How Vital are Remittances to the Country?
The importance of remittances has grown over the years in Sri Lanka and now it has become a determining factor of the economy. Over a quarter of the country’s labor force is abroad. The remittance statistics in 2015 show that foreign currency earned from remittances surpasses the highest earning export good which is garments. Since remittance flows are positively correlated with the oil prices it also acts as a buffer for the oil price shocks (Lueth et al. 2007). Sri Lanka is also the highest remittance receiving country in the South Asia region. In 2009 average per capita remittance to Sri Lanka amounted to 164 US$ compared to South Asia’s average of 35$ (Ministry of Finance and Planning). In response to this significant situation, policies to make the remittance flow more economically productive are not in place.
In 2000 female migrant workers accounted for 75 percent of the total migrant workers abroad (Lueth et al. 2007). This is due to the high demand for household female workers from the Middle Eastern region. The housemaids are largely unskilled and come from low income families having low marketable skills. The underprivileged and vulnerable nature of housemaids has paved the way for the violation of their rights both in the remittance receiving countries and in sending countries. There are many reported instances where the female migrant workers were physically abused by the employer and were not compensated properly. On the other hand back in their home countries their absence makes a devastating impact on the family. Their spouses lose their female counterparts and the children lose maternal love and care which is vital for early childhood growth. Thus, many migrant workers tragically end up in an even more miserable situation than they were before.
Policies and the Dilemma
As the public voiced their opinion against the social problems created by female migration, the government was in a dilemma, whether to curtail female foreign employment or not. Curtailing female foreign employment would hurt the economy badly. On the other hand any restriction on female migration would mean a discrimination against women’s economic freedom. The regulations came in the form of “recommendations” such as not recommending females with children under 5 years of age for foreign employment. Owing to various regulations imposed by the Sri Lanka Bureau of Foreign Employment, the gender composition of migration is transforming.
More male migration would mean more women would be in control of income remitted to home countries. These expenditure dynamics of males and females are to play a big role in how household expenditure patterns are decided. This poses a good research question: whether the sex of the remitter makes an impact on the household budget allocations. Studies on the transformation of household expenditure pattern should be conducted in order to predict the economic impact. The research also intends to cast more light to how the remittance receiving families spend their income.
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Methodology and Challenges of the Research
This research intends to compare the expenditure patterns of remittance receiving families and non-remittance receiving families. Then it compares families receiving remittance from males and females. This would mean a non-random selection of the treatment and non-treated groups. In addition, the two groups involved in analysis differ in observable and unobservable characteristics. This gives rise to non-random sample selection and endogeneity problems. The most popular way of treating the possible biases is through instrumental variables (IV). But the use of IV had to be ruled out as a good IV was not found. Therefore, the preferred functional form is the Working-Lesser model. We model this as a fractional-logit model. Propensity-score matching with nearest neighbor matching is also carried out.
Learnings from the Research and the Way Forward
The following are the highlights of results generated from the study. Compared to non-remittance receiving families, the expenditure on housing stands out which captures expenditure for building, renovation and renting houses. The remittance receiving families tend to have a 36 percent higher budget allocation for housing category. This is a clear indication of the main financial motive of migration. It is also interesting to note that expenditure for health and education in remittance receiving families is not significantly different from non-remittance receiving families. These outcomes also confirm the finding of (IPS 2014) where only 21 percent of returnee migrants responded that they had improved their economic status. It is clear that the intentions of migrating families in general are more consumption based rather than investment based.
More interesting outcomes are seen in the gender comparison section. The male remitter houses tend to have 66 percent less budget allocation for liquor and intoxicants. Budget allocation for education rises by 35 percent in houses receiving remittances from males. Impact on both these categories help improve the quality of life and would be an investment in human capital in particular. However, the budget allocation for clothing and ceremonial expenditure is to rise by 20 percent in male remitter households.
The contribution by the migrant workers is unmistakable in the country’s economy. However, the institutional framework to maximize and prudently utilize their hard-earned income is not in place. The focus of the migrant workers should be to invest and create a stream of sustainable income rather than spending on consumption goods. As the results suggest, the trend of more male migration will produce better economic results especially in terms of human capital development. It also indicates that higher bargaining power for women in household expenditure decisions do produce better outcomes. The government may not witness immediate results from the shift of gender composition of migration. Yet the long term effects of better access to education through higher household expenditure on education can be experienced at national and household levels.
Lueth, E., Ruiz-Arranze, M. (2007). ‘Are Workers’ Remittances a Hedge Against Shocks? The Case of Sri Lanka’ International Monetary Fund
Frankel, Jefferey A., “Are Bilateral Remittances Countercyclical?,” (October 2009). NBER Working Paper No. w15419