New Study Finds Positive Impact of Remittances More Widespread than Previously Thought

The University of Colorado Boulder Leeds School of Business, which includes the well-regarded Business Research Division, and The Western Union Company, a leader in global payment services, today announced the release of a first-of-its-kind study that sheds new light on the positive impact of cross-border money transfer broadly and of Western Union services in particular.

“Development experts have long debated the impact of the cross-border person-to-person flow of funds. Although there is widespread consensus that remittances help alleviate poverty among recipients, questions remain about whether they promote overall economic growth,” said Dr. Miles Light, a development economist at the University of Colorado Boulder’s Business Research Division, who led the research.

“We find that the benefits related to remittances are larger than the costs, and this study is distinctive in that we quantify multiple effects.” The study looked at money transfers worldwide, and focused on the Philippines, one of the top three recipient nations of official remittances, to create a model that could be used to construct equivalent indicators for other countries.

“Past scholarship often has been limited to broadly-available data, while this research pinpoints the impact of individual players in the cross-border money transfer market,” Dr. Light said.

“We saw an opportunity to help advance understanding in the field as part of our broader commitment to leadership in business and corporate responsibility,” said Hikmet Ersek, President and CEO, Western Union.

“New insight is critical to creating effective programs around this $542B annual global flow of funds, and to the one in seven people globally who make up the mobile workforce.” The study demonstrates that Western Union services have a positive impact on society over the long term. Dr. Light’s preliminary findings include:

Employment

Each Western Union Agent location in the Philippines handles transactions that infuse enough funds into the local economy to create 85 non-Western Union jobs. When combined, the impact of these funds handled by Western Union Agent locations account for 722,500 jobs in the Philippines.

Incomes

Among lower-income households, on average, WU money transfers grow nominal income by 14.5%, and welfare by 13.1% WU money transfers also have price and secondary income effects that benefit middle-to-high income households that do not receive money transfers. On average, this population sees 0.4% growth in nominal income and 0.3% growth in welfare, driven by remittances.

Wage Impacts

Remittance recipients tend to work less, presumably to attend school or better support children or elderly relatives. This reduces the labor supply, causing upward pressure on wages of those who do not receive remittances.

Labor supply for household income deciles 2-6 decline by 4.8%, on average, resulting in market wages increases, as follows:

Low-skill wage rates: 5.2% increase
Semi-skilled wage rates: 3.8% increase
Skilled wages: 4.9% increase

The full preliminary report is available here: www.colorado.edu/leeds/western-union.

For more on Hikmet Ersek’s panel participation at the World Economic Forum, visit: www.weforum.org/sessions/summary/escaping-poverty.

Date: 22 January 2015

Source: Western Union

Leave a Reply

Your email address will not be published. Required fields are marked *