By Kindred Winecoff
Several aspects of the Great Global Decession (no sic) that should interest students of IPE are the knock-on effects of the global economic slump. These won't get the same headlines as 500 point drops in the Dow or 9% unemployment, but they can be similarly significant.
So I've been interested to see how the downturn will affect trade flows, LDC development, currency valuations, immigration trends, and the like. Along those lines, we're starting to get some reports on remittance flows, and PSD notes the results are a bit surprising:
One of the bright spots in the financial crisis so far has been the resilience of remittance flows to developing countries. While other forms of private finance fled developing countries when the international financial system came under stress, migrants kept sending money home. The latest Migration and Development Brief from the World Bank contains the relevant details: remittances to developing countries rose 15 percent between 2007 and 2008.
This is heartening, but also somewhat perplexing. Why should remittances be going up during a global downturn? It isn't entirely clear. But there is an intriguing possibility:
[T]he combination of a weak rupee and higher interest rates in India compared with rich countries, may go a long way towards explaining last year’s vastly increased flow of remittances from Indians abroad.
[F]lows to some South Asian and East Asian countries increased sharply in 2008 partly because depreciating currencies against the US dollar made assets in the home country more attractive, with a “sale effect” resulting in a shift in remittances being sent for consumption motives to investment motives.
So immigrants are using the "flight to safety" appreciations of the dollar and Euro to maximize the value of remittances. But trends in 2007-08 don't necessarily paint the full picture. After all, quite a lot happened late in 2008 and early 2009. So it's worth asking whether the '07-08 trend has continued. Emmanuel notes that it has, at least in the Philippines:
Dilip Ratha, widely known as the authority on remittances, expects a 4% decline in remittance inflows. Notably, even Nouriel Roubini's RGE Monitor is in agreement that Philippine remittances will decline.
However, the methods all these entities use is not very sophisticated by their own admission. I have been at a conference where Dilp Ratha spoke. He explained how he arrived at his predictions. Basically, it involves establishing what percentage remittances to a source country are of a destination country's GDP. Next, inflows to a source country are projected by multiplying the percentage arrived at against the predicted GDP in the destination country for 2009. Unsurprisingly, using such a formula yields the negative expectations all these banks, IFIs, and research groups have as a function of declining economic activity in most destination countries.
This unanimity would be all well and good if it were not for remittances to the Philippines, er, increasing in the first half of 2009. Moreover, in not a single month has there been a year on year decrease in remittances. RGE casting aspersions on official predictions of a slight increase in remittances have proven to be wide of the mark thus far.
Obviously this is still developing. But if remittances hold up against expectations it can only be considered a good thing.