Migration Fund: A Possible Way to Minimize the Negative Effects of Remittances

Migration Fund: A Possible Way to Minimize the Negative Effects of Remittances

Yujie Shen, MJIL Note & Comment Editor

In recent years, scholars and policy makers have become increasingly interested in remittances, the money that individual migrants send back to their home countries, usually to their families and relatives. Interest in this subject appears to have grown in rough proportion to the growth in remittance flows.

The most obvious and direct benefit of remitted money is the effect it has on recipients. Most remittances flow to workers’ family members, increasing those individuals’ ability to consume goods and services.[1] In addition to their potential poverty-reducing effects, countries that receive significant remittance inflows appear to obtain some benefits from the sizable inflow of foreign exchange.[2] This boost in foreign exchange improves the country’s balance of payments, buoying its domestic currency and improving the country’s credit-worthiness for external borrowing.[3] Host countries also derive some significant benefits from the availability of migrant labor seeking income to remit homeward. Most obviously, these destination countries receive a source of labor, reducing the direct cost of labor.[4]

Although remittances appear to increase the consumption and improve the welfare of recipients, this benefit must be considered along with a variety of costs, often hard to observe and measure. The most obvious set of remittance-related costs are the direct costs of actually transferring money back home. Formal and informal financial intermediaries siphon off significant portions of the total amount of global remittances.[5] And while remittance inflows appear to have a discernible effect in reducing poverty in recipient countries, the literature on remittances acknowledges that their effect on broader measures of economic growth and development is unclear.[6] This is due in part to the fact that remittances are largely used for household consumption.[7] It is also not entirely clear that inward labor migration is always a net benefit for host countries. It may decrease labor costs for host country ventures and may increase overall wages for host-country natives, but these benefits may not be spread evenly within the host country.

Many scholars have acknowledged the inefficiencies that characterize the existing migration policies. They have also suggested reforms that would replace the current policies with various alternatives that respond to the legitimate concerns of undesirable migration while preserving the gains from desirable migration. The idea of a Migration Fund that seeks to share the risks and the rewards of migration between the migrant, the home country, and the host country. The Migration Fund differs from other existing proposals in its focus on aligning the divergent interests of the home and host countries as opposed to solving only the concerns of one or the other the way the existing proposals do.

The Migration Fund would operate in the following way. The immigrant or his sponsor would deposit a predetermined sum into a Migration Fund. This Fund could be managed by a private company, which would have a contract with the host country government, the home country government, and the migrant and/or the migrant’s sponsor. After a certain predetermined period—for instance, at the time the migrant becomes eligible for naturalization—a determination would be made about the disbursement of the deposited funds.[8] The money would be disbursed differently depending on the outcome with respect to two variables: first, whether the migrant has been successful or unsuccessful in the host country and, second, whether the migrant remains in the host country or returns to the home country.[9] A migrant is considered “successful” if he remains employed or otherwise capable of supporting himself in the host country. A migrant is considered “unsuccessful” if he becomes unemployed and needs to rely on welfare benefits to stay in the host country.

In the case of unsuccessful migrants, the funds from the Migration Fund would be disbursed to the host country. If the migrant became a fiscal burden, yet still wanted to stay in the host country, the funds would be used to compensate the host country for the costs of the welfare benefits that the immigrant claims. Alternatively, the funds could be used to cover the costs of repatriating the voluntarily returning migrant to the home country.

In contrast, if the migrant were successful and remained in the host country, the host country would need no compensation from the Migration Fund. The host country would enjoy the positive contribution the migrant makes to the welfare of the country through his human capital and tax payments. Under this scenario, the deposit placed in the fund would be divided between two sets of recipients: half the funds would be released to the migrant or the migrant’s sponsor, while the other half would be remitted to the home country.

The multi-use and conditional nature of the Migration Fund would have the advantage of simultaneously addressing the concerns of home countries and host countries without imposing a dual burden on the migrant. As a result, we should see greater acceptance of international economic migration, resulting in greater global welfare, as well as a more equal distribution of that welfare.


[1] See World Bank, Global Economic Prospects: Economic Implications of Remittances and Migration xiii (2006) [hereinafter Global Economic Prospects], http://go.worldbank.org/0ZRERMGA00; Ralph Chami et al., Int’l Monetary Fund, Occasional Paper No. 259, Macroeconomic Consequences of Remittances 1, 22–30 (2008) [hereinafter Macroeconomic Consequences of Remittances], http://www.imf.org/external/pubs/ft/op/ 259/op259.pdf.

[2] See Ezra Rosser, Immigrant Remittances, 41 Conn. L. Rev. 1, 23–24 (2008).

[3] See Global Economic Prospects, supra note 1, at xiii-xiv.

[4] See id. at 44.

[5] See id. at 136–37.

[6] See id. at xiii.

[7] See Macroeconomic Consequences of Remittances, supra note 3, at 28.

[8] The moment at which the migrant is eligible for citizenship would be a natural time to make a determination about the disbursement of the funds. It is difficult to justify the differential treatment with respect to entitlements or any other rights that citizens are eligible for after the migrant becomes a citizen.

[9] See Anu Bradford, Sharing the Risks and Rewards of Economic Migration, 80 U. Chi. L. Rev. 29, 46 (2013).