistent because people built on them, using the same or similar methods to produce slightly different explanations.

I’ve written about money sent home by overseas workers to the Philippines before, but allow me now to consider recent comments by others to put the issue in perspective. When I attended the opening forum of the International Migrant Alliance in Hong Kong not long ago, the most credible of the speakers had an interesting tale to tell. Sonny Africa is an economist with the IBON foundation, a left-leaning think tank in the Philippines. He argued, very much against the conventional wisdom, that remittances might well be propping up individual households in the country, but there was no hard evidence that they were encouraging anything but low-level investment. Most importantly, he said that remittances were not beneficial to long-term economic growth.

Africa’s position sounds like sour grapes in a country that received a staggering US$17 billion in remittances last year, second only to vastly more populous China at $US25.7 billion. But other economists have been questioning remittances recently – not dismissing them, but asking whether their beauty is in the eye of the beholder.

YouNotSneaky, an economist blogger far more perceptive that the name suggests, has argued in much the same way as Africa that the benefits people think come from remittances are actually from the transfer of money within households. The overall economic benefit, he argues, comes not from the remittances themselves but from the entire process of labour migration. Reviewing the post at Marginal Revolution, Tyler Cowen agrees that “the gains are to be found in the immigration itself, not the subsequent transfer. Beware double counting.”

Where Does All the Money Go?

Remittances, Consumption and Corruption in the Philippines

One of the cruel ironies of Philippine national life is the reliance on remittances as an economic crutch. There have long been suggestions that the staggering amount of money flowing into the country from emigrants abroad – the Bangko Sentral ng Pilipinas puts it at US$14.4 billion for 2007 alone, or around 10% of GDP – is beneficial for domestic savings and economic growth in the depressed rural regions. That’s what University of the Philippines economist Ernesto Pernia argues in a discussion paper released earlier this month. But why is almost all of the country still dirt poor?

Pernia has part of the answer – most of the money goes to the relatively better off, who can afford to send a family member overseas in the first place. Another indication that something is amiss came from the World Bank chief in the Philippines, Bert Hofman, when he commented last week that there were “too little investments [sic] in this country”. Leaving aside investment by foreign companies, you might presume that the remittance wealth is trickling down into a modest amount of domestic investment, but that doesn’t seem to be the case.