International Remittances
Different Estimation Methodologies Produce Different Results Gao ID: GAO-06-210 March 28, 2006Remittances are the personal funds that the foreign born send to their home countries. In recent years, estimated remittances have grown dramatically, and policy makers have increased their attention to these flows. Organizations use various methodologies to estimate remittance flows, which result in a range of estimates. In 2004, the Group of Eight (G8) leaders emphasized the need for improved statistical data on remittances. In light of the growing volume of remittances and the differences in estimates, GAO examined (1) the methodology that the Bureau of Economic Analysis (BEA) uses to develop the official U.S. estimate, (2) methodologies that other countries and multilateral organizations use to estimate remittances, and (3) international efforts to improve the collection and reporting of remittance data.
BEA uses a model to estimate remittances from the United States and, although the methodology has some strengths, the accuracy of BEA's estimate is uncertain for several reasons. BEA estimated remittances for 2003 at $28.2 billion; its model used data on the number of foreign-born residents, their income, the proportion of income that is remitted, and other demographic data. The strengths of BEA's methodology are that, in theory, it estimates remittances sent through formal and informal channels. It also is low-cost because it uses existing data on the foreign born. However, BEA's methodology was limited by the quality and timeliness of the data, particularly on the portion of income likely to be remitted. BEA revised its model in 2005 to use new data sources, but the accuracy of its estimates depends on the accuracy of its assumptions regarding the remitting behavior of the foreign born and other factors. Some central banks and the Inter-American Development Bank (IDB) use different methodologies to provide estimates of remittances from the United States that vary significantly. For example, Mexico's central bank estimates remittances primarily by collecting data from money transmitters. The IDB used a variety of sources, such as surveys of remittance senders and receivers, and information from remittance transfer companies and central banks, to estimate remittances from the United States to Latin America to be $30.6 billion in 2003. We aggregated BEA's data to estimate remittances to this region to be $17.9 billion. BEA is an active participant in recent international efforts to improve remittance statistics. The World Bank and others established a remittances working group in 2005, which delegated tasks to other international groups to (1) clarify the definition of remittances and (2) provide guidance on how to collect and estimate remittances. BEA participated in the first group, which recommended a new definition of remittances. The second group will have its first meeting in June 2006.
GAO-06-210, International Remittances: Different Estimation Methodologies Produce Different Results
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Report to the Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
March 2006:
International Remittances:
Different Estimation Methodologies Produce Different Results:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-210]:
GAO Highlights:
Highlights of GAO-06-210, a report to Committee on Banking, Housing,
and Urban Affairs, U.S. Senate:
Why GAO Did This Study:
Remittances are the personal funds that the foreign born send to their
home countries. In recent years, estimated remittances have grown
dramatically, and policy makers have increased their attention to these
flows. Organizations use various methodologies to estimate remittance
flows, which result in a range of estimates. In 2004, the Group of
Eight (G8) leaders emphasized the need for improved statistical data on
remittances.
In light of the growing volume of remittances and the differences in
estimates, GAO examined (1) the methodology that the Bureau of Economic
Analysis (BEA) uses to develop the official U.S. estimate, (2)
methodologies that other countries and multilateral organizations use
to estimate remittances, and (3) international efforts to improve the
collection and reporting of remittance data.
What GAO Found:
BEA uses a model to estimate remittances from the United States and,
although the methodology has some strengths, the accuracy of BEA‘s
estimate is uncertain for several reasons. BEA estimated remittances
for 2003 at $28.2 billion; its model used data on the number of foreign-
born residents, their income, the proportion of income that is
remitted, and other demographic data. The strengths of BEA‘s
methodology are that, in theory, it estimates remittances sent through
formal and informal channels. It also is low-cost because it uses
existing data on the foreign born. However, BEA‘s methodology was
limited by the quality and timeliness of the data, particularly on the
portion of income likely to be remitted. BEA revised its model in 2005
to use new data sources, but the accuracy of its estimates depends on
the accuracy of its assumptions regarding the remitting behavior of the
foreign born and other factors.
Some central banks and the Inter-American Development Bank (IDB) use
different methodologies to provide estimates of remittances from the
United States that vary significantly. For example, Mexico‘s central
bank estimates remittances primarily by collecting data from money
transmitters. The IDB used a variety of sources, such as surveys of
remittance senders and receivers, and information from remittance
transfer companies and central banks, to estimate remittances from the
United States to Latin America to be $30.6 billion in 2003. We
aggregated BEA‘s data to estimate remittances to this region to be
$17.9 billion.
BEA is an active participant in recent international efforts to improve
remittance statistics. The World Bank and others established a
remittances working group in 2005, which delegated tasks to other
international groups to (1) clarify the definition of remittances and
(2) provide guidance on how to collect and estimate remittances. BEA
participated in the first group, which recommended a new definition of
remittances. The second group will have its first meeting in June 2006.
Regional Destination of Remittances Sent from the United States, 2003:
[See PDF for image]
[End of figure]
What GAO Recommends:
While GAO makes no recommendations at this time, GAO observes estimates
of the amount of remittances from the United States differ. More
accurate remittance estimates could help certain U.S. agencies make
better decisions. Therefore, policy makers may want to consider
exploring options for improving the accuracy of U.S. remittance
statistics. We received written comments on a draft of this report from
the Departments of the Treasury and Commerce. They both generally
agreed with our observations.
www.gao.gov/cgi-bin/getrpt?GAO-06-210.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Yvonne Jones at (202) 512-
2717 or jonesy@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
BEA Uses a Model to Estimate Remittances Sent from the United States,
but the Accuracy of BEA's Estimate Is Uncertain for Several Reasons:
Other Entities Use Different Estimation Methodologies Resulting in a
Range of Remittance Estimates:
BEA Is Involved in International Efforts to Improve the Collection and
Reporting of Remittance Information:
Observations:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: BEA's Methodology for Estimating Remittances:
Appendix III: Analysis of the Sensitivity of BEA's Estimate to
Judgmentally Determined Variables on the Remitting Behavior of the
Foreign Born:
Appendix IV: IDB Remittance Estimation Methodology:
Appendix V: Comments from the Department of Commerce:
GAO's Comments:
Appendix VI: Comments from the Department of the Treasury:
Appendix VII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Remittances as a Percentage of Various Economic Indicators for
Selected Countries for 2003:
Table 2: Per Capita Remittances from the United States Compared to
Minimum Wages for Selected Countries, 2003:
Table 3: Comparison of BEA and IDB Estimates of Remittances to 21 Latin
American and Caribbean Countries, 2003:
Table 4: Regional and Sub-Regional Remittances in 2003 as Estimated
Using BEA's Underlying Country-by-Country Tabulations:
Table 5: Change in the Estimate of Remittances by Excluding Those in
the United States for Less Than 1 Year:
Table 6: Range of Estimates in Regional Breakdown of BEA Estimate of
Remittances in 2003 (20,000 trials):
Table 7: IDB/MIF Estimates of Remittances to Latin American and
Caribbean Countries, 2003:
Table 8: Percentage Difference between BEA and IDB Estimates of
Remittances from the United States to Selected Latin American and
Caribbean Countries, 2003:
Figures:
Figure 1: Largest Sources of Remittances, 1990-2004:
Figure 2: Regional Destination of Remittances Sent from the United
States, 2003:
Figure 3: BEA's Methodology for Estimating Remittances, 2005:
Figure 4: Differences between Global Remittance Credits and Debits,
1990-2004:
Figure 5: BEA Values for the Percentage of the Adult Foreign-Born
Population in the United States That Send Remittances:
Figure 6: Percentage of Income Remitted by Category:
Figure 7: IDB Methodology for Estimating Remittances from the United
States to Latin America, 2003:
Abbreviations:
ACS: American Community Survey:
BEA: Bureau of Economic Analysis:
CPS: Current Population Survey:
G8: Group of Eight:
IRCA: Immigration Reform and Control Act of 1986:
IDB: Inter-American Development Bank:
IMF: International Monetary Fund:
LPS: Legalized Population Survey:
MIF: Multilateral Investment Fund:
OFW: Overseas Filipino Workers:
TSG: Technical Subgroup on the Movement of Natural Persons:
Letter March 28, 2006:
The Honorable Richard C. Shelby:
Chairman:
The Honorable Paul S. Sarbanes:
Ranking Minority Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate:
The United States is the largest remittance-sending country in the
world, with a majority of funds sent to Latin America and the
Caribbean, and substantial amounts sent to Asia and Africa. In recent
years, remittances have received growing attention from policy makers
in both developed and developing countries because these flows serve as
an important financial source for some countries. According to the
World Bank, remittances received by developing countries were estimated
to have been $167 billion in 2005, up 73 percent from 2001; however,
given that the extent of unrecorded flows through formal and informal
channels is unknown, actual remittance flows may be much higher. World
Bank data show that remittance growth has outpaced private capital
flows and official development assistance over the last decade. When
combined with official U.S. development assistance, these flows
significantly increase the percentage of U.S. gross national income
sent to developing countries.
In 2004, the Group of Eight (G8) leaders emphasized the importance of
remittances and the need for improved statistical data on
them.[Footnote 1] In the United States, some agencies have also
expressed a need for improved remittance estimates. For example, the
Department of the Treasury (Treasury) conducts bilateral outreach
programs, and Treasury officials believe improved remittance statistics
could help it better target its program to improve the financial
infrastructure in countries that receive a large amount of remittances
from the United States. In 2004, the Federal Reserve established a
mechanism to facilitate the provision of low-cost remittances to Mexico
through its automated clearinghouse; improved remittance statistics
could help it identify other countries that could benefit from its low-
cost remittance product.
Different organizations use various methods to estimate remittance
flows, which result in a range of estimates. In light of the volume of
remittances and the differences in estimates, you asked us to review
the methodologies used to estimate remittances from the United
States.[Footnote 2] Specifically, we examined (1) the methodology that
the Department of Commerce's (Commerce) Bureau of Economic Analysis
(BEA) uses to develop the official U.S. estimates of remittances from
the United States, (2) methodologies other countries and multilateral
institutions use to estimate remittances from the United States, and
(3) international efforts to improve the collection and reporting of
remittance data. In addition, we recently issued a report that focused
on remittance products, costs, and consumer disclosures for remittances
sent from the United States to other countries.[Footnote 3]
To address these objectives, we met with officials at BEA and the U.S.
Census Bureau. We also reviewed documentation that described BEA's
methodology prior to 2005 and obtained documentation from BEA
describing their revised methodology, which was implemented in July
2005. We met with officials from the Inter-American Development Bank
(IDB), the Inter-American Dialogue, and the Mexican and Philippine
central banks to obtain their estimates on remittances from the United
States. We also obtained descriptions of the methodologies they used to
estimate remittances, the reasons for using these methodologies, and
the potential advantages and disadvantages of their use. We primarily
report data for 2003 because that is a time period for which BEA has
statistically reliable data and because data for more recent time
periods are preliminary. As a matter of consistency we use this period
to report on the other entities as well. We do, however, report more
recent data when available. We met with officials from BEA, Treasury,
the Department of State, the U.S. Agency for International Development,
the International Monetary Fund (IMF), the World Bank, and IDB to
obtain information on international efforts to improve remittance
estimates. Appendix I provides additional details on our scope and
methodology. We conducted our work from December 2004 to March 2006 in
accordance with generally accepted government auditing standards.
Results in Brief:
BEA uses a model to estimate remittances from the United States and,
although this methodology has some strengths, the accuracy of BEA's
remittance estimate is uncertain for several reasons. BEA estimated
remittances for 2003 at $28.2 billion; its model used data on the
number of foreign-born residents in the United States, their income,
the proportion of income that is remitted, and other demographic
data.[Footnote 4] However, BEA's methodology was limited by the quality
and timeliness of data available to BEA, particularly the data on the
portion of income that is likely to be remitted. BEA revised its model
in 2005 to use new data sources from the Bureau of the Census on the
demographics of the foreign born and more recent studies on the
remitting behavior of the foreign born. It then revised its estimates
back to 1991 using this new approach, which resulted in an increase in
estimated remittances for all years. Two of the strengths of BEA's
methodology are that, first, in theory, it estimates remittances sent
through both formal and informal systems; and, second, it is low-cost
to BEA because it uses existing data on the foreign born.[Footnote 5]
The accuracy of BEA's estimate, however, depends on the accuracy of its
assumptions. For example, BEA's revised model assumes that the
proportion of income remitted is higher for U.S. residents from
developing countries closer to the United States and that the
percentage of the foreign born that remit is the same for all migrants
from all countries, but varies depending on how long they have been in
the United States. Further, it is not possible to directly link the
parameters BEA uses to capture the remitting behavior of the foreign
born to the sources cited. Our analysis of BEA's estimates also found
that they are particularly affected by the assumptions BEA used on the
percentage of income remitted and the percent of foreign born that
remit. We used a statistical technique that repeatedly and randomly
samples from underlying data to obtain a range for 90 percent of
possible estimates and determined that estimated remittances from the
United States could range in value from $17.3 billion to $35.9 billion.
Finally, BEA's remittance estimate includes remittances sent by some of
the foreign born who have been in the United States for less than one
year, who, according to BEA's definition of remittances, should not be
included.
Some central banks and the IDB use a variety of methodologies and data
sources to provide estimates of remittances from the United States that
vary significantly. For example, Mexico's central bank estimates
remittances by collecting data on the amount remitted through money
transmitters and by surveying Mexican nationals returning to the
country at the U.S.-Mexico border. The Philippine central bank
estimates remittances by tracking the income of its residents working
abroad that is channeled into banks in the Philippines and netting out
living expenses to estimate remittances. The primary advantage of these
methodologies is that they capture actual or projected estimates of
remittance flows. Unlike BEA's methodology, however, these methods are
limited in their ability to capture remittances made through the
informal sector. The IDB, which provides financing for economic,
social, and institutional development projects for Latin America and
the Caribbean, estimates remittances on a regional basis. The IDB
developed its own estimate of remittances from the United States to
Latin America and the Caribbean using a survey of the annual remittance
amounts sent from Latin American residents of the United States to
their countries of origin. In addition, the IDB has conducted surveys
of residents in countries in the region who receive remittances and
compared their estimates with those of central banks in these
countries. These in-country surveys also have allowed IDB to estimate
the amount of remittances these countries receive from the United
States. Such survey efforts can provide statistically valid estimates
but can be costly to implement and rely on the willingness of
respondents to share information. The remittance estimates generated by
the central banks, IDB, and BEA vary significantly from one another.
For example, in 2003, the IDB estimated that $30.1 billion was remitted
from the United States to Latin America and the Caribbean. Although BEA
does not publish remittance estimates by region, we aggregated BEA's
country-by-country tabulations to estimate remittances to Latin America
and the Caribbean and found this to be $17.9 billion.
BEA is an active participant in international efforts to improve
remittance statistics, but these initiatives, which began in 2005, are
in the early stages and have not yet produced results that make it
easier to reconcile remittance estimates. Currently, countries and
other entities that estimate remittances use a variety of methods such
as model estimation, bank reporting systems, or surveys of remitters;
each method has strengths and limitations as we discussed earlier.
Further, few countries seek to reconcile their estimates with other
countries, and others are unable to devote significant resources to
collecting data on remittances. For these reasons, the heads of the G8
countries at the 2004 G8 summit called upon international financial
institutions such as the World Bank and IMF to lead a global effort to
improve remittance statistics. As part of this effort, the World Bank
and IMF hosted a meeting in January 2005 and proposed that two
different groups undertake an objective: (1) to clarify the definition
of remittances, and (2) to provide guidance on how to collect and
estimate remittance flows. In the first case, the United Nations
Technical Subgroup on the Movement of Natural Persons, of which BEA is
a member, recommended that "personal transfers" be defined to include
personal transfers received by resident households from nonresident
households. This definition was discussed at a June 2005 meeting of the
IMF Balance of Payments Committee and is expected to appear in the
updated international statistical standards that are scheduled to take
effect in 2008. In the second case, Eurostat, the statistical agency of
the European Union, agreed to host and jointly organize a meeting in
June 2006 of a new group called the Luxembourg Group, to develop more
detailed guidance for compiling remittance data. As of March 2006, BEA
had not been formally asked to participate on this group but expected
that it would be. No date has been set for the group to complete its
work.
Although we make no recommendations at this time, we observe that
estimates of the amount of remittances from the United States differ
based on different methodologies. More accurate remittance estimates
could help certain U.S. agencies such as Treasury make better decisions
on how much (and what kind of) development assistance to provide, and
U.S. companies could make better decisions regarding foreign direct
investment. Therefore, policy makers may want to consider exploring
options for improving the accuracy of U.S. remittance statistics.
We provided a draft copy of this report to Treasury and Commerce for
their review and comment. Treasury concurred with all of our
observations, while Commerce concurred with most of them. Commerce also
provided a number of additional specific comments. Commerce's comments
and our response are discussed in appendix V.
Background:
Remittances have become an important source of financial flows to
developing regions and have been resilient in the face of economic
downturns. These funds can be used for various purposes, including
basic consumption, housing, education, and small business formation;
they can also promote financial development in cash-based economies.
Because of the importance of these flows to many developing countries,
in recent years, countries that send remittances and receive
remittances, along with international organizations, have expressed
increasing interest in understanding immigrants' remittance practices.
According to the 2000 Census, the 1990s saw the largest increase in the
foreign-born population that entered the United States, compared with
any other 10-year period. IMF figures show that in 2004, immigrants in
the United States sent over $29.9 billion in remittances, more than any
other country. Saudi Arabia was the second largest remittance-sending
country; however, as shown in figure 1, the volume of remittances from
Saudi Arabia has been falling since 1994, while that from the United
States has been steadily increasing.
Figure 1: Largest Sources of Remittances, 1990-2004:
[See PDF for image]
[End of figure]
For some countries, remittances constitute the single largest source of
foreign currency and can often rival direct foreign investment in
amounts. World Bank data show that for selected countries remittances
exceed the flows of official development assistance and foreign direct
investment and are relatively large compared to exports and gross
national income--particularly for the Dominican Republic and the
Philippines (see table 1).
Table 1: Remittances as a Percentage of Various Economic Indicators for
Selected Countries for 2003:
Country: Brazil;
Remittances as a percentage of exports of goods and services: 3.4%;
Remittances as a percentage of official development assistance: 953.1%;
Remittances as a percentage of foreign direct investment net inflows:
27.8%;
Remittances as a percentage of gross national income: 0.6%;
Remittances as a percentage of foreign reserves: 5.7%.
Country: Colombia;
Remittances as a percentage of exports of goods and services: 18.3%;
Remittances as a percentage of official development assistance: 383.5%;
Remittances as a percentage of foreign direct investment net inflows:
176.2%;
Remittances as a percentage of gross national income: 3.8%;
Remittances as a percentage of foreign reserves: 28.5%.
Country: Dominican Republic;
Remittances as a percentage of exports of goods and services: 27.1%;
Remittances as a percentage of official development assistance:
3371.5%;
Remittances as a percentage of foreign direct investment net inflows:
750.2%;
Remittances as a percentage of gross national income: 12.5%;
Remittances as a percentage of foreign reserves: 918.4%.
Country: Egypt;
Remittances as a percentage of exports of goods and services: 16.6%;
Remittances as a percentage of official development assistance: 331.3%;
Remittances as a percentage of foreign direct investment net inflows:
1247.3%;
Remittances as a percentage of gross national income: 3.2%;
Remittances as a percentage of foreign reserves: 21.8%.
Country: India;
Remittances as a percentage of exports of goods and services: 19.2%;
Remittances as a percentage of official development assistance:
1847.3%;
Remittances as a percentage of foreign direct investment net inflows:
407.7%;
Remittances as a percentage of gross national income: 3.0%;
Remittances as a percentage of foreign reserves: 17.6%.
Country: Mexico;
Remittances as a percentage of exports of goods and services: 8.2%;
Remittances as a percentage of official development assistance:
14147.9%;
Remittances as a percentage of foreign direct investment net inflows:
135.3%;
Remittances as a percentage of gross national income: 2.3%;
Remittances as a percentage of foreign reserves: 24.8%.
Country: Morocco;
Remittances as a percentage of exports of goods and services: 25.6%;
Remittances as a percentage of official development assistance: 691.3%;
Remittances as a percentage of foreign direct investment net inflows:
158.6%;
Remittances as a percentage of gross national income: 9.2%;
Remittances as a percentage of foreign reserves: 26.1%.
Country: Nigeria;
Remittances as a percentage of exports of goods and services: 5.9%;
Remittances as a percentage of official development assistance: 528.0%;
Remittances as a percentage of foreign direct investment net inflows:
139.8%;
Remittances as a percentage of gross national income: 3.5%;
Remittances as a percentage of foreign reserves: 23.5%.
Country: Philippines;
Remittances as a percentage of exports of goods and services: 20.2%;
Remittances as a percentage of official development assistance:
1068.9%;
Remittances as a percentage of foreign direct investment net inflows:
2470.2%;
Remittances as a percentage of gross national income: 9.1%;
Remittances as a percentage of foreign reserves: 57.7%.
Country: Poland;
Remittances as a percentage of exports of goods and services: 3.3%;
Remittances as a percentage of official development assistance: 194.2%;
Remittances as a percentage of foreign direct investment net inflows:
56.1%;
Remittances as a percentage of gross national income: 1.1%;
Remittances as a percentage of foreign reserves: 7.1%.
Country: World Total;
Remittances as a percentage of exports of goods and services: 1.8%;
Remittances as a percentage of official development assistance: 223.5%;
Remittances as a percentage of foreign direct investment net inflows:
30.2%;
Remittances as a percentage of gross national income: 0.5%;
Remittances as a percentage of foreign reserves: 5.6%.
Source: GAO analysis of World Bank data.
Notes: Data are derived from remittance estimates reported in the World
Bank's Global Development Finance. "Reserves" are total foreign
exchange reserves, excluding gold. The countries selected are the top
recipients of remittances in their respective regions.
[End of table]
Remittances are also very important for those households that receive
them. Table 2 shows the minimum wage per month for several developing
countries as well as our computation of the 2003 per capita remittances
from the United States per month. As can be seen from this table,
remittances received by households on a monthly basis tend to
substantially exceed the monthly minimum wage for these countries. For
example, per capita, remittances to households in the Philippines are
almost five times the monthly minimum wage a Filipino worker would make
in the retail and service sector.
Table 2: Per Capita Remittances from the United States Compared to
Minimum Wages for Selected Countries, 2003:
Country: Bangladesh;
Minimum wage per month (in U.S. dollars): $30;
Per capita remittances from the United States per month (in U.S.
dollars): $137;
Percentage of minimum wage per month to per capita remittances from the
United States per month: $457;
Month of income at the minimum wage that the per capita remittance from
the United States would replace (in months): 4.6%.
Country: El Salvador;
Minimum wage per month (in U.S. dollars): $49;
Per capita remittances from the United States per month (in U.S.
dollars): $189;
Percentage of minimum wage per month to per capita remittances from the
United States per month: $386;
Month of income at the minimum wage that the per capita remittance from
the United States would replace (in months): 3.9%.
Country: Ghana;
Minimum wage per month (in U.S. dollars): $26;
Per capita remittances from the United States per month (in U.S.
dollars): $177;
Percentage of minimum wage per month to per capita remittances from the
United States per month: $681;
Month of income at the minimum wage that the per capita remittance from
the United States would replace (in months): 6.8%.
Country: Philippines;
Minimum wage per month (in U.S. dollars): $38;
Per capita remittances from the United States per month (in U.S.
dollars): $178;
Percentage of minimum wage per month to per capita remittances from the
United States per month: $468;
Month of income at the minimum wage that the per capita remittance from
the United States would replace (in months): 4.7%.
Country: Romania;
Minimum wage per month (in U.S. dollars): $84;
Per capita remittances from the United States per month (in U.S.
dollars): $200;
Percentage of minimum wage per month to per capita remittances from the
United States per month: $239;
Month of income at the minimum wage that the per capita remittance from
the United States would replace (in months): 2.4%.
Source: GAO calculations using BEA's underlying tabulations for
remittances from the United States in 2003 and data from the
International Labor Organization's minimum wages database.
Note: The minimum wage in developing countries generally applies to
urban workers.
[End of table]
The IMF collects and publishes official estimates of remittances sent
from its member countries, including the United States, as part of its
balance of payments statistics. The IMF currently reports the sums of
"workers' remittances" and "compensation of employees" as the best
measure of total personal remittances. According to IMF, "workers'
remittances" are transfers by migrants who are employed in countries
other than their birth countries and are considered residents there;
"compensation of employees" is made up of wages, salaries, and other
benefits earned by individuals in economies other than those in which
they are residents, for work performed or paid for by residents of
those economies. As a result, compensation of employees applies only to
individuals away from their place of origin for less than a
year.[Footnote 6]
In the United States, no U.S. government agency tracks the flow of
remittances through the payment system. Because of its role in
compiling balance of payments statistics, BEA provides to the IMF
official estimates of U.S. remittance inflows and outflows. BEA
publishes remittance estimates in a different manner than reported in
the IMF's balance of payment statistics. BEA includes estimates of
remittances by the foreign-born population residing in the United
States to households abroad in the published item called "private
remittances and other transfers." This category is broader than the
international definition of remittances, as it also includes payments
or receipts of nongovernmental U.S. entities and foreign entities.
Also, BEA publishes its estimates of "private remittances and other
transfers" in its tables of international transactions accounts,
defining it as the difference between transfers to and transfers from
the United States. However, BEA provides to the IMF an estimate of
remittances that flow from the United States to the world based on its
underlying country-by-country tabulations. Until this year, BEA only
provided this estimate to the IMF. For the first time, BEA published
the estimate it provided to the IMF, as well as revised estimates back
to 1991, in the July 2005 Survey of Current Business.[Footnote 7]
The majority of remittances from the United States flow to Latin
America, which includes Mexico, Central America, South America, and the
Caribbean (see fig. 2). A large amount also flows to Asia, including
the Philippines.
Figure 2: Regional Destination of Remittances Sent from the United
States, 2003:
[See PDF for image]
Note: The shaded parts of the bar signify those countries, or in the
case of Europe, regions, that make up the large majority of remittances
received from the United States in each location.
[End of figure]
There are many obstacles to accurately estimating remittances. First,
many transactions may go through unregulated informal channels from
which information cannot be garnered for inclusion in official
estimates. While there are no official estimates, some experts believe
that a large amount of remittances flow through this system, with
market observers estimating that informal flows can range from 50
percent to 250 percent of recorded remittance flows. Second, countries
do not always report remittance estimates or do not report them
according to commonly held IMF definitions, which exclude transfers by
the foreign born who have been in-country for less than one year.
Variations in data compilation procedures occur partially due to
different interpretations of definitions and classifications. In most
cases, however, data weaknesses and omissions are due to difficulties
in obtaining the necessary data. For example, the World Bank and other
international organizations have indicated that developing countries
with large remittance inflows often have a relatively weak capacity and
limited resources, even though remittances are a large item in their
balance of payments statistics. Countries with large remittance
outflows often give lower priority to improvements in remittance
statistics because they are a relatively small item in their balance of
payments statistics, according to the World Bank and other
international organizations.
BEA Uses a Model to Estimate Remittances Sent from the United States,
but the Accuracy of BEA's Estimate Is Uncertain for Several Reasons:
BEA uses a model to estimate remittances (which it calls "personal
transfers") from the United States. Although BEA's methodology has some
strengths, the accuracy of BEA's estimate is uncertain for a number of
reasons. BEA estimated that remittances from the United States in 2003
were $28.2 billion. To arrive at this estimate, BEA used a model that
estimates remittances based on demographic information on the foreign
born, such as their total number, income, and the percentage of income
they remitted. In 2005, BEA revised its model for estimating
remittances and incorporated more current Census Bureau data on the
size and demographic characteristics of the foreign-born population of
the United States; however, the model is limited particularly by lack
of current data on the proportion of income immigrants were likely to
remit and the assumptions BEA makes about its data. In addition, BEA
uses the more current census data in a way that may double-count some
immigrants.
BEA's Methodology Relies on Existing Data and BEA's Assumptions to
Estimate Remittances:
Prior to 2005, to derive its annual estimate of remittances sent from
the United States, BEA developed a model comprised of three factors--
the number of the foreign born, their family income, and the proportion
of income remitted. The count of the foreign born, their income, and
other demographic characteristics were obtained from information
aggregated annually from U.S. Bureau of the Census surveys. These data
were arrayed by length of residency in the United States and family
types linked to marital status (e.g., married foreign head of
households, native-born married to foreign-born spouse, and unmarried
individuals). The remitter was assumed to be the household head. BEA
extrapolated the foreign-born population derived from the 1990
Decennial Census using indicators, including the Census Bureau's annual
Current Population Survey (CPS).[Footnote 8]
To estimate the proportion of income immigrants were likely to remit,
BEA relied on the 1989 Legalized Population Survey (LPS1) and the 1992
Legalized Population Follow-Up Survey (LPS2), which were conducted as a
result of the Immigration Reform and Control Act of 1986
(IRCA).[Footnote 9] BEA then combined the information obtained from
LPS1 and LPS2 with demographic and income information obtained from the
CPS to arrive at the total amount of remittances sent from the United
States. For a more detailed description of BEA's methodology for
estimating remittances, see appendix II.
In 2005, BEA made several revisions to its methodology to include more
recent census data, and recent studies on the foreign born and their
remitting behaviors. First, BEA incorporated data on the foreign-born
population and their income from the 2000 Census and the American
Community Survey (ACS), which is available annually, unlike decennial
census data, and thus requires less extrapolation of population and
income trends.[Footnote 10] According to BEA, these data will enable a
better breakdown of the foreign-born population by all relevant
characteristics on an annual basis. The ACS data on the number and
income of the adult foreign-born population are arrayed by their
gender, duration of stay, presence or absence of children, and per
capita income of recipient countries and proximity to the United
States. BEA then used its own judgment to determine the percentage of
the adult foreign-born population that remits and the probability of
remitting from information gathered from various academic studies
published between 1995 and 2004, as well as LPS1 and LPS2, which BEA
used in its earlier model.[Footnote 11] BEA revised its estimates back
to 1991 using this new approach, which resulted in an increase in
estimated remittances for all years. Figure 3 shows the data that are
included in BEA's model and how the remittance estimate is calculated.
Figure 3: BEA's Methodology for Estimating Remittances, 2005:
[See PDF for image]
[End of figure]
In most cases, BEA provides only a global estimate of remittances and
does not publish remittance statistics about remittances from the
United States to individual countries. BEA stated that some data
elements are not available for some time periods or geographic areas,
so it must undertake a variety of methods to fill the data gaps in
order to produce the underlying tabulations needed for an aggregate
estimate for the world. BEA cautions that disaggregating its estimate
for the world is error-prone and expresses confidence only in its
aggregate estimate. Further, according to BEA, in moving from the
global estimate to increasingly smaller geographic areas or countries,
the average errors in the underlying tabulations increase. When it
estimates remittances for selected regions, it publishes them on a net
(inflows minus outflows) basis.
The Accuracy of BEA's Remittances Estimates Is Affected by the Quality
of the Data and the Assumptions Used in the Methodology:
BEA's approach has several strengths: in theory, it captures both
formal and informal channels of sending remittances. It is also low-
cost because it relies on available data and not on eliciting data from
a foreign-born population that may not have an incentive to provide
accurate data. However, the accuracy of BEA's estimate is affected by
the quality of the data available to BEA. A critical component of the
methodology relies on information about the remitting behavior (e.g.,
amount, frequency) of the foreign born. Prior to 2005, the primary data
available to BEA were the 1989 LPS1 and the 1992 LPS2; however, these
surveys may not have been appropriate for use in estimating remittances
of all the foreign born because they sampled a population participating
in a special legalization program primarily aimed at Latin American
immigrants. The LPS1 and LPS2 excluded undocumented aliens, temporary
residents who did not wish (or were not eligible) for legal status, and
legal immigrants who became legalized through processes other than
IRCA. The survey design did not provide a way to more extensively
sample immigrant groups more likely to remit than others (e.g. the
foreign born with less than 10 years of residence in the United
States). In addition, recent census data show that some basic
demographic characteristics of the foreign born have changed
significantly since the LPS1 and LPS2 surveys were done.
BEA's revisions to its methodology recognize these changes in the
foreign born population. In its revision, BEA reviewed a number of
academic studies to update the findings of the LPS1 and LPS2 and
published the sources in the July 2005 Survey of Current Business,
however, the estimates on the proportion of income remitted cannot be
directly tracked to these source documents. Although this approach is
more transparent than the prior approach of relying primarily on LPS1
and LPS2, BEA's estimate is still affected by its "judgment" of how it
incorporates information from the academic studies it is now using, and
the assumptions it makes in its model. For example, two of BEA's
assumptions are that the proportion of income remitted is higher for
U.S. residents from developing countries than developed countries, and
that the percentage of the foreign born that remit is the same for all
countries and only varies based on how long they have been in the
United States. Our analysis suggests that the final BEA estimates of
remittances are affected by these assumptions. We used a statistical
technique that repeatedly and randomly samples from underlying data to
obtain the range for 90 percent of possible estimates and determined
this to be between $17.3 billion and $35.9 billion. See appendix III
for the analysis we used to determine these ranges.
BEA's Revised Methodology Includes Remittances Sent by Some of the
Foreign Born Who Have Been in the United States for Less Than One Year:
Remittance estimation in the balance of payments framework generally
separates remitters by their length of residency in host countries. All
remittances are presumably sent by the foreign born who have been in
the host country for greater than one year, while those that are in a
country for less than a year are presumed to be temporary, earning only
compensation. For this reason, some experts compile remittances as the
sum of (1) the remittances sent by those in country greater than a year
and (2) the compensation for those in-country for less than a year. In
its description of its revised methodology, BEA states that it excludes
transfers by the foreign born who have been in the United States for
less than 1 year from its measure of remittances; however, BEA uses a
U.S.-residency-duration grouping of 0-5 years in its personal
remittances calculation. It thus includes both employees who are in the
United States for less than or equal to 1 year, and migrants who are in
the United States for more than a year, in its estimates of personal
remittances. Our analysis determined that BEA's estimates of
remittances are therefore potentially overstated by up to $377 million
because they include estimates for approximately 467,000 foreign-born
individuals who were in their first year of residency in the United
States, according to 2003 ACS data.
Other Entities Use Different Estimation Methodologies Resulting in a
Range of Remittance Estimates:
Some central banks and IDB use a variety of methodologies and data
sources to estimate remittances.[Footnote 12] The central banks of
Mexico and the Philippines, two of the major recipients of remittances
from the United States, track funds coming into their countries. The
IDB, a multilateral organization that provides financing for economic,
social, and institutional development projects for Latin America and
the Caribbean, estimates remittances on a regional basis--primarily
through the use of surveys. The remittance estimates produced by these
methodologies vary from each other and from BEA's estimates, thus
further illustrating the dependency of estimates on their methods and
data.
Central Banks of Mexico and the Philippines Track Remittance Flows into
Their Countries:
The Central Bank of Mexico, known as the Banco de México (Banxico),
tracks remittance flows to Mexico with the help of a regulatory
reporting requirement on money transmitters. Since 2003, Mexico's
methodology for estimating remittances has required firms that receive
remittances to report the amount of money received and the number of
transactions conducted between the United States and Mexico on a
monthly basis. A Banxico official stated that the firms' systems that
channel the information to Banxico are designed to transfer money from
person to person and that the firms make the determination if a
transaction is a person-to-person transfer. He stated that these
systems are not efficient enough for commercial transactions; the
likelihood that other types of transactions may be getting into the
systems is negligible because the systems that have been developed are
designed for personal remittances. The Banxico official stated that
Banxico is confident in its estimates because it believes the vast
majority of firms (about 90 percent) are reporting and, while some
transactions that are not personal remittances may be getting through,
this is a very small portion. To track remittances through informal
channels such as couriers, at the U.S.-Mexico border Banxico conducts a
survey of Mexicans returning to visit relatives. The survey asks
questions about funds and goods they are bringing to relatives.
However, these individuals, according to the Banxico official, are
often reluctant to answer these questions.
The Philippine government has established a formal program whereby it
registers and tracks its resident Overseas Filipino Workers (OFW). This
program provides data to the government on the type of employment these
workers obtain as well as their salaries. The Philippine central bank,
known as the Bangko Sentral ng Pilipinas (BSP), estimates remittances
channeled into banks, which are already net of living expenses of these
workers. However, BSP officials caution that the country source data
are not truly reflective of remittances coming from a country,
particularly from the United States, because most remittance centers
for OFWs (e.g., Saudi Arabia, Japan, and Taiwan) send funds through
correspondent banks in the United States, which then send the funds to
banks in the Philippines. The BSP only captures the most immediate
source of OFWs' funds coming into the Philippines, primarily U.S.
correspondent banks. Thus, this methodology overstates the funds being
remitted from the United States to the Philippines because it includes
funds from other countries, not just from Filipino workers in the
United States.
The BSP also recently revised its methodology to track remittances that
flow outside of banks using results of the Survey of Overseas
Filipinos. Specifically, these remittances are funds sent by OFWs
through friends and relatives, or amounts brought in by OFWs when they
return home. This revision caused the BSP to increase its overall
estimate of remittances into the Philippines by $1.7 billion (20
percent) in 2004. BSP officials stated that they are in the process of
updating prior years' figures.[Footnote 13]
The primary advantages of these tracking methodologies are that they
capture actual or projected remittance flows, as well as rapid or
sudden changes in the characteristics of remitters--such as the average
amount remitted or the frequency of remitting. However, these methods
are limited in their ability to capture remittances sent through the
informal sector and to distinguish between personal remittances and
other types of personal business transactions when money transfer
operators and banks do not correctly code the remittance transactions.
The IDB Uses a Variety of Sources to Estimate Remittances Flows to
Latin America and the Caribbean:
Since the year 2000, the Multilateral Investment Fund (MIF) of the IDB
has been studying the issue of remittances and their impact on the
development of the Latin American and Caribbean region. In addition to
using its own researchers, MIF's methodology uses remittance
information collected by other researchers. The IDB remittance
estimates for selected Latin American and Caribbean countries are
obtained from a combination of sources consisting of estimates from
selected central banks of recipient member countries judged to have
reasonable remittance estimates, transaction information from
remittance transfer companies to selected countries, and information
obtained from surveys of remittance senders in the United States and
remittance recipients in Latin American and Caribbean countries. IDB
officials stated that they compare the remittance estimates that they
derive from their surveys of remittance recipients in Latin America and
the Caribbean with the estimates from the central banks of these
countries. These officials also stated that these surveys have allowed
them to estimate remittances these countries have received from the
United States. According to IDB officials, for countries for which they
have not conducted an in-country survey, they use data collected from
establishments that facilitate money transfers to each country. These
officials indicated that data were obtained from a sample of 45 money-
transfer businesses involving approximately 14 countries. The amount
and frequency of the average remittance sent by residents from the
survey countries was used to estimate the total remittance outflow to
each country, according to IDB officials. They also indicated that MIF
staff work with the researchers to reconcile the various estimates and
arrive at country-specific estimates they believe are fairly accurate.
For a more detailed description of IDB's methodology, see appendix IV.
The advantage of using this method to estimate remittances is that the
information is obtained from establishments that have a vested interest
in maintaining accurate data on the amount and volume of remittances.
However, estimates relying on reporting of information from remittance
providers in the formal financial sector--such as money transfer
operators--cannot account for remittances sent through the informal
sector (e.g., by couriers or hawalas). In addition, they may not be
able to distinguish between personal remittances and other types of
personal business transactions if the money transfer operators and
banks do not code the remittance transactions correctly. Although the
consumer surveys IDB used to derive its estimates collect information
directly from remittance senders and receivers, such surveys are
difficult to administer because remittance senders may be reluctant to
participate in the surveys due to language barriers, legal status, and
lack of experience with institutions that administer surveys. IDB
officials also stated that surveys only reach individuals with
telephones. In addition, with these surveys there often is a
discrepancy between the amount of funds remittance senders claim to
send and the amount remittance recipients claim to receive. Finally,
these surveys can be more costly due to the need to hire experienced
survey firms with bilingual staff.
Remittance Estimates Made by These Entities Vary:
The central banks of Mexico and the Philippines, the IDB, and BEA use
different methodologies to estimate remittances, resulting in a range
of estimates. For example, in 2003, the Mexican central bank estimated
that Mexico received about $13.4 billion in remittances from the United
States and the IDB estimated that Mexico received almost $12.9 billion
in remittances from the United States. In 2003, BEA estimated the
amount of remittances from the United States to Mexico at $8.9
billion.[Footnote 14] In terms of remittances from the United States to
Latin America and the Caribbean, in 2003, the IDB estimated this to be
$30.1 billion. Although BEA does not publish remittance estimates by
region, we aggregated BEA's country-by-country tabulations to estimate
remittances to Latin America and the Caribbean, and found this to be
$17.9 billion.
We found that the reasons for the large discrepancies in the IDB and
BEA's estimates for Latin America and the Caribbean were primarily due
to differences in population size, the percentage of persons that
remit, and the average remittance amount per year each used. Our
analysis of BEA estimates of remittances from the United States in 2003
to 21 countries for which IDB also makes estimates show that BEA
assumes that 54 percent of the foreign born population remits an
average of $2,076 per year as shown in table 3.[Footnote 15] BEA
assumes that the percentage of adult foreign born that remit varies by
duration of stay and the absence or presence of children in the
household. To determine the $2,076 that is, on average, remitted per
year, we used information from BEA's underlying tabulations and
calculated the average remittance per person for the 21 countries. BEA
assumes that the percent of income remitted varies by the presence or
absence of children, the type of countries of birth (according to
economic development), and proximity to the United States. In contrast,
based on our analysis of IDB's survey results, 70 percent of percent of
adult foreign-born Hispanics remit and on average, they remit $3,024
per year, as shown in table 3.
Table 3: Comparison of BEA and IDB Estimates of Remittances to 21 Latin
American and Caribbean Countries, 2003:
Number in the population (in millions).
Less adjustment to exclude U.S.-born Hispanics who have been found not
to remit[A] (in millions);
BEA: 14.7: (Total adult foreign born): NA[B];
IDB: 16.7: (Total adult Hispanic population): 2.0.
Adjusted number of Hispanic foreign-born population;
BEA: 14.7: (Total adult foreign born): 14.7;
IDB: 16.7: (Total adult Hispanic population): 14.7.
Number of Hispanic foreign born who remit;
BEA: 14.7: (Total adult foreign born): 7.8;
IDB: 16.7: (Total adult Hispanic population): 10.2.
Implied percentage of Hispanic foreign born who remit;
BEA: 14.7: (Total adult foreign born): 54%;
IDB: 16.7: (Total adult Hispanic population): 70%[C].
Average annual remittance sent;
BEA: 14.7: (Total adult foreign born): $2,076;
IDB: 16.7: (Total adult Hispanic population): $3,024.
Total estimated remittances to 21 Latin American and Caribbean
countries (in billions);
BEA: 14.7: (Total adult foreign born): $16.3;
IDB: 16.7: (Total adult Hispanic population): $30.8.
Source GAO.
[A] The IDB stated that U.S.-born adult Hispanics do not send
remittances.
[B] Not applicable.
[C] The IDB survey of remitters in the United States found that 61
percent of all 16.7 million Hispanics (10.2 million) in the United
States remit funds. However, when the U.S.-born adult Hispanics are
subtracted from this population--because IDB officials state that they
do not remit--then 10.2 million of the 14.7 million foreign-born
Hispanics (70 percent) remit funds to their home countries.
[End of table]
BEA Is Involved in International Efforts to Improve the Collection and
Reporting of Remittance Information:
BEA is involved in international efforts that began in January 2005 to
try and improve upon the collection and reporting of remittance data;
however, it is too early to tell how successful these initiatives will
be. Currently, remittance data are incomplete and cannot be reconciled
because of inconsistency in the various institutions' methods of
collecting and reporting remittance data. Recognizing the importance of
remittances and the need for improved data, the governments of the G8
at the Sea Island Summit in 2004 called for the establishment of a
working group to improve remittance statistics. BEA is an active member
of an international group supporting this effort, which recommended an
agreed upon definition of remittances. In June 2006, a new group will
also start an effort to improve guidance on collecting and reporting
remittance data. BEA expects to be invited to serve on this group.
International Estimates of Remittances Are Incomplete and Do Not
Reconcile:
The international estimates of remittances vary by the methods used and
the coverage, quality, and reliability of the data, making comparisons
of such estimates difficult. In principle, the combined inflows and
outflows for all countries should equal zero--as the outflows from one
country or international organization become the inflows of another.
However, many countries do not provide information on both remittance
inflows and outflows, resulting in global remittance figures that do
not reconcile. Figure 4 shows the remittance inflows (credits) and
outflows (debits) from 1990 through 2003. If global remittance figures
reconciled, the lines in this figure would be the same. However, as can
be seen from the figure, while the lines were fairly close prior to
1998, since then they have diverged with countries showing remittance
inflows (primarily developing countries) larger than remittance
outflows (primarily developed countries).
Figure 4: Differences between Global Remittance Credits and Debits,
1990-2004:
[See PDF for image]
[End of figure]
The IMF accepts member countries' estimates of remittances at their
face value because, according to IMF officials, all methods of
estimating remittances have their weaknesses. According to IMF
officials, the choice of methodology is primarily related to the
availability of resources. IMF officials indicated that they were not
aware of any country that has institutionalized household surveys to
generate remittance data. Remittance estimates submitted by IMF member
countries do not reveal the methodologies used for the estimates.
However, according to IMF officials, most countries report their
remittances as residuals of existing data; others simply do not report
remittances.
International Working Group Was Established in 2005 to Improve
Remittance Data:
In 2004, at the annual G8 meeting in Sea Island, Georgia, leaders of
the G8 countries recognized the important role remittances play and
called upon international financial institutions such as the World Bank
and the IMF to lead a global effort to improve remittance statistics.
As a result, the World Bank, IMF, and the United Nations formed the
International Working Group on Improving Data on Remittances. This
group delegated the tasks of clarifying concepts and definitions on
remittances and addressing compilation issues to other groups. The
working group met in January 2005 and included BEA and representatives
from key remittance-sending countries, one key remittance-receiving
country, and the Organization for Economic Cooperation and Development.
The working group's first objective was to clarify the definition of
remittances. The group agreed that the United Nations Technical
Subgroup on the Movement of Natural Persons (TSG), of which BEA is a
member, should be the forum to discuss improvements in concepts and
definitions for remittances. The TSG recommended, among other things,
that the "workers' remittances" item in the balance of payments be
replaced with a new component called "personal transfers," which would
include all current transfers (in cash or in kind) sent or received by
resident households to or from nonresident households. This new
component would not be based on employment or migration status and
would resolve the inconsistencies associated with "workers'
remittances."[Footnote 16] This new definition was discussed at the
June 2005 meeting of the IMF Committee on Balance of Payments
Statistics.[Footnote 17] BEA officials stated that they have begun
using this new definition; however, it will be included in the
publication of the revised Balance of Payments Manual, which is
scheduled to be completed in 2008.
The second objective of the working group was to improve guidance on
collecting and compiling remittance statistics, including the use of
household surveys, if needed. The working group agreed that it would be
useful to form a core group of compilers to review methods and develop
more detailed guidance for compiling remittances data. Eurostat, the
statistical office of the European Communities, offered to host the
first meeting in June 2006 in Luxembourg, thereby creating the
"Luxembourg Group," which includes the World Bank and IMF's statistics
department. The Luxembourg Group will review, among other things, the
extent to which household survey data can be used to improve balance of
payment statistics. BEA expects to be invited to serve on this group.
According to the IMF, the prerequisite to the group's success is the
commitment of national compilers to share their methodologies. The
progress of this group will be reviewed by the IMF Committee on Balance
of Payments Statistics, of which BEA is a member. No date has been set
for this group to complete its work.
In the meantime, the international working group will coordinate with a
recent project conducted by the Center for Latin America Monetary
Studies to improve central bank remittance reporting and procedures.
This project is supported by the MIF. The final report of the working
group is to be presented by the end of September 2006, so that initial
work of the Luxembourg Group can be incorporated.
Observations:
In recent years, remittances have received growing attention from
policy makers because major industrial countries began to understand
the magnitude and importance of these flows to developing countries. By
their nature, remittance flows are difficult to measure. Some
remittances move through informal channels that official data often
cannot easily or reliably measure. Countries define remittances
differently and use various methodologies to estimate them; it is
therefore not surprising that estimates vary widely.
Although there are international efforts in which BEA participates to
improve remittance statistics, two issues suggest the challenges facing
these efforts. First, current remittance data are incomplete globally
and cannot be easily reconciled because of the inconsistency in the
methods of collecting and reporting remittance data. Second, for source
countries, remittances constitute a small share of their overall
economy--thus there may not be enough incentives for these countries to
improve their remittance estimates. For recipient countries,
remittances constitute a larger share of the economy; but these
countries lack the resources to improve their statistics. International
efforts to improve remittance statistics have begun recently, and it is
too soon to tell whether these efforts will improve the accuracy of
remittance statistics.
In the United States, remittance estimates are important for agencies
such as Treasury and the Federal Reserve; more accurate remittance
estimates could help them better target their financial infrastructure
and automated-clearinghouse remittances programs. With better data on
remittances, the U.S. government could make better decisions about how
much (and what kind) of development assistance to provide, and U.S.
companies could make better decisions regarding foreign direct
investment. As remittance flows from the United States continue to
grow, U.S. policy makers may want to explore options for improving the
accuracy of U.S. remittance statistics--such as conducting a new survey
to determine the remitting behavior of U.S. immigrants, or adding
specific questions to current government surveys to obtain better
information.
Agency Comments and Our Evaluation:
The Departments of Commerce and the Treasury provided written comments
on the draft report, which are reproduced in appendixes V and VI,
respectively. Commerce also provided technical comments, which we
incorporated into the report as appropriate.
Treasury concurred with our observations, especially on the need for
more accurate remittance data to provide policy makers with the
information necessary to improve their decision-making process.
Commerce concurred with most of our observations. Specifically, they
concurred that estimates of remittances from the United States derived
by BEA and those of foreign governments and international organizations
differ substantially and that there are several methodological reasons
for these differences. Commerce also concurred that more accurate
estimates would enable users of remittance data to make better informed
decisions.
Commerce, however, stated its view that BEA's estimates are lower than
most of the others we discuss because we compare BEA's estimate of
personal gifts to foreign residents (personal transfers) with much
broader estimates of remittances, which include compensation paid to
foreign workers who are temporarily employed in the United States.
Commerce believes that a substantial portion of the differences between
BEA's estimates and those of other government or international
organizations is accounted for by this definitional difference.
Contrary to Commerce's view, compensation paid to foreign workers
temporarily employed in the United States was not included in the
remittances estimates with which we compared BEA's personal transfers
estimates. We therefore do not believe that the differences among the
estimates we discuss in our report are due to this definitional
difference. Commerce further stated that some countries may
overestimate their receipts of remittances from the United States
because remittances may be channeled through banks in the United States
from remitters not living in the United States. Of the countries we
discuss in this report, we found this only to be true for the
Philippines and, for this reason, we do not compare BEA's remittances
estimate to that of the central bank of the Philippines. As we discuss
in our report, efforts are underway to improve remittance statistics,
which may help make estimates more comparable in the future.
We are sending copies of this report to the Department of Commerce,
Treasury, the Chairman and Ranking Minority Member of the House
Committee on Financial Services, and other interested congressional
committees. We will also make copies available to others on request. In
addition, this report will be available at no cost on our Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-2717 or [Hyperlink, jonesy@gao.gov]. Contact
points for our offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix VII.
Signed by:
Yvonne D. Jones:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Our reporting objectives were to examine (1) the methodology the Bureau
of Economic Analysis (BEA) uses to develop the official U.S. estimates
on the volume of remittances from the United States, (2) methodologies
used by other countries and multilateral institutions to estimate
remittances from the United States, and (3) international efforts to
improve the collection and reporting of remittance data.
To understand the methodology BEA used to derive its estimate of
remittances from the United States, we met several times with BEA
officials responsible for developing the estimate. They provided us
with the 2003 estimate on the total volume of remittances from the
United States to the rest of the world--and explained how they provide
this number to the International Monetary Fund (IMF)--so that the U.S.
figures can be presented in the IMF's balance of payments statistics.
We also obtained documentation describing BEA's methodology before
2005, including BEA's Survey of Current Business and other written
documentation. BEA officials provided us with examples of the various
data used in their model to calculate their remittance estimate. In
addition, we provided BEA with numerous follow-up questions about their
methodology, and they provided us with written responses. To understand
BEA's revised methodology, we obtained relevant documentation from BEA
and provided follow-up questions to BEA. We also met with the U.S.
Census Bureau to understand the data underlying BEA's methodology for
estimating remittances. To understand how we evaluated the statistical
reliability of BEA's estimate for 2003, see appendix III. We
interviewed remittance experts from the IMF, World Bank, Inter-American
Development Bank (IDB), and academia to obtain their views on BEA's
(and alternative) methodologies.
To understand the methodologies used by other countries and
multilateral institutions to estimate U.S. remittances to specific
countries and regions, we met with officials from the IDB and their
external consultant, the Asian Development Bank, the African
Development Bank, as well as the Mexican and Philippine Central Banks.
The IDB provided remittance estimates from the United States to
specific countries in Latin America, the Caribbean, and to the region
as a whole. The Asian and African Development Bank do not provide
estimates for their respective regions. The Central Bank of Mexico
provided estimates of remittances received by Mexico from the United
States, while the Central Bank of the Philippines provided estimates of
remittances received by the Philippines from the United States. In
meetings with these entities, we obtained an understanding of the
methodologies used to estimate remittances, the reasons for using these
methodologies, and their strengths and potential limitations. We also
obtained a report that described IDB's methodology. Further, we
obtained government regulations from Mexico and the Philippines to
understand what financial institutions are required to report to
Central Banks so that they can estimate remittances. To compare
remittance estimates obtained from the Mexican Central Bank and IDB
with those of BEA, we obtained BEA's 2003 estimates of remittances to
specific countries. BEA officials cautioned us that the estimates to
specific countries are less reliable than their overall remittance
estimate and stated that these numbers should not be considered BEA
estimates to specific countries.
Given our understanding that remittance estimates vary for a number of
reasons and that international efforts are under way to improve
remittance statistics, it was not possible for us to cross check the
estimates of remittances from the United States against any accurate
known amount. Because of this, for the purposes of this report, we
focused on understanding the methodologies used by BEA, IDB, and the
Central Banks of Mexico and the Philippines, to estimate remittance
from the United States. We also focused on understanding the strengths
and limitations of the methodologies of the BEA and the other entities
to obtain a better understanding of the reasonableness of their
approaches to estimating remittances. We presented BEA's estimates and
the estimates of IDB and the Central Bank of Mexico to show the range
of estimates generated from different methodologies, rather than as a
statement of their being precise measurements of remittances. We chose
not to present the Central Bank of the Philippine's estimate of
remittances because central bank officials stated that their current
methodology could not be used to report on remittances solely received
from the United States.
To obtain a global perspective on international efforts to improve the
collection and reporting of remittances, we met with officials from the
IMF, World Bank, IDB, Asian Development Bank, African Development Bank,
and experts in the field of remittances. We reviewed IMF documents on
remittances as they are discussed in the balance of payments framework
and reviewed IMF balance of payments statistics to get a sense for
which countries regularly report on remittances. We obtained limited
documentation (e.g., minutes from meetings) on international efforts to
improve the collection and reporting of remittances. BEA and the U.S.
Department of the Treasury (Treasury) also provided us with
descriptions of these international efforts and identified the U.S.
government officials that participate in these international bodies.
Our work was performed in San Francisco, California; and Washington,
D.C., from December 2004 to March 2006 in accordance with generally
accepted government auditing standards.
[End of section]
Appendix II: BEA's Methodology for Estimating Remittances:
BEA's model to estimate remittances combines data on the number of the
adult foreign-born population living in the United States, the
percentage of the adult foreign-born population that remits, the income
of the adult foreign-born population, and the percentage of income that
is remitted by the adult foreign-born population.[Footnote 18] BEA
first multiplies the foreign-born population, arrayed by selected
demographic characteristics, by the percentage of the foreign-born
population that remits to obtain the population of remitters. BEA then
multiplies the average per capita income of the foreign-born population
by the percentage of income remitted by those who remit to obtain per
capita remittances. Finally, BEA multiplies per capita remittances by
the population of remitters to obtain total personal transfers.
BEA obtains estimates on the adult foreign-born population by place of
birth and their average income from the American Community Survey
(ACS), arranged by duration of stay in the United States, gender, and
presence of children in the household. BEA obtains estimates of the
percentage of the adult foreign-born population that send remittances
to their country of origin from various academic studies, in addition
to the 1989 Legalized Population Survey (LPS1) and the 1992 Legalized
Population Follow-Up Survey (LPS2); however, the estimates it uses
cannot be directly tracked to these source documents. BEA obtains these
proportions by making assumptions based on its judgment. BEA assumes
that the place of birth of the adult foreign-born population does not
affect the likelihood of remitting but that it does affect the
percentage of income remitted. BEA also assumes that, once the presence
of children in the household and the duration of stay are accounted
for, men and women are equally likely to remit. In effect, only the
presence of children in the household and the duration of stay
determines the percentage of the adult foreign-born population that
remit to their countries of birth under these assumptions, as shown in
figure 5.
Figure 5: BEA Values for the Percentage of the Adult Foreign-Born
Population in the United States That Send Remittances:
[See PDF for image]
[End of figure]
To determine the percentage of income that the adult foreign-born
population remits, BEA makes assumptions about the development status
and proximity of the country of origin of the adult foreign-born
population, along with the presence of children in the U.S. household.
BEA groups countries of origin into four categories indicating their
propensity to send remittances and representing highest-remitting, high-
remitting, medium-remitting, and low-remitting countries of birth. The
highest-remitting countries are closest to the United States, while
other developing countries are either high-remitting or middle-
remitting, depending on their development status. Low-remitting
countries are generally developed economies. Figure 6 shows that the
percentage of income remitted varies by the presence of children and
country groupings. Although average incomes are lower for women than
for men, BEA assumes that the percentage of income remitted does not
vary by gender. Furthermore, BEA assumes the duration of stay is
negatively associated with likelihood to remit--but that it has no
effect on the percentage remitted. Also, BEA assumes that there are no
variations in the portion remitted for countries designated as low
remitting.
Figure 6: Percentage of Income Remitted by Category:
[See PDF for image]
[End of figure]
Table 4 shows the application of BEA's methodology in estimating
remittances from the United States in 2003. As can be seen from table
4, estimated total remittances are $28 billion. Also, as can be seen in
table 4, in 2003, the Latin America and Caribbean region was the
largest recipient region of remittances from the United States.
Remittances to Asia and Africa represented approximately 24 percent and
4 percent of the total for the United States, respectively.
Table 4: Regional and Sub-Regional Remittances in 2003 as Estimated
Using BEA's Underlying Country-by-Country Tabulations:
Region or sub-region: Africa;
Estimate of remittances (in millions of U.S. dollars): $1,003.
Region or sub-region: North Africa;
Estimate of remittances (in millions of U.S. dollars): $236.
Region or sub-region: Africa (other);
Estimate of remittances (in millions of U.S. dollars): $768.
Region or sub-region: Latin America and the Caribbean;
Estimate of remittances (in millions of U.S. dollars): $17,914.
Region or sub-region: Central America;
Estimate of remittances (in millions of U.S. dollars): $11,487.
Region or sub-region: Caribbean;
Estimate of remittances (in millions of U.S. dollars): $4,360.
Region or sub-region: South America;
Estimate of remittances (in millions of U.S. dollars): $2,068.
Region or sub-region: Europe;
Estimate of remittances (in millions of U.S. dollars): $2,202.
Region or sub-region: European Union;
Estimate of remittances (in millions of U.S. dollars): $550.
Region or sub-region: Eastern Europe & Transition Countries;
Estimate of remittances (in millions of U.S. dollars): $1,613.
Region or sub-region: Europe (other);
Estimate of remittances (in millions of U.S. dollars): $39.
Region or sub-region: Asia;
Estimate of remittances (in millions of U.S. dollars): $6,616.
Region or sub-region: Eastern Asia;
Estimate of remittances (in millions of U.S. dollars): $1,585.
Region or sub-region: Southern Asia;
Estimate of remittances (in millions of U.S. dollars): $1,613.
Region or sub-region: South-Eastern Asia;
Estimate of remittances (in millions of U.S. dollars): $3,055.
Region or sub-region: Near East;
Estimate of remittances (in millions of U.S. dollars): $313.
Region or sub-region: Asia (other);
Estimate of remittances (in millions of U.S. dollars): $49.
Region or sub-region: Oceania;
Estimate of remittances (in millions of U.S. dollars): $103.
Region or sub-region: Australia & New Zealand;
Estimate of remittances (in millions of U.S. dollars): $26.
Region or sub-region: Oceania (other);
Estimate of remittances (in millions of U.S. dollars): $77.
Region or sub-region: North America;
Estimate of remittances (in millions of U.S. dollars): $194.
Region or sub-region: Total;
Estimate of remittances (in millions of U.S. dollars): $28,033.
Source: GAO calculations using BEA underlying country-by-country
tabulations.
Note: BEA officials stated that they would correct the total from $28.2
billion to $28.033 billion.
[End of table]
BEA's Estimate of Remittances Includes Remittances from Some of the
Foreign Born Who Have Been in the United States for Less Than One Year:
BEA's revised methodology uses a U.S. residency duration of 0-5 years
as its first category. This means that it includes both the foreign-
born population, who are in the United States for less than or equal to
1 year, and those who are in the United States for more than a year.
The definition of "remittances" is the portion of income sent as
remittances by those who have resided in the United States for more
than one year, thus excluding the foreign-born population residing in
the United States for less than one year. BEA's estimate of remittances
is in effect overstated, because it includes the foreign-born
population that has resided in the United States for less than a year.
In contrast, "compensation of employees" is the wages and salaries
earned by individuals in economies other than those in which they are
residents. As a result, compensation of employees, which applies only
to individuals away from their place of origin for less than a year,
may be double counted. Furthermore, the inclusion of the foreign born
who have resided in the United States for less than one year would
overstate estimates of total remittances (personal remittances and
compensation of employees) as some portion of the compensation of
employees would be double counted. BEA officials stated that their
objective is to estimate remittances for individuals who have been in
the United States for more than one year and those who have been in the
United States for less than a year but intend to stay for more than a
year. They stated that the ACS surveyed only individuals who indicated
the United States is their "usual place of residence," which may
exclude temporary residents, i.e., those who have been in the United
States for less than a year.
ACS documents show that individuals are surveyed at their "current
residence"[Footnote 19] and that one of the goals of the ACS is to
identify whether individuals are residing at the "current residence" or
their "usual place of residence." Thus, the ACS does not exclude
individuals for which the United States is not their "usual place of
residence." The ACS manual on residency rules states that the term
"current residence" is unique to the ACS; most other surveys, including
the decennial census, use "usual residence," as defined as the place
where a person lives and sleeps most of the time or considers to be his
or her usual residence. ACS defines current residence as one place of
residence at any point in time, but this residence does not have to be
the same place throughout the year. The criteria used to determine a
person's current residence is based upon a "2-month rule" stating that
(1) if a person is staying in a sample unit at the time of the survey
contact and is staying there for more than 2 months, he or she is a
current resident of the unit; (2) if a person who usually lives in the
unit is away for more than 2 months at the time of the survey, he or
she is not a current resident of the unit; and (3) if anyone is staying
in the unit at the time of contact who has no other place where they
usually stay longer than 2 months, he or she is a current resident of
the unit regardless of how long he or she is staying there.[Footnote
20]
We recalculated BEA's estimates of 2003 remittances excluding the
foreign born who have resided in the United States for less than a
year. This calculation resulted in a reduction of $377 million in BEA's
2003 estimate for remittances from the United States (see table 5).
Table 5: Change in the Estimate of Remittances by Excluding Those in
the United States for Less Than 1 Year:
Region or sub-region: Africa;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$990;
Correction: (Millions of U.S. dollars): $13.5;
Correction: Percentage change: 1.3%.
Region or sub-region: Latin America and the Caribbean;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$17,654;
Correction: (Millions of U.S. dollars): $260.4;
Correction: Percentage change: 1.5%.
Region or sub-region: Central America;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$11,293;
Correction: (Millions of U.S. dollars): $193.6;
Correction: Percentage change: 1.7%.
Region or sub-region: Caribbean;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$4,320;
Correction: (Millions of U.S. dollars): $39.8;
Correction: Percentage change: 0.9%.
Region or sub-region: South America;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$2,041;
Correction: (Millions of U.S. dollars): $27.0;
Correction: Percentage change: 1.3%.
Region or sub-region: Europe;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$2,174;
Correction: (Millions of U.S. dollars): $28.1;
Correction: Percentage change: 1.3%.
Region or sub-region: Asia;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$6,549;
Correction: (Millions of U.S. dollars): $67.1;
Correction: Percentage change: 1.0%.
Region or sub-region: Oceania;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$100;
Correction: (Millions of U.S. dollars): $3.2;
Correction: Percentage change: 3.1%.
Region or sub-region: North America;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$190;
Correction: (Millions of U.S. dollars): $4.1;
Correction: Percentage change: 2.1%.
Region or sub-region: Total;
Correction: Corrected estimates for 2003 (millions of U.S. dollars):
$27,656;
Correction: (Millions of U.S. dollars): $376.5;
Correction: Percentage change: 1.3%.
Source: GAO calculation using information from the 2003 ACS, and BEA
information on underlying tabulation of personal remittances.
Note: Totals may not add due to rounding.
[End of table]
[End of section]
Appendix III: Analysis of the Sensitivity of BEA's Estimate to
Judgmentally Determined Variables on the Remitting Behavior of the
Foreign Born:
BEA publishes single-value estimates of remittances to the rest of the
world by foreign-born U.S. residents. To evaluate the statistical
reliability of the estimate for 2003, we derived the estimate's
probable range and its corresponding breakdown into regional estimates.
To accomplish this, we obtained details of the BEA's underlying
tabulations of remittances by country. We replicated the BEA
methodology to obtain BEA's estimate for the world and for each country
in its underlying tabulation. In particular, we used BEA's underlying
tabulation and included additional information (e.g., the standard
deviation and the shape of the distribution of each data series) from
the sources that BEA primarily used to arrive at its estimate. We
calculated the respective standard deviations of the values that BEA
uses for the propensity to remit and the percentage of the foreign born
that remit.
BEA uses a variety of sources to estimate the propensity of the foreign
born to remit and the percentage of the foreign born that remit.
However, BEA stated that the values chosen cannot be linked to any
specific source. BEA primarily used the LPS, a survey mandated by the
Immigration Reform and Control Act of 1986 to estimate the portion of
income that the foreign born in the United States were likely to remit;
thus, we also relied on this data. We assumed that the distribution
around the means of the variables used in the BEA methodology were
lognormal to satisfy (1) the nonnegativity of the values used and (2) a
desired bell-shaped distribution for the estimates. We converted the
BEA estimation process from one that relied solely on the averages of
the variables underlying the BEA methodology to one that accounts for
the variation around the mean and its distribution. We used a Monte
Carlo statistical technique--a technique that repeatedly and randomly
samples from the underlying data--to obtain a range of possible values
for each estimate due to the uncertainty in BEA's judgmentally
determined variables on the foreign born propensities to remit and
percentage of the foreign born that remit.
Table 6 shows the regional breakdown of BEA's 2003 estimate and the
statistically derived range for these estimates. In table 6, we show in
the column labeled "BEA point estimate"--the regional components of
BEA's global estimate in 2003--obtained by aggregating the underlying
country-by-country tabulations. We also show in the following two
columns the range of estimates obtained by our uncertainty analysis,
assuming that this uncertainty is only due to BEA's judgmentally
determined variables. In table 6, BEA reported $28 billion in total
remittances from the United States for 2003; however, we estimate that
the range for 90 percent of the remittance estimates from the United
States would be between $17.3 and $35.9 billion.
Table 6: Range of Estimates in Regional Breakdown of BEA Estimate of
Remittances in 2003 (20,000 trials):
Africa;
BEA point estimate (millions of U.S. dollars): $1,003;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $510 - $1,547.
North Africa;
BEA point estimate (millions of U.S. dollars): $236;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $112 - $368.
Africa (other);
BEA point estimate (millions of U.S. dollars): $768;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $394 - $1,196.
Latin America and the Caribbean;
BEA point estimate (millions of U.S. dollars): $17,914;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $10,020 - $24,842.
Central America;
BEA point estimate (millions of U.S. dollars): $11,487;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $6,233 - $16,611.
Caribbean;
BEA point estimate (millions of U.S. dollars): $4,360;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $2,372 - $5,852.
South America;
BEA point estimate (millions of U.S. dollars): $2,068;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $1,252 - $2,637.
Europe;
BEA point estimate (millions of U.S. dollars): $2,202;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $1,226 - $2,932.
European Union;
BEA point estimate (millions of U.S. dollars): $550;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $242 - $795.
Eastern Europe & Transition Countries;
BEA point estimate (millions of U.S. dollars): $1,613;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $847 - $2,322.
Europe (other);
BEA point estimate (millions of U.S. dollars): $39;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $19 - $53.
Asia;
BEA point estimate (millions of U.S. dollars): $6,616;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $3,702 - $9,372.
Eastern Asia;
BEA point estimate (millions of U.S. dollars): $1,585;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $907 - $2,154.
Southern Asia;
BEA point estimate (millions of U.S. dollars): $1,613;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $898 - $2,371.
South-Eastern Asia;
BEA point estimate (millions of U.S. dollars): $3,055;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $1,474 - $4,832.
Near East;
BEA point estimate (millions of U.S. dollars): $313;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $170 - $450.
Asia (other);
BEA point estimate (millions of U.S. dollars): $49;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $23 - $75.
Oceania;
BEA point estimate (millions of U.S. dollars): $103;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $58 - $144.
Australia & New Zealand;
BEA point estimate (millions of U.S. dollars): $26;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $13 - $39.
Oceania (other);
BEA point estimate (millions of U.S. dollars): $77;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $38 - $118.
North America;
BEA point estimate (millions of U.S. dollars): $194;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $101 - $264.
Total;
BEA point estimate (millions of U.S. dollars): $28,033;
90 percent of range of estimates when the uncertainty is due to BEA
judgmentally determined variables: $17,265 - $35,909.
Source: GAO calculations using the underlying tabulations of BEA's 2003
remittance estimate.
Note: Totals may not add due to rounding. Uncertainty in BEA
judgmentally determined variables means uncertainty due to the
propensity of the foreign born to remit and the percentage of the
foreign born that remit. BEA relies on estimates of the propensity to
remit of the foreign born and the percentage of the foreign born that
remit from a variety of sources, but states that the values chosen
cannot be linked to any specific source. The 90-percent range excludes
the highest and lowest 5-percentile of estimates to reduce the effects
of outliers.
[End of table]
[End of section]
Appendix IV: IDB Remittance Estimation Methodology:
To estimate remittances from the United States to Latin America in
2003, the IDB contracted researchers to survey Latin Americans aged 18
years or older and living in the United States. These researchers
queried Latin American immigrants living in various states of the
United States about their remittance experiences. The survey
interviewed 3,802 households in 37 states and the District of Columbia
from January through April 2004.[Footnote 21] The survey showed that 61
percent of Latin Americans send remittances to their countries of
origin, sending an average of $240 approximately 12.6 times per year.
IDB extrapolated the results of the survey to the total population of
adult Latin American immigrants in the United States--estimated at 16.9
million in 2003--and estimated remittances from the United States to
Latin America to be $30.1 billion for that year. Figure 7 provides a
diagram of the methodology IDB used to arrive at the $30.1 billion
estimate. According to IDB, the estimate captured remittance flows
through the formal and informal sectors. The IDB also used the survey
to estimate remittances from each of the 37 states and the District of
Columbia. To obtain the state-by-state remittance estimates, the IDB
obtained estimates for the average amount remitted and the number of
times sent in one year by the Latin American immigrant population in
each state and the percentage of the Latin American immigrant
population in each state that sends remittances.
Figure 7: IDB Methodology for Estimating Remittances from the United
States to Latin America, 2003:
[See PDF for image]
[End of figure]
The IDB remittance estimates for selected Latin American and Caribbean
countries are obtained from a combination of sources consisting of
estimates from selected central banks of recipient member countries
judged to have reasonable remittance estimates, transaction information
from remittance transfer companies to selected countries, and from
information obtained from researchers' surveys of remittance senders in
the United States and remittance recipients in Latin American and
Caribbean countries. According to IDB officials, for countries where no
in-country survey has been conducted, data from establishments
facilitating money transfers to each country was used. These officials
indicated that data were obtained from a sample of 45 money transfer
businesses to approximately 14 countries. The amount and frequency of
the average remittance sent by residents from the survey countries was
used to estimate the total remittance outflow to each country,
according to IDB officials. They also indicated that Multilateral
Investment Fund (MIF) staff work with the researchers to reconcile the
various estimates and arrive at country-specific estimates. Table 7
shows the IDB estimate of remittances that 21 Latin American and
Caribbean countries received in total in 2003, and from the United
States the same year.
Table 7: IDB/MIF Estimates of Remittances to Latin American and
Caribbean Countries, 2003:
Country: Argentina;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$225;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $180;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Belize;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$73;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $58;
Remittances from the U.S. as a percentage of the total: 79%.
Country: Bolivia;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$340;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $240;
Remittances from the U.S. as a percentage of the total: 71%.
Country: Brazil;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$5,200;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $2,600;
Remittances from the U.S. as a percentage of the total: 50%.
Country: Colombia;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$3,067;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $2,147;
Remittances from the U.S. as a percentage of the total: 70%.
Country: Cost Rica;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$306;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $245;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Dominican Rep;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$2,217;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $1,773;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Ecuador;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$1,656;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $994;
Remittances from the U.S. as a percentage of the total: 60%.
Country: El Salvador;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$2,316;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $2,085;
Remittances from the U.S. as a percentage of the total: 90%.
Country: Guatemala;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$2,106;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $1,685;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Guyana;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$137;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $109;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Haiti;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$977;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $879;
Remittances from the U.S. as a percentage of the total: 90%.
Country: Honduras;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$862;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $775;
Remittances from the U.S. as a percentage of the total: 90%.
Country: Jamaica;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$1,425;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $1,069;
Remittances from the U.S. as a percentage of the total: 75%.
Country: Mexico;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$13,266;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $12,868;
Remittances from the U.S. as a percentage of the total: 97%.
Country: Nicaragua;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$788;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $709;
Remittances from the U.S. as a percentage of the total: 90%.
Country: Panama;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$220;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $176;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Peru;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$1,295;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $777;
Remittances from the U.S. as a percentage of the total: 60%.
Country: Trinidad & Tobago;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$88;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $71;
Remittances from the U.S. as a percentage of the total: 81%.
Country: Uruguay;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$42;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $29;
Remittances from the U.S. as a percentage of the total: 69%.
Country: Venezuela;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$247;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $173;
Remittances from the U.S. as a percentage of the total: 70%.
Country: Sub-Total;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$36,853;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $29,642;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Rest of Latin America and Caribbean countries;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$1,240;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $992;
Remittances from the U.S. as a percentage of the total: 80%.
Country: Latin America and Caribbean Total;
IDB/MIF estimate for total remittances: (in millions of U.S. dollars):
$38,093;
IDB/MIF estimate for remittances from the U.S.: (in millions of U.S.
dollars): $30,634;
Remittances from the U.S. as a percentage of the total: 80%.
Source: IDB/MIF, Sending Money Home: Remittances to Latin America and
the Caribbean, Washington, D.C.: (May 2004).
[End of table]
As indicated earlier, the IDB and BEA used different methodologies to
estimate remittances, resulting in a range of estimates. While, in most
cases, BEA provides only a global estimate of remittances and not
bilateral estimates, BEA provided us with country-by-country
tabulations that enabled us to construct estimates for the same 21
countries that IDB provided estimates for in 2003. As shown in table 8,
IDB and BEA's estimates vary; IDB's estimates in general tend to be
higher than estimates from BEA's underlying country tables. However,
for Guyana, Panama, and Trinidad and Tobago, BEA's estimates are
higher. The last column computes the difference between the estimates
for each country as a percentage of the average of the
estimates.[Footnote 22] The average percentage difference is 72
percent, with a low of 7 percent for Jamaica and a high of 168 percent
for Brazil.
Table 8: Percentage Difference between BEA and IDB Estimates of
Remittances from the United States to Selected Latin American and
Caribbean Countries, 2003:
Millions of dollars.
Argentina;
IDB estimate of remittances from the U.S.: $180;
Estimates from BEA underlying country tables: $99;
Percentage difference between IDB and BEA estimates: 58%.
Belize;
IDB estimate of remittances from the U.S.: $58;
Estimates from BEA underlying country tables: $43;
Percentage difference between IDB and BEA estimates: 30%.
Bolivia;
IDB estimate of remittances from the U.S.: $240;
Estimates from BEA underlying country tables: $98;
Percentage difference between IDB and BEA estimates: 84%.
Brazil;
IDB estimate of remittances from the U.S.: $2,600;
Estimates from BEA underlying country tables: $223;
Percentage difference between IDB and BEA estimates: 168%.
Colombia;
IDB estimate of remittances from the U.S.: $2,147;
Estimates from BEA underlying country tables: $740;
Percentage difference between IDB and BEA estimates: 98%.
Cost Rica;
IDB estimate of remittances from the U.S.: $245;
Estimates from BEA underlying country tables: $99;
Percentage difference between IDB and BEA estimates: 85%.
Dominican Rep;
IDB estimate of remittances from the U.S.: $1,773;
Estimates from BEA underlying country tables: $700;
Percentage difference between IDB and BEA estimates: 87%.
Ecuador;
IDB estimate of remittances from the U.S.: $994;
Estimates from BEA underlying country tables: $478;
Percentage difference between IDB and BEA estimates: 70%.
El Salvador;
IDB estimate of remittances from the U.S.: $2,085;
Estimates from BEA underlying country tables: $1,013;
Percentage difference between IDB and BEA estimates: 69%.
Guatemala;
IDB estimate of remittances from the U.S.: $1,685;
Estimates from BEA underlying country tables: $611;
Percentage difference between IDB and BEA estimates: 94%.
Guyana;
IDB estimate of remittances from the U.S.: $109;
Estimates from BEA underlying country tables: $255;
Percentage difference between IDB and BEA estimates: 80%.
Haiti;
IDB estimate of remittances from the U.S.: $879;
Estimates from BEA underlying country tables: $630;
Percentage difference between IDB and BEA estimates: 33%.
Honduras;
IDB estimate of remittances from the U.S.: $775;
Estimates from BEA underlying country tables: $308;
Percentage difference between IDB and BEA estimates: 86%.
Jamaica;
IDB estimate of remittances from the U.S.: $1,069;
Estimates from BEA underlying country tables: $992;
Percentage difference between IDB and BEA estimates: 7%.
Mexico;
IDB estimate of remittances from the U.S.: $12,868;
Estimates from BEA underlying country tables: $8,905;
Percentage difference between IDB and BEA estimates: 36%.
Nicaragua;
IDB estimate of remittances from the U.S.: $709;
Estimates from BEA underlying country tables: $290;
Percentage difference between IDB and BEA estimates: 84%.
Panama;
IDB estimate of remittances from the U.S.: $176;
Estimates from BEA underlying country tables: $217;
Percentage difference between IDB and BEA estimates: 21%.
Peru;
IDB estimate of remittances from the U.S.: $777;
Estimates from BEA underlying country tables: $290;
Percentage difference between IDB and BEA estimates: 91%.
Trinidad & Tobago;
IDB estimate of remittances from the U.S.: $71;
Estimates from BEA underlying country tables: $205;
Percentage difference between IDB and BEA estimates: 97%.
Uruguay;
IDB estimate of remittances from the U.S.: $29;
Estimates from BEA underlying country tables: $22;
Percentage difference between IDB and BEA estimates: 28%.
Venezuela;
IDB estimate of remittances from the U.S.: $173;
Estimates from BEA underlying country tables: $61;
Percentage difference between IDB and BEA estimates: 96%.
Source: GAO analysis of information provided by IDB/MIF and BEA.
[End of table]
[End of section]
Appendix V: Comments from the Department of Commerce:
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
THE SECRETARY OF COMMERCE:
Washington, D.C. 20230:
March 10, 2006:
Ms. Yvonne D. Jones, Director:
Financial Markets and Community Investments:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Jones:
The U.S. Department of Commerce appreciates the opportunity to comment
on the U.S. Government Accountability Office (GAO) draft report,
International Remittances: Different Estimation Methodologies Produce
Different Results (GAO 06-210). I enclose the Department's comments on
this report.
Sincerely,
Signed by:
Carlos M. Gutierrez:
Enclosure:
Comments from the U.S. Department of Commerce:
Regarding the U.S. Government Accountability Office (GAO) Draft Report
Entitled International Remittances: Different Estimation Methodologies
Produce Different Results:
GAO's draft report compares BEA's estimates of remittances with those
of foreign governments and international organizations, and observes
that estimates may differ substantially. It also observes that more
accurate estimates would enable data users to make better informed
decisions. We agree with both of these observations.
The BEA estimates are lower than most others in the GAO report. One
reason for this difference is that GAO uses BEA's estimate of personal
gifts to foreign residents and compares it to much broader estimates of
remittances that include compensation paid to foreign workers who are
temporarily employed in the United States. A substantial portion of the
difference between BEA's estimate and those of the other government or
international organization is accounted for by this definitional
difference.
In addition, as GAO correctly explains, there are several
methodological reasons for differences between estimates. For example,
some countries base their estimates on information from their banking
sector, and this may result in an over-estimate of their receipts of
remittances from the United States, because the United States is an
international banking center and U.S. correspondent banks are often
used even if the remitter is not living in or otherwise connected with
the United States.
Additional Specific Comments:
1. Highlights page, 2nd paragraph, last 2 sentences -These sentences
compare an IDB estimate of remittances from the United States to Latin
America ($30.6 billion) to BEA data ($17.9 billion). However, these
estimates differ partly because the IDB estimate includes "net
compensation" of foreign workers and the BEA estimate does not. Also,
the IDB's estimates by individual country are substantially derived
from data reported by central banks and private money transfer
establishments located in remittance receiving countries. As the GAO
report notes later, such estimates could be over-stated, partly because
the United States is an international banking center and U.S.
correspondent banks are often used even if the remitter is not living
in or otherwise connected with the United States. If you do not revise
the report to include BEA's estimates of compensation in the
comparison, we suggest replacing the last 2 sentence in the 2nd
paragraph of the Highlights and adding a new concluding sentence, as
follows:
"The Inter-American Development Bank used a variety of sources -
including household interviews of Latin American residents in the
United States, a survey of Latin American establishments that assist in
money transfers, and information from central banks - and estimated
remittances from the United States to Latin America to be $30.6 billion
in 2003. We aggregated BEA's data to estimate remittances to this
region to be $17.9 billion. Some reasons for this difference are that
the BEA estimate is based on a narrower definition, and data provided
by foreign central banks and financial establishments are sometimes
overstated (U.S. correspondent banks are often used in transmitting
funds even if the sender is not living in or otherwise connected with
the United States)."
Also in the Highlights section, your chart places Mexico in Central
America. Both on strict geographic definitions, and on policy grounds
(SPP), Mexico is part of North America. We suggest GAO revise the chart
by either including Mexico in the North America bar or creating a
separate bar for Mexico.
2. Page 4, 1st full paragraph, 3rd sentence-"we examined (1) the
methodology that the Bureau of Economic Analysis uses to develop the
official U.S. estimates of remittances from the United States." To
develop an estimate that corresponds to GAO's definition of
remittances, BEA's estimates of personal transfers and compensation of
employees (i.e., compensation of foreign workers net of their
expenditures in the United States) should be summed. The exclusion of
the latter component results in an understatement of BEA's estimate by
$4 billion in 2003.
3. Page 4, footnote 2 - this footnote says that GAO uses the term
remittances "to refer to funds transferred by foreign-born individuals
to their home countries from the United States." Again, the exclusion
of BEA's net compensation estimate results in an imperfect comparison.
BEA has confirmed with Bank of Mexico officials (February 2006) that
Mexico's estimates of remittances include net compensation of migrant
Mexican workers in the United States. If BEA's estimate of net
compensation involving just these migrant Mexican workers ($3.1 billion
in 2003) were added to BEA's estimates of personal transfers to Mexico,
the BEA estimate for 2003 would be $12.0 billion, compared with the
Mexican estimate of $12.9 billion. Nearly four-fifths of the difference
between the BEA and Mexican estimates would be eliminated with this
adjustment.
4. Page 5, top partial paragraph-In the 1st line, we would prefer if
this said that "..because that is a time period for which BEA has
statistically reliable data.." (rather than saying that it is "the"
time period for which BEA has statistically reliable data).
Same paragraph, last line - it says that the work was conducted from
January 2005 to March 2006. However, the last paragraph of page 34 says
that the work began in December 2004.
5. Page 5, last paragraph, 5th sentence - This sentence says that BEA
"..revised its estimates back to 1992 using this new approach.." BEA
revised its estimate of personal transfers back to 1991.
6. Page 6, top partial paragraph, next-to-last sentence - here, and
also in appendix III (pages 42-44), GAO says that it used a statistical
technique "to obtain a range for 90 percent of possible estimates and
determined that estimated remittances from the United States could
range in value from $17.3 billion to $35.9 billion." We have the
following comments.
The purpose of the Monte Carlo technique was to examine the sensitivity
of the BEA estimate to the judgments it makes in determining the means
that are used to compute its estimate. The data that are used in the
GAO analysis are unclear as are the particulars of the modeling effort.
The main point seems to be that BEA relies solely on the computed mean
without considering any variance and that this will be remedied by the
simulation that is conducted.
To conduct the simulation, a model of the data generating process must
be formed. The assumption in appendix III is that the means are
distributed with a lognormal distribution. The shape of the lognormal
distribution is crucially dependent on the standard deviation assumed.
In particular the lognormal may not be symmetric about the mean for
some values of the standard deviation and in fact can be quite skewed.
The second paragraph of the appendix does not describe where the
variances come from and so it is difficult to evaluate the modeled data
generating process.
In any case, the last sentence of the appendix leaves one with the
impression that there is some probability that the BEA estimate could
have been substantially different and should be accordingly viewed. The
table below repeats some of the information from Table 6, and computes
the ratio of the BEA estimate to the mid point of the intervals in the
fifth column. As shown, the BEA estimate is on average within 3 percent
of the mid point of the ranges for the listed areas. Assuming that the
underlying distribution is symmetric, the implication is that there is
a very small probability that the BEA estimate would be near the end
points of the intervals, and, therefore, these end points should not be
viewed as equally plausible or competing estimates.
Computation of means of intervals.
[See PDF for image]
[End of table]
7. Page 6, top partial paragraph, last sentence; page 19, last
paragraph; and pages 38-41-GAO highlights a possible double count in
BEA's estimates throughout the draft report. We have the following
comments.
For the purpose of this paper, GAO uses the term remittances to refer
to BEA's estimate of personal transfers. On the pages cited above, GAO
states that BEA's estimate of remittances appears to double count
certain transactions, and it quantifies the amount of the double count
at $377 million. This leaves the impression that BEA's estimates of
personal transfers contain a double count of $377 million. However, any
double count that may exist probably almost entirely involves another
component of the balance of payments accounts - compensation - that GAO
does not use in this report.
If GAO's estimate of the size of the double count is correct, it is a
small number - less than 2 percent of total personal transfers and only
about 1 percent of personal remittances (personal transfer plus net
compensation). Also, BEA believes that the actual double count would
round to zero percent of remittances if correct concepts and values are
used (this is discussed later). Our concern is that the GAO report
devotes several pages of text to this small issue, thereby conveying
the impression that double counting is a significant concern.
GAO concludes that a double count exists because the definition of
remittances that it uses (bottom of page 38/top of page 39) is "..the
portion of income sent as remittances by those who have resided in the
United States for more than one year, thus excluding the foreign-born
population residing in the United States for less than one year. BEA's
estimate of remittances is in effect overstated because it includes the
foreign-born population that has resided in the United States for less
than a year." Similar statements appear on page 19 of the report.
However, GAO is using an incorrect definition. (We acknowledge that the
GAO definition is sometimes used as a shortened version of the correct
definition, but it is not complete.) International compilation manuals
that the United States and most other countries follow (for example,
see paragraph 63 of the Balance of Payments Manual) state that a person
should be considered a resident of the country in which that person is
living, provided s/he "has already engaged in economic activities and
transactions on a significant scale in the country for one year or
more, or if the [person] intends to do so."
Thus, under international statistical guidelines that BEA follows,
persons surveyed by the American Community Survey (ACS) who have lived
in the United States for less than a year should be treated as U.S.
residents if they intend to remain in the United States for at least a
year. GAO's blanket rejection of data pertaining to all persons
resident in the United States for less than 1 year results in rejecting
too much data. Many persons who report on the ACS in the less-than-I-
year residency category may plan to remain in the United States for at
least 1 year. Further, BEA cannot be sure of the direction of overall
potential bias in the ACS - there could be as many people who ideally
would be counted as residents on the ACS, but who are not, as those who
ideally would not be counted as residents, but who are counted. BEA
does agree that the residency question in the ACS is not "perfect" for
BEA's statistical purposes, but the problems with the survey appear to
be quite small, and without carefully examining the responding
population, it is unclear what adjustment BEA should or might make.
8. Page 8, 1st full sentence - The UN Technical Subgroup definition is
not tied to employment or migration status. We suggest rewording this
sentence as follows: "In the first case, the United Nations Technical
Subgroup on the Movement of Natural Persons, of which BEA is a member,
recommended that "personal transfers" be defined to include personal
transfers by all residents, regardless of whether they are working in
their current country of residence or migrated to or were born in their
current country of residence."
9. Page 8, 2nd full sentence - This is minor, but the reference to
"taking effect in 2008" may be misleading in that some countries will
adopt this definition before 2008 and others will never adopt it. You
may want to consider rewording this sentence as follows: "This
definition was discussed at a June 2005 meeting of the IMF Balance of
Payments Committee (of which BEA is a member) and is expected to appear
in the updated international statistical standards that are scheduled
to be released in 2008."
10. Page 11, 1st paragraph - It says that the IMF "generally defines
international remittances as the portion of the international migrant
workers' earnings sent back from the country of employment to the
country of origin." You seem to be giving the IMF's earlier definition
of worker remittances rather than the definition of remittances that
the IMF is in the process of adopting (which includes net
compensation). If so, we suggest rewording this sentence as follows (to
remove the reference to "migrant workers"): "The IMF definition of
remittances covers earnings sent by migrants who are employed in new
economies and considered residents there, back to their countries of
origin."
11. Page 11, 2nd paragraph, 1st sentence - Please insert the word "net"
before the word compensation to reflect the IMF's position.
12. Page 11, footnote 5 - as noted above, BEA has concerns about the
comparisons that GAO makes between BEA's estimates and those of other
organizations. This footnote states that "this report only focuses on
personal transfers, which we are calling remittances. We did not focus
on compensation of employees because, other than the technical
descriptions in the balance of payments accounting, it is not
separately measurable." However, the methods used to estimate
remittances by the Mexican Central Bank, the Philippine Central Bank,
and others cited in the GAO report capture both remittances and
compensation of employees (net of expenditures in the United States),
because both would appear as money channeled through banks and money
transmitters. GAO is correct in noting that the Mexican Central Bank
and the Philippine Central Bank cannot provide separate estimates of
personal transfers and compensation of employees. GAO also is correct
in noting that the household survey-based method of estimating
remittances (used by the IDB/MIF) did not distinguish between personal
transfers and compensation of employees. This explains why BEA's
balance of payments estimates for personal transfers and compensation
of employees should be summed when comparing BEA's estimates of
"remittances" with those of these other organizations.
13. Page 28, 1st full paragraph, 4th sentence - The TSG now recommends
that personal transfers should also include capital transfers (not just
current transfers in cash and in kind).
14. Page 29, last sentence - It says that remittance data "..cannot be
reconciled because of the inconsistency in the methods of collecting
and reporting remittance data." We disagree with this assessment,
because BEA and other compilers often reconcile their data with one
another. (BEA's reconciliation of U.S.-Canada current account
transactions is an example where reconciliation occurs annually.)
However, because reconciliation projects are resource intensive, time
consuming, and difficult, BEA must pick-and-choose which statistical
items to reconcile with which trading partners.
15. Page 33, partial paragraph at top, last sentence - It says that BEA
"claimed" that its underlying tabulations should not be considered BEA
estimates for specific countries. The term "claimed" makes it seem like
BEA's comment could be disputed. A more appropriate way of putting this
would be to say that "BEA stated" rather than that it claimed.
16. Page 42, 2nd paragraph - In the 2nd sentence, it would be more
accurate to say that the values chosen "were linked to a variety of
different sources" (rather than that they cannot be linked to any
specific source). In the 3rd and 4th sentences, it says that BEA
"primarily" used the LPS under its 1992 methodology, whereas it
"selectively" used the LPS under its 2005 methodology. However, BEA's
reliance on the LPS was about the same in both periods - BEA used the
LPS as just one source of information under both methodologies.
17. Page 48, 2nd sentence - It says that "BEA provided GAO with country
estimates.." We would prefer if this was reworded as follows: "BEA
provided GAO with underlying tabulations of data that enabled GAO to
construct estimates for the same 21 countries for which IDB provided
estimates in 2003."
The following are GAO's comments on the Department of Commerce's March
10, 2006, letter.
GAO's Comments:
1. BEA commented on the Highlights page that the IDB estimates differ
from BEA's estimates because the IDB estimate includes "net
compensation" of foreign workers and the BEA estimate does not. BEA
also commented that data provided by foreign central banks and
financial establishments are sometimes overstated because U.S.
correspondent banks are used in transmitting funds for senders not
living in the United States. We disagree with BEA on these points. This
"net compensation" of foreign workers is a new concept that was just
proposed by the Technical Subgroup on the Movement of Natural Persons
(TSG) in June 2005, and we are not aware of any remittances estimates
for 2003 that use this definition. Further, IDB never stated that any
of the funds accounted for in their estimates came through U.S.
correspondent banks for workers who were not located in the United
States. This was true for the Philippines, which we noted in the
report. BEA also commented that IDB's estimates are substantially
derived from data reported from central banks and private money
transfer establishments. BEA is correct on the latter point and we have
corrected the Highlights page to be consistent with the letter and
reflect that IDB uses a variety of sources in making its remittances
estimates.
2. BEA suggested that we place Mexico in North America or create a
separate bar in our graphic in the Highlights page for Mexico. In this
report, we used the United Nations' Standard Country and Area Codes
Classification, which places Mexico in Central America.
3. BEA commented that to develop an estimate that corresponds to our
definition of remittances, we should have used BEA's estimates of
personal transfers and compensation of employees, net of their
expenditures. However, we make it clear in footnote 6 that we are
focusing only on personal transfers and that we call these remittances
for the purpose of this report.
4. BEA states that it has confirmed with the Bank of Mexico that
Mexico's estimates of remittances include net compensation of migrant
Mexican workers in the United States. BEA states that if we added BEA's
net compensation of employees figure to its estimate of personal
transfers, the two figures for 2003 would be closer. As stated above,
this new definition was proposed in June 2005, and, to our knowledge,
the Mexican central bank has not published 2003 figures for "net
compensation" of employees. The Mexican central bank figures for 2003
as reported by the IMF in its balance of payments statistics are almost
$13.4 billion for workers' remittances, which we use in our report, and
$1.5 billion in compensation of employees. The $12.9 billion estimate
BEA attributes in its comments to the Mexican central bank is the IDB's
estimate.
5. BEA commented that the data used in our analysis of the potential
effects of BEA's judgmentally determined values in its remittance
estimating methodology are unclear, as are the particulars of our
modeling technique. As we stated, we replicated BEA's methodology using
its underlying tabulation of remittances by country and included
additional information from the sources that BEA primarily used to
arrive at its estimate. BEA further stated that there is a very small
probability that the BEA estimate would be near the end points of the
intervals and suggested that we use the midpoint of the intervals
instead. As explained in appendix III, the purpose of our analysis was
to show the effect of BEA's judgmentally determined values on its
estimate $28.03 billion in 2003. Using a range illustrates the
uncertainty in BEA's estimate. BEA also commented on our use of the
lognormal distribution for the percentage of income remitted and the
percentage of the adult foreign born population that remit. We chose
the lognormal distribution because it satisfied the requirements that
both of these variables were nonnegative and distributed in a bell-
shaped curve.
6. BEA commented that we left the impression that BEA's estimates of
personal transfers contain a double count of $377 million and that any
double count that may exist probably involves the compensation of
employees, not the personal transfers account. We modified the text of
our report to reflect that BEA's personal transfers are therefore
potentially overstated by up to $377 million because BEA's estimate
includes remittances sent by some of the foreign born who have been in
the United States for less than one year.
7. Commerce reiterated its concerns about our comparison between BEA's
estimates and those of other organizations. Commerce restated its view
that the methods used by the Mexican central bank and others capture
both remittances and compensation of employees and further stated that
BEA's estimates for personal transfers and compensation of employees
should be summed when making these comparisons to other organizations.
However, none of the organizations with which we compare BEA's
estimates indicated that their methods captured compensation of
employees, therefore, we believe our comparisons are appropriate.
8. BEA states that the TSG now recommends that "personal transfers"
also include capital transfers. This is incorrect. The paper BOPCOM-
05/9 states that the TSG agreed to define "personal transfers" as
consisting of all current transfers in cash or in kind.
9. BEA disagreed with our statement that remittance data cannot be
reconciled and stated that, because reconciliation projects are
resource intensive and difficult, BEA must choose the statistical items
it reconciles with which trading partners. We concur that
reconciliation cannot be done easily. However, our observations were on
reconciliation of remittance data on a global level, not between
individual countries, as shown in figure 4. The global discrepancy has
grown in recent years.
[End of section]
Appendix VI: Comments from the Department of the Treasury:
DEPARTMENT OF THE TREASURY:
WASHINGTON, D.C. 20220:
Yvonne D. Jones:
Director, Financial Markets and Community Investment:
United States Government Accountability Office:
MAR 13 2006:
Dear Ms. Jones:
The Government Accountability Office is to be commended for examining,
at the request of the Congress, the important issue of remittance
statistics. Remittances are increasingly recognized in the policy
community as a significant international financial flow. Personal
remittances are now acknowledged to have a positive impact on financial
stability, and at times of financial crises have contributed to
cushioning the impact of the crises on the economic well-being of
households. Furthermore, recent studies, including those by World Bank,
add to the growing body of evidence that remittances can have a strong
positive impact on the growth and development of emerging economies.
The Administration has long underscored the importance of remittances.
In this regard, the Treasury launched a series of bilateral and
multilateral initiatives to address the factors that have historically
contributed to the high cost and inconsistent quality of remittance
services, as well as the factors that have limited the potential
positive impact of remittances on development. These initiatives
include, among others, the APEC (Asia-Pacific Economic Cooperation)
Finance Ministers' work on remittance systems, the on-going Summit of
the Americas Remittance Initiative, and our work with Mexico on
remittances under the Administration's Partnership for Prosperity.
The 2004 Sea Island Summit, with U.S. leadership, secured the G-8's
commitment to address key global remittance issues. One of the two
remittance issues identified for action by the G-8 was the poor quality
of remittance statistics. The G-8 specifically pledged to work with the
World Bank and the IMF to enhance global remittance statistics. The
Bureau of Economic Analysis within the Department of Commerce has been
a major participant in this global effort.
The Treasury fully agrees with GAO's conclusion that more accurate
remittance data are important to provide policy-makers with the
information necessary to improve the decision process. Such improved
data would also enhance private sector decision making, better inform
the activities of non-governmental agencies, especially those involved
in development assistance, and make a positive contribution to US
bilateral discussions on financial sector issues.
Sincerely,
Signed by:
Mark Sobel:
Deputy Assistant Secretary for International Monetary and Financial
Policy:
[End of section]
Appendix VII: GAO Contact and Staff Acknowledgments:
GAO Contact:
Yvonne D. Jones (202) 512-2717 or [Hyperlink, jonesy@gao.gov]:
Acknowledgments:
In addition to the contact named above, Barbara I. Keller, Assistant
Director; Gezu Bekele; Tania Calhoun; Lynn Cothern; William R. Chatlos;
Bruce L. Kutnick; James M. McDermott; Marc M. Molino; José R. Peña; and
Rachel Seid made key contributions to this report.
(250220):
FOOTNOTES
[1] The G8 is a group of eight countries: Canada, France, Germany,
Italy, Japan, Russia, the United Kingdom, and the United States. The G8
summit brings the heads of state or government of these countries
together on an annual basis to deal with the major economic and
political issues facing their domestic societies and the international
community as a whole. Representatives from the European Union are also
involved in the meetings.
[2] In this report, we use "remittances" to refer to funds transferred
by foreign-born individuals to their home countries from the United
States.
[3] GAO, International Remittances: Information on Products, Costs, and
Consumer Disclosures, GA0-06-204 (Washington, D.C.: Nov. 17, 2005).
[4] We found this number to actually be $28.03 billion, which BEA
agreed to correct in its next publication to be released in June 2006.
[5] Formal systems are characterized by participation in the regulated
financial sector. Such participation means that the institution
involved in the money transfer is supervised by government agencies and
laws that determine their creation, characteristics, operations, and
closure. Formal systems typically include banks, credit unions, money
transfer operators (including other wire transfer services), and postal
services. Informal systems include those that operate outside of the
regulated financial sector, including courier services and hawalas.
Hawalas are one type of informal value transfer system often used in
places where formal financial transactions are unavailable, expensive,
or unreliable.
[6] This report only focuses on personal transfers, which we are
calling remittances. We did not focus on compensation of employees
because that represents labor income and a potential, but not an
actual, flow of funds sent across a border.
[7] The Survey of Current Business is the monthly journal of the BEA.
BEA describes and explains important features of BEA's economic
accounts in this journal.
[8] The CPS is a monthly survey of about 50,000 households conducted by
the Bureau of the Census for the Bureau of Labor Statistics. The CPS is
the primary source of information on the labor force characteristics of
the U.S. population.
[9] Pub. L. No. 99-603, 100 Stat. 3359 (1986).
[10] ACS is a nationwide survey designed to provide indicators of
communities. It will replace the "decennial long form" in future
censuses and is a critical element in the Census Bureau's reengineered
2010 Census. The ACS is conducted every month by mail, telephone, and
visits from Census Bureau field representatives; it includes
approximately three million households annually. It is designed to
provide estimates of demographic, housing, social, and economic
characteristics every year for all states; as well as for all cities,
counties, metropolitan areas, and population groups of 65,000 people or
more.
[11] See Survey of Current Business, July 2005.
[12] We also met with the Asian Development Bank and the African
Development Bank; however, these multilateral institutions did not
estimate remittances for their respective regions.
[13] The BSP also reports on two categories of OFWs--those that work
overseas for more than one year, which they report as workers'
remittances, and those who work for less than one year overseas, which
they categorize as "compensation of employees." The BSP officials told
us they did this to comply with standards set by the IMF for balance of
payments compilations.
[14] BEA's estimate for Mexico does not include $6.7 billion in
compensation of employees for the foreign born from Mexico that were in
the United States for less than one year in 2003.
[15] The 21 countries are Argentina, Belize, Bolivia, Brazil, Colombia,
Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala,
Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Peru,
Trinidad & Tobago, Uruguay, and Venezuela. We calculated the weighted
average of the percentage of adult foreign-born remitters BEA uses for
the 21 countries in Latin America and the Caribbean.
[16] The TSG also proposed "net compensation" of employees to be
compensation paid to persons working abroad for less than one year in
the host country, less taxes on income, social security contributions,
and travel and passengers' transportation related to the short-term
employment.
[17] The IMF Committee on Balance of Payments Statistics was
established in 1992 to (1) oversee the implementation of the
recommendations from other IMF groups investigating the principal
sources of discrepancy in global balance of payments statistics
published by the IMF, (2) advise the IMF on methodological and
compilation issues in the context of balance of payments and
international investment position statistics, and (3) foster greater
coordination of data collection among countries. The BEA is a member of
this committee.
[18] As indicated earlier, this report only focuses on personal
transfers, which we are calling remittances.
[19] See American Community Survey: Field Representative's Manual, U.S.
Census Bureau, July 2004, Chapter 2.
[20] ACS residency rules also show that there are only three situations
when "current residence" is not dictated by the "2-month rule" pre-
college children away in school (considered residents of their parental
home), children in joint custody agreements (considered residents of
whomever they are staying with at the time of survey contact), and
commuter personnel who stay in a residence close to their work but
return regularly to another residence, usually to be with family
(considered to be current residents of the family residence and not the
work-related residence).
[21] The margin of error was plus or minus 2 percent, according to IDB.
The survey did not include remittances to Haiti and the English-
speaking Caribbean.
[22] For example, the difference between IDB and BEA remittance
estimates for Argentina is $81 million. The average remittance estimate
is (180+99)/2 = $139.5 million. The fraction (81/139.5) is about 58
percent.
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