Michael Batu
Michael Batu

Michael Batu sends money home to help support his family in the Philippines. As part of his PhD thesis in the Department of Economics and Finance, he is studying the effects of remittances on those who send them and those who receive them.

It’s a common practice for people living in developing countries to work abroad so they can earn more money to send home to their families, he explains. “It’s an unwritten contract in the family. In the Philippines, we have strong family ties and children are usually obligated to help their parents.” He says this is especially true when children grow up and move away from home to work abroad.

Sending just one dollar may not seem like much, he adds, but it can make the difference between living in poverty and living a more comfortable life. In the Philippines, “one Canadian dollar would get you a full meal,” he says. “Imagine if I sent $100. That would feed a lot of people.”

When Batu came to Canada in 2007, he became a permanent resident and worked as a policy adviser for the Ontario Public Service. He often sent money home to his parents, much like they did when he was a child.

Despite their economic benefits, remittances also have drawbacks. Batu’s research suggests families that receive remittances tend to become dependent on them as a source of income and work less as a result. “Even though they receive remittances, they still should be engaged in some form of meaningful work,” he says.

For countries such as Tajikistan, remittances account for more than half of their gross domestic product. “Even one per cent of GDP – that’s huge,” says Batu. “Over time, remittances have become an important source of funds for many countries.”

Since 1995, remittances have exceeded foreign aid to developing countries, which are using them to fund public works projects, subsidize agriculture and provide food aid. “In recent years remittances have become a very important aspect of development,” he says.

Governments also benefit by taxing remittances and purchases made with the money. Batu says imposing taxes could encourage people to send money using other means. “People will find ways.”

Since foreign workers can be a lucrative source of income, some countries have adopted policies that encourage people to work overseas. The Philippine government, for example, has established the Overseas Workers Welfare Administration and the Philippine Overseas Employment Administration to assist people who work abroad. “They’ve realized that emigration and, consequently, remittances are part of their development strategy,” says Batu.

Sending a remittance comes at a cost to the sender, he adds. A $100 money transfer can cost as much as $9 to send. That $9 fee may not sound like much, but it could pay for a family-sized meal in the Philippines, he says. To avoid these fees, some foreign workers send money through friends. Others send money through the mail, which could be confiscated by the post office before it reaches its destination.

Exchange rates can also affect the value of remittances.

For a family to receive remittances, at least one relative needs to work abroad, which separates them for the duration of their contract. In some cases, children may grow up without one of their parents for extended periods of time, says Batu. But the working parent may be able to afford to send their children to private schools, which can improve their employment opportunities in the future.

Remittances can also create a wider gap between families who receive them and those who don’t. Batu says a street in his village back home is lined with houses made of concrete because the families who live there belong to the “new middle class” and can afford to build better homes. Families who don’t receive remittances often live in houses made of wood and other light-weight materials.

Batu says families should save their remittances instead of spending them. “It will produce more good effects for the economy” because saving the money in a bank allows it to be reinvested in the economy. He found that if remittances are invested, they contribute to economic growth, and if they are consumed, they also generate multiplier effects.

Remittances are rarely sent between Canada and the United States, he adds, because they are more likely to be sent by migrant workers from wealthier countries to developing countries. People who live in developing countries are also more likely to be culturally bound to send money back home, he says. Remittances can also be sent within countries such as China, where rural workers often move to urban areas to work.

Batu has presented the findings of his study at numerous conferences, including the Canadian Economics Association and the Midwest Economics Association. He also co-authored other studies related to remittances with economics professors James Amegashie, Kurt Annen and Stephen Kosempel.