Migration and Development Finance: The Case of South Asia and the Gulf

Remittance flows from Gulf States alone range between 1 to 3 times the size of ODA flows in five countries surveyed: Sri Lanka, India, Pakistan, Nepal, and Bangladesh.

June 13, 2012

Ben Buch, Jaclyn Goldschmidt


South Asian construction workers return to a labor camp

outside Dubai Dubai, UAE, Wednesday, Oct. 31, 2007

(AP Photo/Kamran Jebreili)

A growing number of researchers who study non-DAC donors and South-South cooperation have turned their attention to sources of development finance other than aid. In particular, the role that remittances play in the economic growth and development process of low-income and middle-income countries has emerged as a topic of significant interest to scholars and policymakers. To see why, consider India. Because of its large diaspora community, India received more remittances than any other country in the world in 2010. While one might assume that OECD countries would supply the bulk of these remittances, Gulf countries were in fact responsible for 45% of India’s 2010 remittances.  India received more in remittances from the United Arab Emirates than from the United States.  In fact, this pattern can be seen throughout much of South Asia.  The wealth transfers that have resulted from these migration patterns have potentially far-reaching implications for politics and economic development in South Asia.

The Hudson Institute’s Index on Global Philanthropy and Remittances provides data on the volume of remittance flows between Gulf countries and South Asia.  Now posted on the AidData website, the dataset contains estimates of bilateral remittances for the year 2010, as calculated by Dilip Ratha and Sanket Mohapatra at the World Bank.  Using these estimates, we decided to explore the volume of remittance flows from the Gulf to South Asia and compare these flows to traditional ODA flows.

For the purposes of our analysis, we define “South Asia” as the five core South Asian states: India, Pakistan, Bangladesh, Nepal, and Sri Lanka.  We consider “the Gulf” to include the six original states of the Gulf Cooperation Council: Qatar, Saudi Arabia, United Arab Emirates, Oman, Kuwait, and Bahrain.

We first assess the relative economic significance of remittance flows.  To gauge the scale of these flows, we compare 2010 remittance flows from the Gulf countries to South Asian countries (as a percentage of recipient GDP) with total 2010 multilateral, non-DAC,  andDAC bilateral aid flows (as a percentage of recipient GDP). The results are provided below.

We find that estimated remittance flows from Gulf States alone range between 1 to 3 times the size of ODA flows in the five countries surveyed. In all five countries, remittance flows from the Gulf exceed one percent of GDP, indicating that remittances constitute a significant overall force in each recipient’s economy.  The size of these flows is important for two key reasons.  First, remittance flows will likely impact economic growth and development patterns in fundamentally different ways than traditional aid.  Second, it shows that political instability in the Middle East, as witnessed during the Arab Spring of 2011, has enormous repercussions for South Asia.  If a sizable number of migrants flee from instability, the remittances lost will likely have a substantial economic impact on South Asia.

Finally, it is important to note that the available remittance data are inexact estimations of varying quality.  Private remittance flows often go unrecorded, and remittance flows are sometimes attributed to the country where the financial intermediary is headquartered rather than the country of origin.  Personal transfers that don’t travel through banks are inherently difficult to estimate. Given the volume of these flows, identifying methods to obtain more accurate data on remittances is a key challenge for researchers who study the distribution and effects of development finance.

This post was contributed by Ben Buch and Jaclyn Goldschmidt, both AidData Research Assistants at the College of William and Mary.

The views expressed here are those of the authors alone, and do not necessarily reflect the views of the institutions to which the authors belong.