Abstract
Remittances by immigrants and temporary workers of Indian origin in industrialized countries are a growing part of India’s economy. In this exploratory study we examine the social and economic characteristics affecting the remittance pattern of working households (or families) of Indian origin residing in the United States. As most previous studies have been undertaken at the macroeconomic level, our main contribution lies in identifying the household level factors that may influence remittances. Using an online and a mail-in survey of 39 households we find some of the significant factors affecting remittances. We also validate some of the remittance-related policies of the Indian government.
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Notes
During 2006–2007, Indians working abroad remitted approximately U.S. $29 billion back to India, roughly 3% of India’s GDP (Reserve Bank of India 2008). The magnitude of remittances may be understood in comparison, when we see that in 2004–2005 combined expenditures on education of Indian federal and state governments was less than the total amount of remittances. Further, in the same year government expenditure on healthcare was less than half the remittance amount (Chishti 2007).
There is substantial literature on the role of socioeconomic variables on economic outcomes. For example, in a recent study, Sharpe (2008) studied the effects of education, household size, and duration of immigration on the household income of older Asian in the United States.
See Table 33, the 2006 Yearbook of Immigration Statistics, U.S. Department of Homeland Security.
See Table 2, the 2007 Yearbook of Immigration Statistics, U.S. Department of Homeland Security. The only countries having higher numbers are Mexico and China.
See Table 21, the 2006 Yearbook of Immigration Statistics, U.S. Department of Homeland Security. The only country having a higher number is Mexico.
For the purposes of this paper, we refer to Indian citizens residing abroad, as well as persons of Indian origin who are not currently Indian citizens as NRIs.
See Ratha (2005) for a survey of the literature.
For the macroeconomic determinants of remittances to India, see Gupta (2005). This study identifies that the economic environment in source countries is important in determining the level of remittances to India. It also appears that the level of remittances is countercyclical (higher during periods of low economic growth in India). The study found that other economic or political variables, including political uncertainty, interest rates, or exchange rate depreciation, did not affect remittances significantly.
See Agunias (2006) for a survey of this literature.
Johnson (2003) and Kwon et al. (2004) are two important studies that identify familial and cultural backgrounds of immigrants as factors influencing their economic status and decisions. We perform a similar task, though the economic phenomenon analyzed in our paper (remittance flows) is different from those studied by these authors. Johnson (2003) studies how the interplay between traditional beliefs of Southeast Asian refugee migrants to Canada, and the new values they were subjected to after immigration, led their behavior with respect to financial responsibility for their families. Kwon et al. (2004) study the demographic, human capital, and acculturation factors that are associated with the official poverty status of Asian immigrant householders in the United States.
The reliance of aging parents (particularly elderly women) on financial support from children is well known, in case of Asians. Masud et al. (2008) document this phenomenon in the Malaysian context.
It is interesting to note that immigrants of Indian origin (even first generation immigrants) are well assimilated within the U.S. financial market, i.e. they are able to take advantage of financial institutions and banking instruments (like internet banking) to a considerable extent to achieve their remittance objectives. This is in contrast to some other immigrant groups in the U.S. (like Hmong refugees) for whom financial integration may take up to 15–20 years (see Paulson and Rhine 2008).
A significant portion of Indian migrants in the U.S. have a high level of education. This is not surprising—the literature on migration recognizes that the likelihood of migrating increases with educational attainment (see Swain and Garasky 2007).
Respondents were allowed to choose multiple destinations for their remittances.
This mode of transferring remittances is uniquely different among NRIs than among other immigrant groups. Many other immigrant groups tend to use currency exchanges, rather than traditional bank accounts (see Paulson and Rhine (2008) for a study of financial market participation of the Hmong).
Typically when a joint family divides into nuclear units, the male heirs get shares of the property, while female heirs typically do not receive any share of ancestral land.
With female heirs migrating for purposes of marriage, there is still an observed lowering of the variance of household income and consumption smoothing in rural Indian families. This is especially true during adverse times when household income is lower than average (Rosenzweig and Stark 1989).
This is typically the reason Mexicans migrate to the U.S. As populations age, they become more dependent on those who are working. This is especially true in Asia, which as a whole is expected to see a quadrupling of people over the age of 65 by the year 2050, with India expected to see a tripling (Abdel-Ghany 2008). As is typical in Indian households, the burden for care for older parents typically falls on the children, thus making remittances increasingly important.
As of 2002, the Government of India allows visa free entry to Indian origin people living abroad and gives them all the rights enjoyed by Non-Resident Indians (NRIs), including purchase of non-agricultural land. In order to enjoy these benefits, persons of Indian origin (PIOs) holding non-Indian citizenship can apply for PIO Cards. Fifteen million people of Indian origin living abroad will benefit from the Card.
See Chishti (2007) for a detailed discussion of Indian remittance accounting and the evolution of remittance patterns.
The Automatic Clearing House based internet fund transfer facility, available in the United States, facilitates this mode of transfers.
Note that the share of remittances originating in North America has gone up from 24% of total remittances in 1990–1991 to about 44% in the following decade (Reserve Bank of India 2006a). In our sample we found that approximately 40% of respondents preferred internet banking.
Given that it is now possible for NRIs to mandate an Indian resident who has the right to withdraw from their (interest earning) NRI accounts in an Indian bank, we feel that there is very little distinction between interest rate policies (which encourage savings in NRI accounts) and remittance polices (especially because the accrued interest can be withdrawn by the mandated Indian resident—and will then be accounted for as a remittance).
We note that consumption activities would have positive multiplier effects in the economy. Other uses like family maintenance might include traditional components like spending on education of younger siblings and other such productive uses. Spending on property maintenance and acquisition would also count among productive spending. Out of a total remittance flow of about $25 billion to India in 2005–2006, $13.5 billion was used by the migrant’s family to meet requirements of food, education and health, $5 billion was deposited in local bank accounts and $3.25 billion was used for purchase of shares and property.
In a further attempt to integrate emerging technologies, the State Bank of India, the largest private bank in India, has partnered a pilot project with The GSM Association to attempt the introduction of remittance transfers using mobile phones.
It is interesting to note that in 2005, 20% of all properties worth over 10 million Indian rupees were bought or funded by NRIs. Even though there might be an investment motive behind these purchases, the motive to relocate back to India might also be a significant factor behind these purchases.
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Acknowledgements
The authors acknowledge a grant from the Research Council of the California State University, Bakersfield, which supported part of this research. The usual disclaimer applies.
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Gupta, R., Aaron Hegde, S. An Exploratory Study of Financial Remittances Among Non-Resident Indians in the United States. J Fam Econ Iss 30, 184–192 (2009). https://doi.org/10.1007/s10834-009-9145-z
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DOI: https://doi.org/10.1007/s10834-009-9145-z