By Sabith Khan
I spoke at a Rotary Club event recently where an audience member asked me if the net effect of remittance was to take money out of the United States. Is that not a net loss to the U.S. economy?
In 2017, the amount of money going out was to the tune of $574 billion, according to the Pew Research Center. This is the total of remittances flowing out of countries around the world to receiving countries. This is largely from the income of migrant workers who are either residents or citizens of the adopted country.
Migrants sent remittances to their relatives, friends and, in some cases, nonprofit organizations that develop the economy and build schools, hospitals or other needed institutions.
This phenomenon represents a sort of a social tie or solidarity on the part of the migrants. Scholars have studied it as one of the transnational bonding behaviors.
In the grand scheme of things, remittances represent the solidarity or social ties between family members and members of the same community across national boundaries. This can be seen as part of an obligation or duty or other forms of solidarity that can build the resilience of communities in the receiving countries. This means that remittances are a strong factor in keeping some communities afloat, especially if they are going through difficult times due to economic crises, war or similar disturbances.
Here are some facts to contextualize the phenomenon of remittances:
• There are 232 million international migrants in the world.
• About 180 million people send money home regularly.
• The global average of remittances is $200 per month, while for Mexico it is about $300 per month.
• Some countries are heavily dependent on remittances. For example, 35 percent of the gross domestic product in Somalia is from remittances.
So, does a sending country such as the U.S. benefit from remittances? The net effect, many would argue, is negative, given that money is flowing out of the U.S. and into other economies around the world. Isn’t this a net loss? Not quite.
Here are a few benefits to the sending countries:
• Goodwill or “soft diplomacy.” The money sent from the sending country to the receiving nation not only builds stronger ties between the people, but could arguably cause the receivers to have a positive regard for the sending country. There could be a “diplomacy” angle to this phenomenon.
• Money transfer firms make money. The firms involved in the transfer of money, including banks, Western Union and MoneyGram, make money in the process.
The discourse around remittances is intimately tied to that on migration. While the current mood in the U.S. and many parts of Europe is extremely nationalistic, one must remember that, ultimately, migrants bring a positive net value to the economy and society of which they are a part.
Migrants create jobs and new opportunities and also bring greater energy and positive momentum to local economies.
Migration is not a zero-sum game, meaning that the locals don’t lose at the expense of migrants. Look at the most productive state in the U.S. — California — and particularly the Silicon Valley, which runs on migrant labor and creativity creating trillions of dollars of value each year.
Remittances in this sense benefit the sending country in multiple ways — both at the level of the individual as well as the state. Countries that have large migrant populations try to maintain positive relations with the sending countries as this relationship is usually symbiotic. Looking at the relationship between the Persian Gulf countries and South Asia, one can see how this phenomenon is impacted by the flow of people and money between these countries.
• Sabith Khan is an assistant professor in the California Lutheran University School of Management and has a doctorate in planning, governance and globalization.