CONCERNS are often expressed about the expanding role of workers’ remittances in the economy. They typically focus on the perceived risks of brain drain, excessive consumption, import leakage, exchange-rate overvaluation and the possibility of Dutch Disease. In contrast, empirical evidence shows that remittances contribute substantially to socioeconomic development. A stable source of external inflows, they help build foreign-exchange buffers, reduce dependence on external borrowing, support financial sector deepening and enhance macroeconomic stability by easing pressure on the current account. They play a critical role in poverty reduction, narrowing income inequalities and strengthening human capital by financing education, healthcare and housing. In times of economic stress, they are vital lifelines for households.
There’s also evidence of skill upgrading among those preparing to migrate and among returnees, resulting in brain gain effects. Studies show that overseas job opportunities have encouraged the Philippines to train more nurses and India to produce more computer scientists, actually increasing the stock of skilled workers at home.
Misconceptions about remittances largely stem from the way workers’ remittances are treated statistically and methodologically under WTO’s General Agreement on Trade in Services and IMF’s Balance of Payments (BOP) framework. GATS classifies services according to the service provider’s nationality. Under Mode 4, a service supplier is considered foreign, irrespective of the duration of stay abroad. But the IMF defines workers’ services on a residency basis. If an individual lives abroad for over a year, he/she is treated as the host country’s resident, and transactions between residents are excluded from exports of services in the current account, being recorded, instead, under secondary income.
