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What Drives The World’s Top Remittance Corridors?

September 10th, 2019

What drives the world's top remittance corridors?

When funds flow from one country to another, it is usually referred to as a ‘remittance corridor’. Top remittance corridors play an essential role in understanding how global money transfer can largely contribute to the economic growth of countries. In the global money remittance industry, countries like India, China, Mexico and the Philippines top the list of countries with the most inflow of remittances. Similarly, there are countries on the other end of the spectrum with massive outflows. Among such nations, the USA, Germany, United Arab Emirates, Kingdom of Saudi Arabia, France and even Switzerland, to an extent, see huge remittance outflows.

The macro-economic circumstances that drive the remittance industry differ from country to country, and so does the remittance relationship between nations. Dynamics like geographical proximity, presence of expats and trade relations have, over the years, giving rise to the global remittance industry. These are currently the world’s top five remittance corridors with large money transfer services.

USA to Mexico

A buoyant US economy and an active labour market have fuelled the USA to Mexico remittance corridor. Of the 33.48 billion dollars remitted to Mexico in 2018, a little over 94% came from the USA. Money transfer in the US to Mexico remittance corridor is purely driven by the proximity to and opportunity in the USA, and the development disparity between the US and Mexico.

Hong Kong to China

Politically, wire transfer and money transfer between Hong Kong and the People’s Republic of China (PRC) are remittances within one country. However, there is a “One Country, Two Systems” in place, where Hong Kong is a Special Administrative Region (SAR) with a separate corporate law system and an independent currency. Hong Kong’s free economy and vibrant service industry mean that there is a sizeable presence of skilled labour, including those from PRC. Thus, apart from the significant outflow on account of imports and project fundings, the money transfer industry with expat remittances form a big chunk of the outflow from Hong Kong to PRC.

UAE to India

The UAE and India have a preferred economic partner relation, with over 2.6 million Indians participating in the UAE economy and, of course, significantly contributing to India’s remittance volume. The fall in the Indian Rupee in 2018 saw a massive surge in money transfers from the UAE as Indian expats tried to get the most out of their Dirhams against a weak Rupee. UAE continues to be a strong source of cash inflow for India as Indian expats view their remittances as funds for savings and investments in India. Indians in the UAE are more likely to return to India compared to Indian expats in other countries, so naturally, the tendency of international money transfer is higher in this corridor. Another interesting factor that fuels the money transfer and wire transfer in this corridor is the presence of a large blue-collar expat population from India. This section of the population frequently uses money transfer services to send money to their dependent families.

USA to India

US to India is a popular money transfer corridor. From a population of less than 200,000 in the late 70s, there are now nearly 4.4 million American Indians. A large number of Indians in the USA are white-collar expats who remit infrequently and have a low per capita remittance record. First-generation Indian expats continue to see their growing homeland as a viable investment destination and regularly use wire transfer. Money transfer services are also used to remit money from India to the USA. Besides, the expat population is quite diverse, ranging from cab drivers to CEOs, which helps maintain an overall level of consistency in the remittance industry trends. Changes in VISA rules and scrapping of the work permit of spouses can affect this remittance corridor, as the disposable income of expats may reduce as a result of the new rules.

China to the Philippines

Rules and ties are on an evolving curve for the better, between East Asian neighbours China and the Philippines. With the territorial dispute of the South China Sea in the background, Philippines and China form a rather surprising international money transfer corridor. The services of Filipinos are sought after in China in areas like nursing, housekeeping, teaching etc. This demand seems to have put them in a more coveted position in the Chinese job market than in any other country in the region, including their own. The bilateral relationship between the two countries are improving rapidly, and as a part of it, China agreed to welcome 300,000 Filipinos who will travel to China for work. China has heavily invested in the island nation and has been Philippines’s largest trade partner since 2016. This relationship has contributed to the global money remittance industry.

The World Bank documents these top remittance corridors as part of its remittance price worldwide database. The Remittance industry and corridors are subject to regular study and analysis, mainly due to their importance in the development of the receiving country. The significance of this analysis is further heightened by the changing demographics and technological advancements in the global remittance industry. This can influence the remittance industry trends.

Read also: Why is it important to compare money transfer services and remit rates?

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