Media Briefings

Rich Countries’ Openness To Migrant Workers Helps Poor Countries’ Development Through The Money Sent To Families Back Home

  • Published Date: April 2008

Money sent home to developing countries by migrant workers in the rich world
is typically spent wisely, helping to pay for family members to go to school and
start businesses. That is the central finding of new research by Professor
Dean Yang
published in the April 2008 issue of The Economic Journal.
His study documents a specific channel – the earnings opportunities of
migrants (and hence the size of the ‘remittances’ they are to able to send
back home) – through which rich countries' immigration policies can help or
hinder poorer countries’ development.
Countries that expand employment opportunities for overseas workers can
stimulate investment in human capital (education) and entrepreneurship in
poor-country households. By contrast, eliminating temporary work
permissions for overseas migrants could have the opposite effect.
Some claim that remittances are mainly spent on conspicuous consumption
that has few long-run benefits for recipients. But this study of the impact of
increased remittances sent to migrants' origin households in the Philippines in
the wake of the Asian financial crisis finds little reason for pessimism.
While remittances did pay for durable goods like televisions, households also
used these resources to make investments in education and household
enterprises to improve their future prospects.
Millions of developing-country households receive financial support from
family members who work in the rich world. Yet, until recently, there has been
surprisingly little hard evidence that shows how households benefit from
such help.
Discovering how families might benefit from remittances is not a trivial
undertaking. The difficulty is that differences in remittance receipts across
households may reflect other underlying differences not observed by
researchers. For example, households with higher education levels should
have more educated migrants. More educated migrants would earn more
overseas, and might also remit more.
In addition, highly educated parents would also be more likely to send their
children to school. There would then be a positive relationship between a
household's remittances and child schooling, but this does not necessarily
mean higher remittances cause more schooling. Rather, both are being
caused by an underlying third factor: the household's education level.
Scientists conduct experiments to determine cause and effect in the lab, but
experiments are often impractical in the real world. But a real world ‘natural
experiment’ nearly replicates a laboratory experiment among migrant families:
the Asian financial crisis. In June 1997, the Thai baht’s devaluation led to
speculative attacks on several other currencies worldwide. Many countries
experiencing exchange rate devaluations hosted substantial overseas
Filipino populations.
During the crisis, the Philippine peso also depreciated substantially. For an
overseas worker earning wages in foreign currency, the peso’s depreciation
was a boon: foreign earnings became convertible to more pesos.
Because migrants were located in a wide variety of countries, there was
substantial variation in the size of migrants’ exchange rate shocks.
Households with migrants in the United States and the Middle East benefited
the most. Between July 1997 and October 1998, the US dollar and currencies
in the main Middle Eastern destinations of Filipino workers rose 50% in value
against the Philippine peso.
In other words, where prior to the crisis, $100 in migrant earnings would have
been worth roughly 2,650 pesos, $100 was worth over 5,000 pesos on
average in 1998. But Philippine households with members working in other
countries did less well. After the crisis, the Taiwanese, Singaporean, and
Japanese currencies rose only about 25-30%; the Malaysian and Korean
currencies fell slightly against the peso.
When exchange rates for overseas Filipinos improved, remittances received
by their families back home increased, and families became better off on
several dimensions. Children became more likely to stay in school, and child
labour declined. Families purchased more durable goods (vehicles,
televisions and living room furniture).
In addition, families invested more in entrepreneurial activities. They initiated
more capital-intensive types of entrepreneurial activities (small manufacturing
and transportation services) and worked more hours in self-employment.
Notes for editors: ‘International Migration, Remittances, and Household
Investment: Evidence from Philippine Migrants' Exchange Rate Shocks’ by
Dean Yang is published in the April 2008 issue of The Economic Journal.
Dean Yang is at the University of Michigan.
For further information: contact Dean Yang on +1 734 764 6158 (email:; or Romesh Vaitilingam on 07768 661095 (email: