The poverty reducing effect of migration

In the context of a developing country like Bangladesh, migration and resulting remittances can have crucial implications for its growth and development. Overseas migration has been working as a key means of providing employment opportunities for the growing labour force, with the remittances sent by the migrants contributing at both the macro and micro levels.

For example, since the last decade or so, international remittances have been on a rise and during the last fiscal (2020-21), it reached a record high of around $24.8 billion (Bangladesh Bank, 2021).

However, not only international remittances, increased connectivity within the country and better employment opportunities in larger cities have led to a gradual increase in internal migration.

Both types of migration and resulting remittances have contributed directly towards the socio-economic welfare of the households and, in particular, played an important role in household consumption expenditure, thereby helping in eradicating household poverty.

Though it can vary across recipient households as well as with the characteristics of the migrant himself/herself, the micro effect of remittances can be quite substantial, especially for the rural households.

According to the Household Income and Expenditure Survey 2016 (HIES 2016) and with a propensity score matching (PSM) method across the migrant and non-migrant households, the former group wasfound to have significantly higher per capita monthly consumption expenditure in comparison to the latter, with such a difference prevailing not only for international migration, but also for households with members undertaking internal migration.

However, the contribution of remittances sent by the migrants living abroad is much stronger as the effect (from a technical point of view-average treatment effect based on nearest neighbourhood matching) of such migration on the per capita monthly consumption expenditure of recipient households is significantly higher (Tk 1,538.57 vs Tk 572.91 for the internal migration households).

Such a positive contribution of migration on the consumption of recipient households can be observed more prominently while looking at the household level poverty rates.

While considering both types of migration, we find a 1.1 percentage points reduction in headcount poverty rate (for upper poverty line) due to migration. The poverty-reducing impact of foreign migration and resulting remittance flows is found to be around 0.9 percentage points, with the effect being rather a modest 0.2 percentage points for the internal migration households.

While considering the lower poverty line, the effect of migration is found to be around 0.71 percentage points (0.57 percentage points for the international migration households and 0.14 percentage points for the internal ones). Therefore, while being a key source of income for the recipient households, migration and remittances tend to play a crucial role for their economic welfare.

It is not only during "normal" times, migration, especially the international one, has acted as a key form of coping instruments even in the context of Covid-19 pandemic induced income shock.

A nationwide household level survey conducted by the South Asian Network on Economic Modeling (Sanem) on 5,577 households during the November to December period of 2020 found that the incidence of poverty (headcount poverty rate), keeping in consideration the upper poverty line, was around 33 per cent for the migrant households (considering both types) while the poverty rate for their non-migrant counterparts was as high as 43 per cent.

In comparison to the pre-Covid (baseline being 2018) poverty rate of 11 per cent (which was 23 per cent for non-migrant households), during the pandemic, though the incidence of poverty increased for the migrant households, they were relatively less affected than their non-migrant counterparts.

From a different perspective, migration and resulting remittances tend to help households "cope" with economic shocks. According to the HIES 2016 data, a lesser percentage (17.39 per cent) of migrant households (considering both types) were found to be "vulnerable" to Covid-type shocks than their non-migrant counterparts (24.86 per cent).

Here, vulnerability to poverty can be thought of as an ex-ante concept, which is the probability that the consumption of a household will lie below the predetermined poverty line in the near future due to any shock or unforeseen future event.

Therefore, it might not be wrong to infer that, irrespective of the degree or of the type, migration has played a crucial role to "cope" and "resist" the economic consequences of Covid-19 for the Bangladeshi households.

In the context of migration and resulting remittances, a number of challenges, however, prevail, with the pandemic posing further concerns. In case of internal migration, one such challenge is the concentration of these migrants in mostly two of the mega cities of Dhaka and Chattogram. In addition, unplanned urbanisation along with a comparatively low pace of job creation are some of the other challenges.

As for international migration and remittances, despite a healthy flow during 2020-21, in recent months, there has been a declining trend.

The increase in official remittance flows in year 2020 and the subsequent decline in recent months can be linked to a number of factors- the monetary incentive of the government at the rate of 2 per cent for the remittances being sent through official ways is argued to have diverted remittances to be sent through official channels, with the unofficial channels being relatively inactive during the pandemic.

The recent fall, in the same manner, can primarily be attributed to the ease of pandemic related travel restrictions in recent months and the resulting reversion of the illegal cross-border financial operations.

Ease of travel and trade restrictions are argued to have resulted in trade related money laundering activities, inducing a greater degree of illegal transactions.

In addition, we must keep in mind that, Covid-19 has also affected international migration of those who planned to migrate abroad and according to a household survey of the Sanem during the January to February period of 2021 on 273 international migration households, many of these potential migrants were facing obstacles to migrate.

Factors like halts in visa processing (28.6 per cent) and increase in charges of recruiting agencies (23.2 per cent) were cited as some of the constraints for the potential migrants.

With a view to ensure sustainable international remittance flow, a twofold strategy can be considered: on one hand it is important to encourage the expatriates to adopt official channels through different forms of incentives, while on the other hand, to diversify risks in this pandemic stricken global economy, we must explore alternative destinations for sending migrants.

However, on top of it, the importance of raising the skill base of the migrant workers through greater focus on training, including the training on interpersonal skills and newer varieties of skills like those of ICT, computing, nursing etc can not be overemphasised.

In addition, strengthening the diplomatic ties as well as expanding the operation of embassies at destination countries are needed to safeguard the welfare of the expatriates abroad.

It is important to note that, despite international remittances being a key driver of our growth and development, the capacity of the Ministry of Expatriates Welfare and Overseas Employment is quite limited- increased budgetary allocation is important in this context.

In a separate note, for productive utilisation of remittance income of the recipient households, innovative and attractive investment schemes should be introduced. As for those undertaking internal migration, district-wise decentralised job creation in urban areas should be the central focus.

Besides, better transportation and connectivity along with better utility services and housing facilities in these urban areas should be in greater policy focus for planned internal migration.

The author is a professor of the Department of Economics at the University of Dhaka. Views expressed here are personal.