Keeping immigrants out has become a top priority for many countries and, partly as a result, the flow of money from migrant workers to their families in the developing world is about to stop growing. That’s like freezing aid from developed countries to poorer ones and it may not ultimately benefit the richer nations.
European nations appear unable to agree on a plan to set up a quota system for resettling just 20,000 refugees throughout the European Union. Australia refuses to take in refugees from Myanmar and desperate Bangladeshi migrants taking leaky boats to the country’s shores, saying it’s already doing all it can by accepting 13,750 refugees a year — about 0.06 percent of its population. British Prime Minister David Cameron is about to introduce a bill that would make illegal working a criminal offense and empower the government to seize illegal migrants’ wages.
Developed countries are fed up with increases in asylum-seeking and the rebound in labor migration since the 2008 crisis. The reasons are transparent: In Europe, for example, the economic recovery is fragile and even local workers find it hard to find jobs. Spanish Foreign Minister Jose Manuel Garcia- Margallo used that argument explain Spain’s opposition to the proposed refugee quotas. “Pledging to take in migrants to whom you cannot provide work would be, in my opinion, providing a bad service,” he said.
Remittances have outstripped global economic growth for years. In 2014, according to the World Bank, money transfers to the developing world increased by 4.4 percent to $436 billion, while the global economy expanded by just 2.6 percent. This year, however, the trend is going to reverse; the World Bank forecasts that remittances will increase 0.9 percent, while the global economy will expand by 3 percent.
The bank lists tightening immigration rules as a reason for the slowdown, along with the drop in oil prices that’s hurting migrants reliant on Russia’s slowed economy and the continuing economic troubles of the euro area. But it means less help for very poor families in very poor countries. A 2005 World Bank study established that 10 percent growth in official remittances to a country reduces the number of people living on $1 per day or less by 3.5 percent.
Remittances are a bigger source of funding for the developing world as a whole than development aid and even portfolio investment in debt and equity, though less important than foreign direct investment.
Thanks to remittances, the Somali shilling was the best- performing currency against the U.S. dollar last year. In 2013, money sent home was equivalent to 49 percent of gross domestic product in Tajikistan, 29 percent in Nepal, and 21 percent in Haiti. Remittances provided $70 billion to India, $25 billion to Mexico and $15 billion to Bangladesh last year.
There is a moral aspect to reducing the amount of de-facto aid from the wealthier countries to the poorer ones, but that’s probably not much of a political argument when times are tough and local workers need to be taken care of first. According to a 2011 paper based on German data by William Olney, an assistant professor of economics at Williams College in Massachusetts, a 1 percent increase in remittances depresses the wages of local workers by o.06 percent. It’s a tiny effect but a politically significant one: local workers vote and often feel a disproportionate danger from immigrants. Studies also show that transfers from migrant workers tend to boost the emigration intentions of those who are left behind: More people want to be able to send money home.
Still, bottling people up in poor countries deprives these nations of all-important remittance growth, increasing poverty levels and the probability of unrest. Remittances are an important compensatory mechanism for global inequality, and undermining them may ultimately lead to increased refugee flows. Clamping down on immigration now could lead to bigger problems in the future.
Leonid Bershidsky, a Bloomberg View contributor, is a Berlin-based writer.
© 2015, Bloomberg News