This report analyzes the trends and characteristics, and the impact of migrant remittances to Southeast Asian development. Remittances, money transfers sent by international migrants to their kin at home, are increasingly recognized as a new source of development finance by the international community. Remittances to developing countries are large in volume, increasing steadily, and less volatile than other types of external financial inflows. Transferred directly to the households in need, remittances are widely credited for their contribution to poverty reduction in developing countries. This is why remittances have become a focus of great attention for the Post-2015 Development Agenda. In conducting the analysis, this report focuses on Southeast Asia, an important remittance-recipient region and a major economic partner for Korea.
Remittances to Southeast Asia show patterns similar to those of other developing regions. Remittances are a major source of external financial flows to the region, and they have been rising steadily over the past decades. And remittance inflows have been stable. Southeast Asia may not be on par with other regions including South Asia or Latin America in terms of the size of remittances, per capita remittances, or remittances as a share of GDP, but it ranks high in terms of the share of remittances in overall external financial flows and volatility of remittances in Southeast Asia are relatively low among the regions.
Among Southeast Asian countries, the Philippines accounts for the most of the remittances flowing into the region although its share has been on a gradual decline. Other countries in the region, especially populous countries of Indonesia and Vietnam, are receiving increasing volumes of remittances, as their migration outflows are on a steady rise. The level of remittances from smaller, more underdeveloped countries of Cambodia, Laos, and Myanmar is also rising fast. It should be noted that remittances per capita exceed Official Development Assistance per capita in most Southeast Asian countries except Cambodia and Laos, which are aid-intensive countries. This suggests that remittances may have development potential that could complement foreign aid.
This report also performs statistical analysis using cross-country panel data with an aim to investigate whether development impact of remittances differ between Southeast Asia and other developing regions. The empirical results indicate that Southeast Asia does not differ from the others with respect to impact of remittance outcomes on poverty reduction and investment. However, remittances does appear to raise inequality in Southeast Asia to a greater extent, which indicates remittances may be concentrated into higher income groups than other regions. The relationship between remittances and growth is stronger in Southeast Asia. Finally, although appearing to strengthen financial development outside Southeast Asia, remittances have a negative impact on financial development in the region. This suggests that the receiving countries in Southeast Asia need to improve institutions to enable greater contribution of remittances to domestic financial development.
The government of Korea should continue to make an effort to reduce transaction costs of remittances and consider utilizing its foreign aid tools to enhance the development impact of remittances. It should also consider institutionalizing remittance sender surveys in the country to develop an effective research infrastructure for better understanding remittance outflows from Korea and their development impact in the receiving countries.