Now, as the fine FT chart from The tale of globalisation’s exiles indicates, remittances via the formal sector, wires and bank transfers as well as declared at border, are multiples of foreign aide, and estimates of the whole kit is well near foreign direct investment. Some bit of change indeed, at 200 to 300 billions. Enough to make one starry eyed thinking about what one can do with it.

But then the question comes, what can one really do with the dinero?

And what about the whinging on about brain drain?

Some economists are sceptical about the value of these flows, arguing that they do not compensate for the economic disruption caused to a country by high rates of migration. That is especially the case for countries that export skilled workers such as doctors or engineers.

In an article published this year*, for example, the late economist Riccardo Faini, formerly of the Centre for Economic Policy Research, demonstrated that skilled migrants remit less money to their home countries than unskilled, largely because the former are more likely to come from wealthier families and more able to bring dependants to the host country. The negative impact of the brain drain, therefore, is not mitigated by any increase in remittance income.

Not only do countries find themselves short of skilled personnel, they also effectively waste money training them. Jamaica had to train five and Grenada 22 doctors to keep just one, according to research cited by the World Bank, for example. In the Philippines some doctors have re-trained as nurses in order to go abroad.

I've never really grasped the point of complaining about brain drain.

Either one makes it attractive to stay in country or come back, or one doesn't. Talking about "negative impact" is all well and fine, but rather often this is talked about as if there is some force of evil sucking those poor Doctors away, evil capitalists or whatnot. I'm not convinced that having the well-trained expatriate for a number of years is such a loss, insofar as some do come back and bring back economically important ideas and practices. Some of your best sources of potential investment are the skilled migrants that get an itch around 40 to 50 years to come back home -if possible and possibly become entrepreneurs (as well as rescue the young daughters from becoming too Westernised [oops too late, but well...]).

I am rather more sympathetic to the worries that remittances lead to overvaluation of the currency (and as well push consumption and not investment, which will inevitably distort incentives domestically):

There is some concern about the macroeconomic impact of remittances. In countries that are exceptionally dependent on remittances for foreign exchange, the inflows can artificially inflate the value of a local currency, making imports cheaper and exports less competitive.

In addition, remittances can create economic dependency and reduce the willingness of poor communities to do low-paid manual work, especially among younger people.

Or to translate that last line, push consumption, undermine investment and work - and skew efforts not to making domestic things work but getting oneself drowned in the Mediterranean.

Of course, the hidden presumption in such a criticism is in fact that without the Magical European Lands to obsess about, that there are in fact opportunities if one tries hard enough.

While such are emerging as in MENA as government policy on business becomes marginally less idiotic and retarded the vampire state continues to make business, above all for small entrepreneurs well nigh impossible with benighted socialist "solutions" as making hiring and firing burdensome and taxing the living bloody hell out of everything to pay for the useless horde of bureaucrats that take six (yes six) people to simply process the notarisation of your business documents (as well as charge ridiculous - for again small entrepreneurs, not me really) 'fees' for the dubious privilege of having one's documentation notarised by some semi-literate cretins who got hired from some worthless state uni after chanting bankrupt slogans in front of some state office for a year.

When creating opportunity is hard, people leave.

Well, this rant aside, the positives cited by World Bank below:

But more recently, policymakers have begun to stress the positives, arguing – as the World Bank did in an important 2005 report – that remittances can reduce poverty and help the less well-off ride out downturns. As well as helping meet bills for food and medicines, transfers are used for school fees and books. The money tends to be more reliable than other sources of foreign capital: during the 1990s remittances were one of the least volatile sources of foreign exchange for developing countries. While capital flows tend to rise and fall with the economic cycle, flows of remittances were more stable. “They tend to be counter-cyclical,” says Mr Ratha.

Development economists such as Mr Ratha stress the importance of channelling remittances towards material assets such as houses or small businesses. There have been some signs that this is happening.

A 2006 study by the Inter-American Development Bank indicated that up to a third of migrants are investing money compared to only about 5 per cent in a similar survey conducted two years ago. Earlier papers by the same bank cite evidence from Turkey, Mexico and Egypt showing that remittances help migrants build up businesses and build homes.

Even so, governments will almost certainly need to do more in order to harness the potential of these flows. Remittances can be channelled into the formal financial system where they can – in theory at least – be converted into savings and a source of long-term investment. Successful investment schemes using remittances – some with government backing – are one of the main themes of this series.

This a fine idea, but channeling remittances into the formal financial system has two main hurdles: (i) the authorities love to tax the living fuck out of savings and firms - at least in MENA region - thus making it less-than-obvious as a decision to create a little business or invest your moola or even keep it in a bank, (ii) the fabulous and utterly insane American obsession with money laundering and terror finance, leading them to impose all kinds of typical law enforcement economically incoherent type 'solutions' on formal money transfers, while banging simultaneously on the drum of "shut down informal transfers" drum.

I shall leave aside my question of the factual basis of American obsessions with money laundering / remittances and "terror finance" (and let me note if you run into American officials in MENA at some financial conferences they can not seem to restrain themselves from blithering on about the subject and asking if say - and this was actually asked - microfinance was being brought into the Know Your Customer Bureuacracy to ensure it does not finance terrorism...). I would focus rather that imposing heave reporting on remittances raises the costs (and as well scares people off sending money to places where the government tends to find ways to steal or tax it) such that the formal financial sector looks even less attractive. So, in the name of fighting informality, etc. they end up promoting via their statist police informed economic illiteracy.

But let me restrain my irritation with the idiotic American djihad to impose their ill-conceived responses to 11 September on the entire planet.

Rather a final comment on remittances not directly linked to the above (except a statist angle) - Migration found to help girls left at home:

Migration has a positive impact on girls’ education, healthcare and fertility rates in countries that export labour, according to a study by the World Bank published on Wednesday in Cairo.

“In a lot of countries, [such as] Pakistan, boys are favoured over girls, so they get a larger share of household resources,” said Maurice Schiff, the lead economist and co-editor of the report. “When additional income comes to the family through remittances sent by a migrant abroad, more tends to go to girls.”

The World Bank study found that, in Pakistan, the effect of having a migrant worker in the family was to increase female enrolment in schools by as much as 54 per cent, compared with just 7 per cent for boys.

Other results showed that girls from migrant households stayed in school on average two years longer than those from non-migrant families. There was also an impact on child labour because children who had a father earning money abroad were less likely to be sent out to work and those who were, worked about 66 per cent less.

It also found that migration improved the height and weight of the children of Pakistani and central American migrants.

More money also meant better access to healthcare. In Nicaragua, remittances significantly improved the likelihood of doctor-assisted births, a big factor in reducing maternal mortality.

Another finding was that fertility rates have declined in those parts of Morocco and Turkey that export labour to Europe. It attributed this to “the transmission of ideas and modes of behaviour from host to source country”.

The report also found that returned migrants could command higher wages in their home countries. Egyptians who had worked abroad earned up to 38 per cent more than those who had not travelled.

The benefits, says Mr Schiff, are not confined to labour exporting countries.

“There are studies which show that if you increase the labour force of OECD countries by 3 per cent, or 15m people, with the same distribution across occupations, the benefits would be larger than if all the countries of the world liberalised their trade,” he said.

Mr Schiff says these benefits should provide a strong argument for countries that receive labour to adopt systems for temporary migration in which, for instance, a proportion of a worker’s salary is paid in the home country and is only available after the worker’s final return. Such a system, he said, would maintain the benefits of remittances to poor countries, cut the brain drain from the developing world and let host countries control the size of their ­population.

Emphasis added.

First, the positive note re increased wages for returnees.

As a private sector operator, sometime entrepreneur and venture capitalist, my anecdotal experience is that (i) those who go overseas usually had a bit more oomph and initiative than those who have not [although obviously this depends on precise circumstances, the spoiled privileged brats that go overseas for some sinecure are a key exception]; (ii) experience outside of home country even if not outside of region tends to expand horizons and expose workers and managers to new approaches - better or not, it helps get out of whatever habitual rut exists in terms of local business practice (and in markets that grew in the past 50-60 years post-independence as protected fiefdom of rentiers breathes of fresh air are invaluable).

Second, regarding the absolutely idiotic suggest by Schiff, I have to ask myself, presuming Schiff is German (and even if he is not) what the bloody fuck makes him think that "temporary migration" a la the Turks in German is going to work, and how on earth would the foolish proposal to dock workers pay work in any realistic fashion? Hint - it wouldn't, other than creating at best a bureaucracy that would eat up some portion of the remittances and drive more people into informal employment to avoid the tax.

Bureaucratic solutions..

_________

Some other Lounsbury reflexions in this area:

Developing Private Markets, Promoting Growth etc: US & Iraq, how to fail miserably all around

Risk Taking and Egypt (Umm ad-Dunya, example to the Arab world ... or simply easy place for Anglo Journos to do interviews....)

Note 1: Hawala is a largely Asian / Asian Arabic term for informal money transfers (although in formal Arabic, the word indicates quite simply transfers). Nothing more amusing than seeing some American pointy headed bureaucrat button-holing a Maghrebi banker and asking about Hawala developments, and having said banker in confusion respond about Western Union and Money Gram..... to the utter confusion of the American.