MEASURING MIGRANTS’ REMITTANCES: ISSUES AND …



[pic]

[pic]

[pic]

© This is a copyright material and reproduction of this material without obtaining prior permission is strictly prohibited. Plagiarism and other applicable laws could be enforced in case of any violation.

TABLE OF CONTENTS

ABSTRACT

1. INTRODUCTION

1. Definition

2. Treatment of Remittance in the Canadian BOP

3. Migrants’ Funds

4. Other Issues

2. BACKGROUND AND HISTORY

2.1 Overview of Developments

2.2 Reasons for global discrepancy

2.3 The Compilation Guide to deal with measurement issues

3. Data Sources

3.1 International Transaction Reporting System (ITRS)

3.2 Direct Reporting System (DRS)

3.3 Household Surveys (HS)

4. Models and Estimations

4. Proposed Changes - BPM6

5. Current Trends and Analysis – Canada

6. BEA Model and its Modified Version

7. Projections

8. Conclusions and Suggestions for Future Work

MEASURING MIGRANTS’ REMITTANCES: ISSUES AND CHALLENGES

By Mukesh Ralhan

Abstract

The conceptual and methodological problems associated with measurement of migrants’ remittances have drawn the attention of the statistical agencies and central bankers around the world. This has resulted in a host of meetings, seminars and conferences at the international level organized by the International Monetary Fund (IMF), the United Nations (UN) and the World Bank (WB) and other agencies. The paramount interest shown in this area stems from studies showing that flow of funds to developing countries in the form of remittances stimulate growth in investment, jobs and income etc. of the recipient countries. Moreover, as private capital flows continue to show a downward trend, workers’ remittances have become an increasingly prominent source of external funding for many developing countries. (Ratha, Dilip, Global Development Finance, 2003).

Our paper presents an overview of developments in regard to Migrants’ remittances and how these are currently measured and captured in Canadian Balance of Payments (BOP) framework at present. Albeit, a blend of methodological frameworks would be the correct way to arrive at remittance outflows projections, this is not feasible in the case of Canada as the existing data sources like Citizenship and Immigration Canada (CIC) or Survey of Household Spending (SHS) etc. suffer from their focus on inflows and poor quality due to extremely low rate of response respectively. Moreover, SHS is not designed to capture quality information in regard to immigrants. Further, since Canadian BOP data compilation framework is mostly survey-oriented, we do not have access to the International Transactions Reporting System (ITRS) database, as is the case with some other countries that rely on this system for their BOP statistics. At present, there is no mechanism for capturing remittance related data through the Direct Reporting System either i.e. in particular from the specialized remittance sending agencies, known as money transfer operators (MTOs). In the light of these problems, the Bureau of Economic Analysis (BEA), USA imputes remittance statistics based on a model developed by them. Our paper adopts the modified version of the basic model of BEA for estimation of remittances in Canada. Since some of the definitions, concepts and methodologies in computing BOP statistics are different in the US and Canada, we have modified various parameters of the models to make it suitable for Canadian BOP framework. We have used survey results from various international surveys on remittances as also various Canadian surveys viz. Labour Force Surveys (LFS), Survey of Household Spending (SHS), Longitudinal Survey of Immigrants to Canada (LSIC), Labour Market Activity Survey (LMAS), Survey of Labour and Income Dynamics (SLID), Longitudinal Survey of Immigrants to Canada (LSIC) and blended it with the modified version of the BEA model to arrive at the remittance projections. Based on very conservative estimates, our projections show that the personal remittances by immigrants in Canada aggregated to around $14 billion for the year 2006 while the published data indicate these to be $ 7 billion. Our preliminary results indicate that the previous remittance estimates suffer from gross under-estimation. In the end, we suggest ways to improve the remittance statistics in accordance with international practices and standards and also the future course of action.

________________________________________________________________________

SPECIAL ACKNOWLEDGEMENTS

Our study has benefited greatly from the discussions we had with the World Bank representatives Matteo Vaccani, Consultant, and Emiko Todoroki, Financial Sector Specialist, Financial Market Integrity, Financial and Private Sector Development, Washington, DC, who visited Canada on 16 November 2007 in connection with preparation of report focused on the bilateral remittance corridor between Canada and the Caribbean, with a specific focus on the Canada-Haiti and Canada-Jamaica corridors.

1. Introduction

1.1 Definition: In terms of Balance of Payment framework (Chapter 9 of BPM5), compensation of employees is a component of income while workers’ remittances is a component of current transfers; both are part of current account. Migrants’ transfers are a component of capital transfers, which is part of the capital account. The definitions of these components, according to the BPM5, are:

Compensation of employees comprises wages, salaries, and other benefits earned by individuals – in economies other than those in which they are residents – for work performed for and paid for by residents of those economies.

Workers’ remittances cover current transfers by migrants who are employed in new economies and considered residents there. A migrant is a person who comes to an economy and stays there, or is expected to stay, for a year or more. Workers’ remittances often involve related persons.

Migrants’ transfers are contra-entries to the flow of goods and changes in financial items that arise from the migration of individuals from one economy to another.

1.2 Treatment of Remittance in the Canadian BOP:

In the Canadian context, the terminology used for ‘Workers’ remittances’ is slightly different and is shown as ‘Other Private Transfers (Remittances)’ under Private Transfers in the Current Account. In the Capital and Financial account, the migrants’ transfers and compensation to employees are captured as short-term receivables/payables to non-residents (although it is not exactly clear how compensation to employees is treated at present). With a view to complying with international standards, Canada introduced major changes in BOP framework after introduction of BPM5. Prior to implementation of BPM5, Capital transfers like migrants’ funds, inheritances and debt forgiveness were treated as current transfers. Subsequently i.e. after the implementation of BPM5, these were excluded from the current account and included in the capital account. The Canadian practice in regard to migrants’ effects was to exclude it from the Capital account whereas the international standards included these as part of the Capital account. In Canada, however, there were no estimates available for Migrants’ funds although there have been some attempts to measure them (Wai-yong, 2001. (See Annexure I: Current Treatment of Remittances in the Canadian BOP framework)

1.3 Migrants’ Funds:

The general treatment meted out to the funds brought by the Migrants’ Funds (Landed Immigrants), is to record it in the Capital Account as “$ in possession” (under Other Assets). The practice is to record “$ in possession” by immigrants in the investor class under direct investment. It is generally assumed that 80% of “Total $” by immigrants in the investor category will be retained abroad. The above estimation, however, is subject to some adjustments like percentage of new perspective immigrants who are refused an entry visa, 2% of “total $” for the landed immigrants who have been refused returned permits and percentage of “total “ for landed immigrants who return to their home countries. There were other main changes in vogue prior to the changes proposed by Wai-yong (2001): 1) No adjustment to be made to investment in houses by immigrants upon arrival, 2) Adjustment made to reflect unsuccessful applicants, 3), Adjustments made to reflect immigrant outflow, 4) Money invested by investors recorded as direct investment.

1.4 Other Issues:

These estimates relied completely on the Citizenship and Immigration Canada for projections of inflows. Moreover, the projections did not take into account the developments in measuring workers’ remittances or migrants’ funds as per international standards. The funds brought by the Landed Immigrants constitute only one part of the remittances i.e. inflows and the data provided by the Citizenship and Immigration Canada is not adequate to capture the dynamics of migrants’ funds especially for outflows. It can reasonably be assumed that the existing practice of measuring migrants’ funds is not commensurate with the methodologies, concepts and practices followed by other countries.

2. Backgrounds and History:

For expositional purposes, the paper is divided as thus: The introductory part deals with conceptual, definitional and methodological issues of personal remittances in the context of Canadian BOP framework; the second part focuses on the historical background; Section 3 presents an overview of existing and potential data sources; After a review of the proposed changes in BPM6 in Section 4, the paper discusses the current trends and analysis of remittances in Canada in Section 5; Section 6 and 7 relate to the BEA methodology and projections for Canada based on the modified version of the BEA model. Finally, we summarise the conclusions emanating from our study in the last part.

2.1 The table below provides a succinct overview of the developments in regard to remittance flows:

|Year |Details |

|Sea Island |G-8 Heads of State underline the importance of accurate measurement of remittance flows. G-7 Finance Ministers|

|2004 |and others called for the establishment of a statistical working group, to be led by the World Bank, for |

| |improving remittance data. |

|January 2005 |World Bank and International Monetary Fund together with numerous partners, agreed to establish the |

| |International Working Group on Improving Data on Remittances |

|January 2005 |Technical Sub-group on the Movement of Natural Persons (TSG) set up to review concepts and definitions relating|

| |to remittances. |

| |Center for Latin America Monetary Studies (CEMLA) involved in the project to improve central bank remittance |

| |reporting and procedures. |

|September 2005 |CEMLA Remittances International Steering Committee organized seminar/meeting on Remittances in Ottawa. |

|June 2006 |“Luxembourg Group” set-up by the Eurostat, the statistical office of the European Union, to prepare practical |

| |guidance on data sources and compilation for remittances. |

| |First Meeting of the Luxembourg Group on Remittance Statistics held in Luxembourg. |

| |CEMLA prepares its own draft remittance compilation guide for Latin American and Caribbean (LAC) countries. |

|January 26, 2007 |The IMF constitutes a committee to prepare ‘Remittances Compilation Guide’ and sets up various sub-groups to |

| |complete the task. The draft is expected to be released in January 2008. |

The growing interaction and continued interest at the national and international levels in compiling accurate remittance statistics stems from the fact that remittance flows especially for developing countries are a big source of developmental finance particular at a time when channels of private funding have either dried up or have become costly (Ratha, 2003).

2.2 Reasons for global discrepancy:

In principle, the combined credits (inflows) and debits (outflows) for all countries should equal zero, as the credits of one country or international organization are debits of another. In practice, however, the data do not offset each other. Statistical discrepancies may reflect the incomplete coverage of transactions, the inaccurate and inconsistent recording of transactions resulting from differences in classification and practices, and the difference in the time of recording transactions. Global total discrepancy has been growing rapidly in recent years because recorded workers’ remittance credits more than doubled in the last five years while recorded debits grew much more slowly (Reinke and Patterson, 2006). Existing data sources from customs authorities and/or through ATM cards where family members have access to migrants’ accounts are not sufficient to capture remittance data. So this is clear evidence that there are problems in extracting data from the BOP framework.

3. The Compilation Guide to deal with measurement issues:

Aggregate flow data published in the BOP statistics are, therefore, far from perfect. The concepts and methodologies are not applied uniformly across all countries, and data sources and compilation methods are better in some countries than in others. Some countries report no data, or not on all items. Data comparisons and aggregations are therefore difficult, and data users often need to make imputations or estimations for missing values. Some problems are due to different interpretations by countries of definitions and classifications, but overall the paucity of source data is seen as the biggest constraint to improving remittance data (Reinke and Patterson, IMF, 2006). According to Reinke and Patterson (2006), the other problems associated with remittances are:

• Countries receiving large inflows are often those with relatively weak capacity and limited resources, even though remittances are a larger item in the balance of payments statistics.

• Remittances made through informal channels or through money transfer operations are difficult to estimate.

• Some countries like Bureau of Economic Analysis (BEA), USA, use models but parameters are difficult to estimate on a regular basis in a cost-effective manner, and models may lack sufficient data checks. Incidentally, we have used the modified version of the model developed by the BEA as other data sources as identified by the International Monetary Fund (IMF) are difficult to obtain at present in Canada. The next section deals with the sources of data.

3. Data Sources:

The committee set up by the International Monetary Fund (IMF) for preparing the Remittance Compilation Guide has identified the following sources of data for compiling remittance statistics:

1. International Transactions Reporting System (ITRS):

Chapter III of the BOP Compilation Guide of the International Monetary Fund (1995) describes the ITRS system as follows:

“An international transactions reporting system (that is, a system for reporting international transactions) measures: (1) individual BOP cash transactions that pass through domestic banks and through enterprise accounts with banks abroad, (2) noncash transactions, and (3) stock positions. Statistics are compiled from forms submitted to domestic banks and from forms submitted by enterprises. An international transactions reporting system (ITRS) can provide comprehensive and timely BOP statistics. Most International transactions reporting systems, which were formerly known as foreign exchange record system, evolved as by-product of foreign exchange control systems.”

In regard to “threshold practices”, it further adds: “In many international transactions reporting systems, thresholds are used so that transactions of less than certain amounts need not be reported. Compilers have generally found large numbers of transactions that, in aggregate, account for small values. The use of thresholds prevents undue reporting burdens and processing costs. However, while it may be unnecessary to report small transactions individually, an aggregate record of small transactions should be kept to obtain overall aggregate results and to assist in the process of reconciliation.” IMF recommends higher thresholds limits or periodic sample surveys of small transactions.

The compilation guide states that the ITRS data have typically been reporting on paper, but electronic transmissions are increasingly being used. Until the 1990s, standards for electronic transmissions remained national. However, the movement towards a global marketplace has required an international standard for electronic transfer, from computer to computer of commercial or administrative transactions. Such a standard, known as Electronic Data Interchange for Administration, Commerce and Transport (EDIFACT), has been developed under the auspices of the United Nations. The EDIFACT standard is also used in preparing electronic communications for BOP purposes.

According to the compilation guide, the use of the UN EDIFACT (See Annexure II) standard is steadily expanding on a worldwide basis. As more and more business systems conform to EDIFACT, the process for using these messages to report information to authorities will become more efficient. Ready access to electronic data reduces costs for enterprises and for banks acting as intermediaries in the data collection process. These cost savings stem from the “automatic” nature of data provision. Once reporters have programmed their systems to send relevant data to BOP compilers, there is no necessity for subsequent reporting unless changes occur in reporting requirements or in reporters’ systems. Benefits to BOP compilers include more timely and more accurate data.

The Luxembourg Group is also looking at the possibility of successful compilation methods based on transactions data from ITRS, household surveys, and various approaches using models. The Group aims to assemble compilation guidance that is better than any current practice offering countries a choice of methodologies. Choice in approaches is important due to the variance in countries’ economic and demographic structure, statistical infrastructure and resource establishment, and data requirements. The ITRS may not be an available option for compiling BOP data for Canada, as it did not have extensive exchange control systems or regimes. However, we can always explore the possibility of accessing bilateral transactions data relating to Canada from countries that have ITRS as a source to complement their BOP statistics. The introduction of ITRS in Canada is not considered feasible and practical due to cost and other considerations.

2. Direct Reporting System (DRS):

According to the IMF, the DRS also can play a significant role in providing data on remittances, in particular from specialized remittance sending agencies, known as money transfer operators (MTOs). Direct reporting requires that MTOs are obliged by legal or regulatory means to provide all necessary data to the data compiling agencies.

The Proceeds of Crime (Money Laundering) and Terrorist Finance Act (PCMLTFA) governs the institutions providing remittances services in Canada. The institutions covered by the Act are required to comply with the client identification, record keeping and reporting requirements. The remitting institutions are expected to verify valid identification as and when an electronic fund transfer of $3,000 or more is involved. The paper on “The Remittance Industry in Canada” by the Balance of Payments Division, Statistics Canada, provides an overview of the remittance industry. The service of money transfer is not regulated in Canada and can be offered by any business. There are also no limitations on transactions, currencies or services, as long as they comply with the government’s regulations governing Canada’s anti-money laundering and anti-terrorist financing regime and do not offer services, such as deposit-taking, that are specific to regulated financial institutions. However, in the light of Financial Action Task Force (FATF) recommendations, there is a call for licensing and registration of money transfer businesses and foreign exchange dealers that are only subject to the PCMLTFA at present. Major global players like the Western Union and MoneyGram mainly dominate the Canadian remittance industry. Other remittance agencies include JNBS, CAM Transfer, Bobby Express and financial institutions and banks. There are also a number of smaller money transfer agents who target immigrant communities from developing countries.

At present there is no mechanism for systematic compilation of remittance data from the DRS albeit it could serve as a valuable source of information. ITRS also does not have any provision to capture remittance from the MTOs or remittances sent via informal channels. In view of the FATF recommendations, there is a need to evolve some reporting mechanism to the Office of the Superintendent of Financial Institutions (OSFI) for MTOs or other informal channels. The big players like Western Union do report remittance statistics in their Annual Report. For example, Western Union shows remittance statistics under the heading ‘Consumer to Consumer Transfer’ and ‘Consumer to Business – Bill Payment’ and ‘Other – Money Order/Prepaid’ (Integrated Payment System) in their Balance Sheet. It would be interesting to examine whether they have transactions data available separately for residents and/or non-residents and also geographic/country-wise information, etc.

3.3 Household Surveys (HS):

There are a number of countries that rely on Household Survey to collect remittance data. In Canada, for example, there are a number of surveys that can be used for extrapolation of data on immigrants. Notable among these surveys are: Labour Force Survey (LFS), Longitudinal Survey of Immigrants to Canada (LSIC), Survey of Household Spending (SHS), Labour Market Activity Survey (LMAS), Survey of Labour and Income Dynamics (SLID). At the international level also, there are a number of surveys that have been carried out in recipient countries like Mexico[1], Guatemala, El Salvador and other Latin American and Caribbean (LAC) countries. These surveys throw light on the remitting behaviour[2] of the immigrants and provide very useful pieces of information on remittances. Our study has used the results from these surveys in the modified version of our model for estimation purposes. However, these surveys create new problems too. Estimating remittance flows from surveys requires samples that include sufficiently large numbers of households related to or containing migrants. There are practical difficulties – migrants are not uniformly distributed in the population, finding households containing migrants is relatively a rare event, and information on remittances may be considered sensitive by respondents. For example, the response rate for some of the Household Surveys is around only 6% and quality of data is quite poor. These types of problems question not only the validity of the survey data but also present serious challenges to the statistical agencies. We suggest the proposed design of the questionnaire for improving the quality of data on remittance in Annexure IV. The proposed questionnaire may be incorporated in future labour force surveys involving immigrant population with focus on questions outlined therein.

3.4 Models and Estimations:

According to the sub-group set by the IMF in preparing remittance compilation guide, “although data models are not a data source, they are used as alternative (or supplement) to direct measurement where data on remittance transactions are difficult to obtain or of poor quality.” A number of countries use various approaches to estimating (or modeling) remittance data using demographic, macroeconomic, and administrative or any other relevant data. There are also methods that make indirect use of statistical information on stock of migrants, their family situation, and duration of stay, average income, and propensity to remit e.g. a model developed by Bureau of Economic Analysis (BEA), USA in projection of remittances. Other approaches make use of observable macroeconomic data, including other balance of payments items, or partially estimate remittances as a residual from current account imbalances.

We have applied the modified version of the model by BEA for estimating remittances flows for Canada. The reason being that some of the concepts, methods and definitions for BOP framework are different in US and Canada. Moreover, the terminology and data sources for relevant variables also vary making it difficult to adopt BEA model in its present form for Canada. Before we discuss the modified BEA model in detail, let us succinctly review some of the other models:

• Bank of Albania (2006) relies on partial estimation of remittances as a residual from current account imbalances. The model is not considered suitable for Canadian conditions as it focuses on recipient countries’ approach in estimation whereas Canada is known more as a remitting country.

• Bulgarian National Bank (2007) model for estimation of flows due to illegal employment is based on multiplication of the number of residents working illegally[3] abroad and their incomes and expenditures per capita. The model allows estimation of the monthly incomes and expenditures, by country of employment. However, data on illegal employment may be extremely difficult to obtain and rely upon and that raises questions on the validity of the results obtained using this model.

• Bano de Espana (2006) (Bank of Spain) uses a Panel Data Econometric Model for estimation of remittances. In the model, workers’ remittances are a function of a specific country effect i.e. different levels of human capital for each group of immigrants, cultural features for each country, etc. and other explanatory variables like stock of immigrants, GDP-ratio, Spain GDP, Foreign GDP, duration of stay, interest rate gap, exchange rate gap, etc. The basic issue with this model from econometric methodological point of view is that the model could suffer from the problem of multicollinearity. The model uses variables like GDP and exchange rate and interest rate that are quite similar in nature and character and thus increase the probability of multicollinearity.

The IMF sub-committee has established sub-group for each of the above data sources for compiling guidelines on remittance statistics. The preliminary draft on compilation guide is expected to be available in January 2008. Despite all efforts, it is also important to recognize that compiling accurate and regular data on remittances in a timely fashion is a major challenge. Even with improved concepts and compilation methods, the nature of remittances – frequent, small flows in cash and kind, through a multitude of channels, mostly by related individuals – will continue to challenge compilers and data users around the world (Reinke and Patterson, 2006).

4. Proposed Changes – Draft Balance of Payment Manual 6 (BPM6)

As a result of series of meetings, conferences and negotiations at the international level, it has been proposed to introduce four categories related to remittances, a conceptual change in the use of migration and residence status, the elimination of the concept of “migrants’ transfers”, and reporting of bilateral flows (Reinke and Patterson, 2006):

“Personal Transfers to replace “Workers’ Remittances”: Personal transfers will replace the existing workers’ remittances item in the balance of payments, and will include all current transfers in cash or in kind received by resident households from non-resident households. Unlike workers’ remittances, the new concept is based neither on employment nor migration status and thus resolves inconsistencies associated with the previous concept.

Creation of new item, “Personal Remittances”. Personal remittances will be defined as current and capital transfers in cash or in kind receivable by resident households from households abroad, and “net” compensation of employees earned by persons working in economies where they are not resident.

Creation of new item, “Total Remittances”. This will include all current transfers in cash or in kind receivable directly by households from any sector abroad, “net” compensation of employees earned by persons working in economies where they are not resident, and social benefits.

Creation of new item, “Total remittances and Transfers to Non-profit Institutions serving households”. This will include all components of “Total Remittances” as well as both current and capital transfers to non-profit institutions serving households (NPISHs).

Removal of the concept of “migrants’ transfers” from the balance of payments framework. Instead of recording changes of assets and liabilities resulting from individuals moving their residence from one economy to another in the capital account, they will be recorded as “other changes of assets and liabilities”. The movement of personal effects that accompany a migrant will be excluded from import and export data.

Abolition of the concept of “migrant” in the balance of payments framework. Since the concepts of personal transfers and remittances are based on the concept of residence rather the migration status, the concept of migrant is no longer relevant. This is consistent with the use of residence criteria elsewhere in the balance of payments and national accounts framework.

Reporting of remittance flows to and from major partner countries in the balance of payments data. This is a lower priority request of data users compared to accurate reporting of aggregate remittance flows, but reporting of bilateral flows will be encouraged.

5. Current Trends and Analysis - Canada

At present “other private transfers” under Private Transfers are recorded in the Current Account. The term is considered analogous to personal transfers although there are doubts whether ‘compensation to employees’ also forms part of it or these are included in the short-term receivables/payables in the Capital and Financial Account. Other Private Transfers (Outflows) have registered an upward trend since 1996. The upward trend is more visible and pronounced in the year after 2002. From a modest total of $ 1.5 billion, it has grown to $ 5.3 billion for the years 1996 and 2006 respectively. This is not the situation for the inflows side of the other private transfers that has more or less shown a constant trend. The Graph 5.1 below presents an overview of inflows and outflows side of the “other private transfers”:

Graph 5.1

[pic]

(Source: CANSIM Table No. 376-0001, Statistics Canada)

Graph 5.2

It is generally believed that migrants’ funds (or may be compensation to employees) are recorded as part of short-term payables/receivables to/from non-residents. As the graph below indicates the inflows and outflows do not show any discernible pattern:

[pic]

(Source: CANSIM Table No. 376-0002)

6. The BEA Model and its modified version:

One of the reasons as to why the BEA model is commensurate with Canadian requirements is that the definition of personal transfers is consistent with the draft BPM6. Moreover, both Canada and the US are neighbours and major trading partners and are affected more or less by similar conditions so far as it relates to remittance flows. The migrants’ population that originate from countries like Mexico, the Latin American and Caribbean countries (LAC) to Canada and the US demonstrate similar remitting behaviour as the results of various surveys indicate. This is precisely the reason that our modified version of BEA model assumes that the pattern and behaviour of remitting population in Canada and the USA are the same. We enumerate below some of the important points in the modified model:

• BEA uses the term “Adult Foreign-Born Population” instead of Immigrant[4] Population used by Canada.

• Labour Force Survey (2006), Canada divides immigrant population into three broad categories viz. Very Recent Immigrant, Recent Immigrant and Established Immigration to arrive at “Duration of Stay”. BEA, however, divides the population into four types viz. 0-5 years, 6-15 years, 16-30 years and more than 30 years. We have followed the former classification for our estimations.

• Labour Force Survey (2006) has another category “Others” in its Immigrant Type for “Duration of Stay” while BEA has no such category.

• BEA has applied very conservative estimates ranging from 6% to 10% as percentage of income remitted to arrive at its projections. However, the findings of various surveys point out that the proportion could be much higher. See for example, Survey results from El Salvadorian and Filipino households (1998) and Mexico and El Salvadorian households (2004). According to these surveys, immigrants sometime remit almost one-fourth proportion of their income[5] to their home country. We have based our estimation on conservative ratios used by the BEA but if we decide to apply a higher proportion, it could lead to increase in the projections by another 15% to 20%.

• Personal Transfers: In terms of the BPM6, personal transfers are defined as “all current transfers in cash or in kind received by resident households from non-resident households”. For computational purposes, our model uses four main variables viz. population by immigrant type, the percentage of immigrant type population that remits, the average income of the immigrant type population and the percentage of income that is remitted by the immigrant type population

• Personal Remittances: Personal Transfers + net compensation of employees (gross compensation – taxes on income and social contributions – transport and travel) + capital transfers between households[6]

• Total Remittances: Personal Remittances + social benefits (transfers to households from other institutional sectors, namely government and Non-Profit Institutions serving households).

• Steps: Our model focuses on projections for outflows on account of personal transfers and personal remittances. Personal remittances have not been adjusted for taxes and capital transfers between households. We propose to deal with these issues and total remittances in due course. The steps for calculating personal transfers and personal remittances are as under:

o In Panel A: The data source for immigrant types[7] – Very Recent Immigrant, Recent Immigrant and Established Immigration and Others is the results from the Labour Force Survey, 2006. The division of Immigrant types into Family Type i.e. ‘Children not in Canadian Households’ and Children in Canadian Households is again based on survey results and the analogy that there is a negative relationship between the presence of children in Canada and both the percentage of the population that engages in remitting and the percentage of income remitted. Also, the gender of the remitter could also be a factor in determining the amount of remittance. The survey results indicate that transfers by males are comparatively higher than females.

o In Panel B: The source of data for remitting behaviour is again the surveys results from countries like Mexico and LAC countries. The findings suggest that the proportion of remitting population is negatively correlated with the duration of stay. As ‘duration of stay’ in Canada increases, the proportion of money remitted abroad declines.

o In Panel C: The average income in Canadian dollars is obtained from a variety of survey results in Canada and other countries.

o In Panel D: BEA has used very conservative estimates for calculating the percentage of income remitted. Our estimation is also based on similar approach. However, the results of the surveys indicate that this proportion is much higher than that used by the BEA.

o In Panel E: The total personal transfers by immigrant type are indicated here in millions of Canadian dollars.

o Methodology: Firstly, the immigrant type population as shown in Panel A is arranged by duration of stay, family type and gender etc. Secondly, the population is then multiplied by the percentage of population that engages in remitting, as shown in Panel B. Thirdly, average income of the remitting population (Panel C) is multiplied by the percentage of the income remitted (Panel D) to arrive at the proportion of total income remitted. Fourthly, the proportion of total population that remits (product of total population (Panel A)* multiplied by the proportion of population that remits (Panel B) thus obtained is multiplied by proportion of total income remitted, to arrive at the Personal Transfers (Panel E).

o Compensation of Employees: “Net” compensation of employees earned by persons working in economies where they are not resident, and social benefits. The “Other” column in the table refers to the calculation of “Compensation of Employees”. The data is obtained from the Labour Force Survey (2006) that defines “Other” as “Persons residing in Canada who were born outside of Canada and are not landed immigrants. Examples of people in this category include temporary foreign workers, live-in caregivers, Canadian citizens born outside Canada and those with student or working visas”. The methodology is similar to the one explained above for personal transfers. The sum of personal transfers and compensation of employees is total remittances but it is subject to some adjustments. The average income for immigrant population included in “other” category is detailed in Annexure III.

7. Projections – Canadian Remittance Statistics:

The table below presents imputation of personal transfer (or migrants’ remittances in popular terminology). This is based on modified version of the BEA model discussed in section 3 above. While the imputation of ‘Compensation to Employees’ is based on the category “Other”, personal transfers are derived from duration of stay of the immigrant population categorised as very recent immigrant, recent immigrant and established immigrant. The detailed methodology and steps involved in calculation of personal transfers, compensation to employees etc. are discussed in section 3.5 above.

[pic]

________________________________________________________________________

[pic]

Explanations:

1. Acknowledgement: Source of the Basic Model: Michael Mann, Bureau of Economic Analysis, USA, 2006.

2. Labour Force Survey (LFS), 2006 defines immigrant type in the following manner:

a. Very Recent Immigrant: Very recent immigrants are individuals who have been immigrants to Canada for 5 years or less.

b. Recent Immigrant: Recent immigrants are individuals who have been landed immigrants to Canada between 5 and 10 years.

c. Established Immigrant: Established immigrants are individuals who have been landed immigrants to Canada more than 10 years.

d. Other: Persons residing in Canada who were born outside of Canada and are not landed immigrants. Examples of people in this category include temporary foreign workers, live-in caregivers, Canadian citizens born outside Canada and those with student or working visas.

3. Adult Born population estimates, ages 15 and over by immigrant type are based on Labour Force Survey, 2006

8. Conclusions:

While the published estimates say that remittances amounted to only $ 7 billion, our preliminary results indicate that the personal remittances aggregated to around $ 14 billion for the year 2006. This is despite the facts that we have used very conservative estimates for arriving at our projections. The survey findings suggest that the magnitude of remittance outflows could be much higher for Canada especially if we consider studies that suggest that immigrants sometime send a higher proportion of their earning to their home countries. In the end, it can be stated that no single model or methodology should be relied upon for collection of data on remittances. The right approach would be to use a combination of methods for compiling data on remittance. If a country adopts a particular statistical or econometric model for imputation purposes, it needs to be supplemented with other resources like HS, DRS, and ITRS etc. to validate the existing data.

MEASUREMENT OF REMITTANCES – PROJECTIONS FOR CANADA/JAMAICA – 2006

Notes:

1. It is not reasonable to compare the published figures for personal transfers reported under (1) above with the imputations because of conceptual and methodological differences.

2. NA – Not Available

3. Imputations are based on the modified version of the Bureau of Economic Analysis (BEA) model.

4. The immigrant population of Jamaica constitute 0.7% of total immigrant population in Canada. The projections for population under the “Other” category for Jamaica are based on this proportion since disaggregated data for “Other” category is not available for Jamaica.

Here are some of the suggestions that could be useful in preparing the groundwork for the introduction of BPM6, which will contain revised guidelines for compilation of data on remittances:

• Designing new Household Surveys with focus on immigrants and remittances: The poor quality of data on remittances emphasize the need for undertaking surveys which focus exclusively on personal transfers or remittances by the immigrants. Our understanding is that the BOP division has already indicated its willingness to conduct such a survey but the funds are yet to be allocated for the purpose. The format and design of the questionnaire should be such that it includes important information about remittances (See Annexure IV for suggested design of the Questionnaire on Remittances).

• Access to ITRS: IMF has repeatedly underlined the importance of using ITRS as a method to complement the existing data sources for remittances. ITRS has mainly evolved as a by-product of the exchange control regulations in some of the countries. Since Canada does not have a history of strict exchange control regimes and it collects its data primarily through survey-oriented approach, ITRS may not be a suitable option for Canada. However, if other countries which engage in bilateral flows or trade with Canada are willing to share their statistics with Canada, it could turn out to be an invaluable tool to collect data on bilateral remittance flows.

• DRS: There is an urgent need to bring the MTOs under the jurisdiction of OSFI or Bank of Canada for regulation purposes. Under the extant guidelines, the MTOs are only subject to the PCMLTFA and there is no mechanism where MTOs or other small players report to either OSFI or Bank of Canada. The relevant Acts and Statutes require amendments so that MTOs like Western Union and others are brought under some kind of supervision with a higher threshold limit for reporting both formal and informal remittances.

• Combination of Methods: Again, no single method or model estimations should be relied upon for compiling remittance statistics. It is rather the combination of these methods like administrative, model estimation, ITRS and DRS Etc. that should be used to validate various sources of data.

Annexure I

Current treatment of remittances in the Canadian BOP framework

|Account |Terminology |Data Sources |

|Current Account (Receipts and Payments) |“Other Private transfers” are shown under |Administrative Data Sources: |

|CANSIM Table: |Current Transfers under sub-head Private |Citizenship and Immigration Canada |

|976-0001 (Annual) |transfers |(Revenues for issuing migrants permits to |

| | |non-residents |

| | |BP58 - Transactions of foreign airlines |

| | |with residents of Canada (annual) |

| | |Canada Revenue Agency (i.e. T106 Non-arm's |

| | |length transactions with non-residents, |

| | |GST, and NR-4 withholding taxes) |

| | |Citizenship and Immigration Canada |

| | |(Payments by non-residents for migrant |

| | |permits); |

|Capital and Financial Account |Short-term receivables/payables from/to |Administrative Data Sources: |

|CANSIM Table: |non-residents are recorded under the |Citizenship and Immigration Canada |

|376-0002 (Annual) |sub-head “Other Assets” under Other |(Revenues for issuing migrants permits to |

| |Canadian Investment of the Financial |non-residents |

| |Account |BP58 - Transactions of foreign airlines |

| | |with residents of Canada (annual) |

| | |Canada Revenue Agency (i.e. T106 Non-arm's |

| | |length transactions with non-residents, |

| | |GST, and NR-4 withholding taxes) |

| | |Citizenship and Immigration Canada |

| | |(Payments by non-residents for migrant |

| | |permits); |

Annexure II

Illustration 3.1 BOP Reporting and EDIFACT Messages

(Source: Balance of Payment Compilation Guide, IMF, 1995)

The diagram in above illustration shows EDIFACT messages that could be used for collecting BOP data.

The diagram shows the following data flows:

PAYORD—a payment to be reported via a commercial bank to the BOP compiler

BOPINF—a receipt to be reported via a commercial bank to the BOP compiler

BOPCUS—individual payments/receipts to be reported to the BOP compiler by a commercial bank

BOPDIR—transactions in accounts held with non-residents, foreign positions, and survey results to be reported directly to the BOP compiler

BOPBNK—banks’ transactions and foreign positions

BOPSTA—data to be forwarded by a BOP compiler to international statistical organizations and to other BOP compilers

FINPAY—a message concerning a payment involving banks in two countries; possibly combined with BOP data in the future.

There is also a CUSDEC message, which could be used for collecting international trade statistics.

[pic]

(Source: Compensation of Employees (COE) Compilation Guide, 2006)

[pic]

References

Amuedo-dorantes, Catalina, Bansak, Cynthia and Pozo, Susan (2005), ‘On the Remitting Patterns of Immigrants: Evidence from Mexican Survey Data, Federal Reserve Bank of Atlanta Conference on “Payments in Americas”, pp. 37-58.

Bank of Albania (2006), ‘Remittances – Albanian Experience’, Meeting of the Luxembourg Group, Luxembourg.

Basok, Tanya (2003), ‘Mexican Seasonal Migration to Canada and Development: A Community-based Comparison’, International Migration Vol. 41(2), pp. 3-26.

Berger, Arthur (2005), ‘Presentation to CEMLA Remittances International Steering Committee – Coverage, Quality and Sources of Information’, Balance of Payment Division, Statistics Canada, Ottawa.

Bulgarian National Bank (2007), ‘Methodology for Estimation of Flows due to Illegal Employment’, Statistics Directorate, Balance of Payments and External Debt Division, Bulgaria.

Cortina, Jerinimo and Garza, Rodolfo de la (2004), ‘Immigrant Remitting Behavior and its Developmental Consequences for Mexico and El Salvador’, The Tomas Rivera Policy Institute, University of Southern California, California, USA.

International Monetary Fund (1995), ‘Balance of Payment Compilation Guide, 1995, Chapter III, pp.15-25.

International Monetary Fund (2007), ‘Outline: Remittances Compilation Guide’, Balance of Payments and External Debt Division I, Statistics Department, Washington, D.C.

International Monetary Fund (2007): ‘Draft Balance of Payments and International Investment Position Manual’, Washington, D.C.

Lin, Zhengxi (1998), ‘Foreign-Born vs Native-Born Canadians: A Comparison of their Inter-Provincial Labour Mobility’, Business and Labour Market Analysis Division, Statistics Canada.

Lindsay, Colin (2007), ‘Profiles of Ethnic Communities in Canada: The Jamaican Community in Canada, 2001’, Catalogue no. 89-621-XIE – No.12, Social and Aboriginal Statistics Division, Statistics Canada, Ottawa.

Mann, Michael (2006), ‘U.S. Experience in Compiling Remittances Estimates, Meeting of the Luxembourg Group on Remittances, Luxembourg.

Menjivar, Cecilia, and DaVanzo, Julie et al (1998), ‘Remittance Behavior among Salvadoran and Filipino Immigrants in Los Angeles, International Migration Review, Vol. 32, No. 1. (Spring, 1998), pp. 97-126.

OIM Organization (2003), ‘National Survey on Family Remittances – Year 2003’, Working Notebooks on Migration, Guatemala.

Ratha, Dilip (2003), ‘Workers’ Remittances: An Important and Stable Source of External Development Finance’, Global Development Finance, Chapter 7.

Reinke, Jens and Patterson, Neil (2006), ‘Remittances in the Balance of Payments Framework: Current Problems and Forthcoming Improvements’ (Presented at the First Meeting of the Luxembourg Group), Statistics Department, International Monetary Fund.

Schellenberg, Grant and Maheux, Helene (2007), ‘Immigrants’ perspectives on their first four years in Canada: Highlights from three waves of the Longitudinal Survey of Immigrants to Canada’, Social and Aboriginal Statistics Division, Statistics Canada, Ottawa.

Schellenberg, Grant and Houle, Rene (2007), ‘Remittance Behaviour among Recent Immigrants in Canada,’, BLMA, SDS, Statistics Canada, Ottawa.

Singh, Bhupal (2006), ‘Cross-border Workers’ Remittances: Transmission Channels and Measurement Issues in India’, Meeting of the Luxembourg Group on Remittances, Luxembourg.

Statistics Canada (2000), ‘Canada’s Balance of International Payments and International Investment Position, Concepts, Sources, Methods and Products, Catalogue no. 67-506-XIE

Statistics Canada (2003), ‘Longitudinal Survey of Immigrants to Canada: A Regional Perspective of the Labour Market Experiences, Social and Aboriginal Statistics Division, Ottawa.

Statistics Canada (2003), ‘Remittance Industry in Canada’, Manuscript, Balance of Payment Division, Statistics Canada.

Statistics Canada (2003), ‘Longitudinal Survey of Immigrants to Canada: Progress and Challenges of New Immigrants in the Workforce’, Social and Aboriginal Statistics Division, Ottawa.

Statistics Canada (2003), ‘Longitudinal Survey of Immigrants to Canada: Process, Progress and Prospects’, Housing, Family and Social Statistics Division, Ottawa.

Statistics Canada (2005), ‘Knowledge of Official Languages Among Migrants: How Important is It in the Labour Market’, Special Surveys Division, Ottawa.

Statistics Canada (2005), ‘Longitudinal Survey of Immigrants to Canada: A Portrait of Early Settlement Experience’, Special Surveys Division, Ottawa.

Statistics Canada (2006), ‘Compilation Guide for Compensation of employees debit – Canadian Payments to foreign workers’, Current Account Section, Balance of Payments Division, Statistics Canada, Ottawa.

Tello, Patrocinio (2006), ‘Migration related flows in the Spanish Balance of Payments: Practical shortcomings and new estimation procedures’, Banco de Espana, Luxembourg Group on Remittances, Luxembourg.

Western Union (2007), ‘Annual Report 2006, Englewood, Colorado, USA.

Wilson, John (2006), ‘Progress Report on CEMLA Remittance Compilation Manual for LAC Countries’, Meeting of the Luxembourg Group on Remittances, Luxembourg.

Zietsma, Danielle (2007), ‘The Canadian Immigrant Labour Market in 2006: First Results from Canada’s Labour Force Survey:, The Immigrant Labour Force Analysis Series, Labour Statistics Division, Statistics Canada, Ottawa.

-----------------------

[1] For example, Mexico Migration Project (MMP93) contains information from 16,000 households in 93 representative communities in 17 of Mexico’s 31 states. Another survey by EMIF conducted in eight different cities along the U.S.-Mexico border accounts for more than 90 per cent of the migration flows between Mexico and the U.S.

[2] 71% of the migrating household heads remitted on a monthly basis an average of $450, about 40% of their earnings. They are quite young with very low educational standards.

[3] Although the propensity to remit is greater in undocumented workers as shown in some Mexican surveys.

[4] BPM6 proposes to classify population in terms of residency/non-residency. BOP framework is likely to abolish the concept of “migrant” in future.

[5] In terms of the Labour Force Survey (2006), the majority of immigrant population in the core working age (25-54 years) is engaged in sales and service occupation type where the average income is comparatively lower than the other occupation type. Our projections have taken this factor into consideration. Also, the preferred industries of employment for immigrants are trade and manufacturing.

[6] Our projections are subject to these adjustments.

[7] According to the Labour Force Survey (2006), the unemployment rates for female are comparatively higher than the males in the core working age group (25-54 years). We have not adjusted the total working age population for the unemployment rate. The situation is somewhat similar for the youth aged 15 to 24.

-----------------------

BOPSTA BOPSTA

BOPSTA

BOPCUS BOPBNK BOPCUS BOPBNK

BOPINF

PAYORD

FINPAY

International

Organizations

Central Bank

Central Bank

BOPDIR

BOPDIR

Commercial

Bank

Commercial

Bank

BOP

Transactor

BOP

Transactor

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download