EFFECTS OF THE INCREASING SECTOR (OFW) TO THE GROWING

ECONOMY OF THE PHILIPPINES

I. INTRODUCTION
A. TOPIC

Lack of jobs and savings to support a family are some of the problems here in the
Philippines. Filipinos have been experiencing this kind of problem especially those who
have a family to support since the time around the post war era and the Marcos regime.
Instead of waiting here in our country, Filipinos found a way to solve this problem—and
that is migrating to other countries to work. These Filipinos will leave their family here to
work in another country. Those Filipinos who work in other countries are called OFWs or
Overseas Filipino Workers. OFWs contribute to our economy in mny ways that includes
remittances.

B. RATIONALE

OFWs are considered as economic heroes in our country. Through sending money
to their families also called “remittances”, they contribute extraordinarily to the economic
growth of the Philippines. They sacrificed everything in order to send money to their
families. Aside from those who have families, those who does not have families also
helps the Philippines by improving their skills there. The growth of OFW'S have
advantages and disadvantages. One disadvantage is when they need to work in another
country, some experience a great abuse from the persons they are working for. Since they
need the money, they will continue to work there even though there's that is happening.
OFWs abroad are growing continuously, henceforth our country loses a great number of
workers especially those who are professionals like engineers, doctors and nurses. This
situation is called “brain drain” that will /.be later on discuss in the body of the paper.
For example, due to lack of nurses and other medical professionals, the Philippines is
now struggling to help those who have the infectious disease called COVID 19. But
these losses contribute too through remittances. The big growth means larger remittances
and larger remittances means a higher a GNP in our country. According to Rappler, the
remittances of OFWs hit record high of 33.5 billion dollars in 2019, higher than the
previous year which was 32.2 billion dollars. Remittances also provides a steady foreign
exchange between other countries and the Philippines.

C. ORGANIZATION

Filipinos have been migrating to other countries since the start of the 19’th
century. OFWs have been helping the economy for years and will help further at our
future. They sacrificed everything even the time for their families just to work for the
money that the individual’s family needs. They are the pillars of the Philippine economy.
The continuous growth of OFWs will not only affect the Philippine economy but will
also affect the image of the Philippines. If the growth still continues, it shows that
Philippines is still struggling to offer jobs and offer a savings that is fit for a family.
Working in abroad can be a good thing but it can also be a bad thing.

II. BODY OF THE PAPER

A. RELATED LITERATURE

J. Edward Taylor, a Professor of Agricultural and Resource Economics (ARE) and

Director of the Center on Rural Economies of the Americas and Pacific Rim (REAP) at
the University of California, wrote the paper, “INTERNATIONAL MIGRATION AND
ECONOMIC DEVELOPMENT”. Taylor said that remittances grew rapidly over the
years. In the paper, Taylor also explained how international migration affects the
economic development negatively and positively: “Negative effects of international
migration on developing countries have received considerable attention in both academic
research and the press. These include the cost to LDCs of losing labor and human capital
to foreign labor markets, especially the ‘brain drain.’” “Increasingly academic research
concludes that, although the negative effects of international migration cannot be ignored,
they need to be balanced with the positive effects. These include remittance income and
the economic multipliers that it produces; the influences of migration and remittances on
investments, which appear to increase productivity in agricultural and nonagricultural
activities; poverty alleviation; and migration-induced incentives to invest in schooling
and health.” He also added that the impacts of international migration appear to be
greater and considerably more complex than simple remittance numbers suggest.

The paper, “The Macroeconomic Impact of Remittances in The Philippines” by

Cayetano W. Paderanga, Jr., looks at the macroeconomic impact of remittances and how
it has affected the country's ability to manage its finances. Here are some parts of the
paper: “the importance of remittances to the economy became apparent in 1998” “The
effect of remittances on domestic monetary policy has been mixed” “The impact of OFW
remittances on the saving-investment (S-I) gap can be decomposed by its impact on both
savings and investments.” “The other important effect of remittances is on the saving side
of the gap.”

An article posted in CompareRemit, a website that offers a comparison of money

transfer services, talks about the contributions of OFWs in our Philippine Economy. The
article said that remittances of OFWs contribute to a lot of sectors in the economy, like
the balance of payments, exchange rates, foreign reserves, household income, standard of
living and purchasing power.

Tereso S. Tullao, Jr., Ph.D., a professor of Economics and the Director of the
Angelo King Institute for Economic and Business Studies, and Christopher James R.
Cabua authored the paper, “International Migration and Remittances: A Review of
Economic Impacts, Issues, and Challenges from the Sending Country’s Perspective”. The
paper reviews the motivations of people to migrate and remit as well as the impacts of
migration on both household and national (which we will later on explain) and the effects
of remittances. These are some parts of the paper: “Migration serves as an avenue for
people to take advantage of economic opportunities, move away from undesirable
national circumstances, improve their own human capital, maximize income across time,
and take advantage of migration cultures.” “Migration is more than often coupled with
remittances - people sending back money or in kind to their families back in the home
country…. Whatever the reason maybe, remittances serve as an avenue for people to
maximize their income over time, or at least for their families’ consumption to
smoothen.” “With respect to the effects of remittances on the macro-economy, the most
apparent would be on the real exchange rate. This is rooted in economic theory,
particularly in the Keynesian school of thought that shows the inflow of remittances
increases the supply of foreign currency, causing the real exchange rate to appreciate”
“The Dutch disease connotes negative consequences that are tied with large increases in a
country’s income brought about by the huge receipts from the export of a commodity or
service.” “The motivations of people to migrate can vary but they can be generally
summarized in terms of push and pull factors.”

Robert Burgess and Vikram Haksar authored the working paper, “Migration and
Foreign Remittances in the Philippines” that was published by International Monetary
Fund (IMF). The paper describes the evolving pattern of migration and remittance flows
and analyzes some of the channels through which remittances affect economic activity:
“Remittances can be seen as a financial counterpart to migration, which can offset some
of the output and other losses that may be associated with the loss of skilled workers—
the so-called “brain drain.” “The economic impact of remittances is likely to depend in
part on the propensity of recipient households to consume or invest.” “There is no doubt
that remittances in the Philippines are an important source of support, especially for the
balance of payments”

B. ECONOMIC THEORIES

Some economic theories are surrounding the topic of labor migrating to another
country and their remittances affect the economy of one’s country. We will discuss some
of these theories in this part of the research. Here are some of the theories:

 Human Capital Theory

 A microeconomic equivalent of the macroeconomic model of individual choice.
This theory highlights the socio-demographic aspect of the individual as being a
significant determinant in the decision-making process. It puts forward that a migrant will
estimate the costs and benefits associated to the displacement, and will migrate if the net
return is positive and his destination will be where the expected discounted net returns are
greatest over some time horizon

 New Economics of Labor Migration (NELM)

Posit that remittances lessen production and market constraints faced by

households in poor developing countries. The article states that remittances may be a
positive factor in economic development, which should be nurtured by economic
policies.

 Migration network theory

Addresses the cumulative causation of migration as a result of reduced social,

economic, and emotional costs of migration under the formation of migration networks.
Because it introduces a sociological dimension, network theory improves the mechanical
and economistic “push and pull” conceptions

C. ANALYSIS OF DATA

“INTERNATIONAL MIGRATION AND ECONOMIC DEVELOPMENT”

Taylor said that international migration produces benefits and the most tangible
one is the money that migrants send home, Remittances. Remittances not only helps the
family to get their basic needs, but it also helps the economy in a way. Remittances grew
rapidly in our country because of the growing OFWs or labor migrants. According to
Rappler, remittances in the Philippines hit a record high of 33.5 billion dollars in 2019
meaning that OFWs increased more in 2019 than 2018.

Later on, Taylor mentioned the negative effects of international migrants. These
include the loss of labor in a country and the brain drain. Brain drain is the emigration of
highly trained or intelligent people from a particular country. It is a problem described as
the process in which a country loses its most educated and talented workers to other
countries through migration. It is an occurring problem here in the Philippines because
we lose talented and skilled workers. This may lead to economic hardships in our country
because those who remain are not as skilled as the ones who migrated. Causes of brain
drain can be categorized into two: Push factors and Pull Factors. The push factors are
negative characteristics of the home country that form the impetus for intelligent people
migrating from Lesser Developed Countries (LDC). Pull factors are the positive
characteristics of the developed country from which the migrant would like to benefit.
Higher paying jobs and a better quality of life are examples of pull factors. Effects of
brain drain include loss of tax revenue, loss of potential future entrepreneurs, shortage of
important, skilled workers, the exodus may lead to loss of confidence in the economy,
which will cause persons to desire to leave rather than stay, loss of innovative ideas, loss
of the country's investment in education and the loss of critical health and education
services.

But there are also benefits: people move from LDC countries to developed
countries, they learn new skills and expertise, which they can utilize to the advantage of
the home economy once they return and remittances; the migrants send the money they
earn back to the home country, which can help to stimulate the home country's economy.

Taylor then explained the positive effects which are remittance income and the
economic multipliers that it produces; the influences of migration and remittances on
investments, which appear to increase productivity in agricultural and nonagricultural
activities; poverty alleviation; and migration-induced incentives to invest in schooling
and health.

“The Macroeconomic Impact of Remittances in The Philippines”

In his paper, Paderanga explained the macroeconomic impact of remittances in the

Philippines. Paderanga said that the importance of remittances to the economy became
apparent in 1998 then later on began accelerating in 2002. Then these remittances are
classified under current transfers. Current transfers are current account transactions in
which a resident entity in one nation provides a non-resident entity with an economic
value, such as a real resource or financial item, without receiving something of economic
value in exchange.

Paderanga then said that the effect of remittances on domestic monetary policy has
been mixed because the inflow of net foreign assets into the country gave way to an
inherent rise in the monetary base, complicating the central bank's ability in controlling
the money supply.

He then said that the impact of OFW remittances on the saving-investment (S-I)
gap can be decomposed by its impact on both savings and investments. Then said that
this formula may be partly traceable to the "Dutch disease" impact of remittances: as the
domestic currency strengthened, the competitive position of domestic production in the
Philippines suffered. The Dutch disease is the apparent causal relationship between the
increase in the economic development of a specific sector and a decline in other sectors.

In the paper, he later on said that the other important effect of remittances is on the
saving side of the gap. Remittances have greatly expanded the resources available to the
economy: first going into the demand for goods and services and, after that, available for
saving by both the workers and by the corporate sector experiencing larger profits due to
the higher effective demand for their products.

“Contribution of The OFW To the Philippine Economy”

Due to the continuous growth of OFWs, remittances in the Philippines grows

larger. OFWs remittances have so many contributions to the economy of the Philippines.
The article posted in CompareRemit explain these contributions. First, remittances
contribute to the balance of payments of the Philippines. Balance of Payments is a
specific record of a country’s and its residents’ – individuals as well as business
organizations – monetary exchanges and affairs with the rest of the world. Remittances
contribute to the BOP of the Philippines through current accounts. Current Account, also
known as Balance of Trade, accounts for the major portion of Balance of Payments as it
contains transactions about the exchange of goods and services entailing monetary
transfers. Remittances sent through the legal financial system are immediately caught in
the country's balance of payments which is tracked by the central bank, Bangko Sentral
ng Pilipinas (BSP). Remittances represent a significant portion of the earnings of
Filipinos working abroad that are transferred to their home families and BOP of the
Philippines.

Second, remittances contribute to the exchange rates of the Philippines. Exchange

rates determine a country's relative level of economic health and play a vital role in a
country's level of trade, which is critical to most every free market economy in the world.
Remittances help to improve the currency of the Philippines. It helps it to become
stronger or powerful than other countries. The steady inflow of remittances empowers the
country to buy more foreign goods and services. With a powerful currency, the cost of
imported goods decreases which lowers the prices for consumers and the Philippines
could settle down its debts and liabilities. Since the country’s debts are mostly in US
dollars, a stronger peso will minimize the debt.

Third, remittances contribute to the foreign reserves of the Philippines. Foreign

exchange reserves or Gross International Reserves (GIR) are foreign assets that are
readily available to and controlled by the BSP for direct financing of payments
imbalances and for managing the magnitude of such imbalances. GIR consists of
holdings of gold, special drawing rights (SDR), foreign investments, and foreign
exchange, including Reserve Position in the Fund (RPF). The GIR is a crucial component
of the economy as it is often used to manage the country’s foreign exchange rate against
excess volatilities.

Fourth, remittances contribute to the household income of the Philippines.

Household income is the combined gross income of all members of a household. It is an
economic indicator of an area's standard of living. The money that was sent by the OFW
adds up to the household income. Remittance forms a large portion of the fixed monthly
income of many families in the Philippines.

Fifth, remittances contribute to the standard of living of the Filipinos. Because of

the larger earnings of OFWs, the families that received these large earnings in the
Philippines tend to change their standard of living. They use the remittances to improve
their standard of living.

Sixth, remittances contribute to the purchasing power of the people in the

Philippines. Purchasing power is the value of a currency expressed in terms of the
amount of goods or services that one unit of money can buy. It is an indicator of the
current market condition because it allows a business or individual to discern how far
their money will go. Purchasing power is important because, all else being equal,
inflation decreases the amount of goods or services you would be able to purchase.
Remittances help in financing private consumption by increasing the purchasing power of
Filipinos.

“International Migration and Remittances: A Review of Economic Impacts, Issues

and Challenges from the Sending Country’s Perspective”

Tullao and Cabuay explained in this paper what the motivations of people to
migrate and remit as well as the impacts of migration on both household and national
(which we will later on explain) and the effects of remittances. People migrate to work
because of various reasons. They migrate internationally to find more economic
opportunities that their country does not have. They migrate internationally to improve
their skills. They migrate internationally to earn money to send it to their families back
home to sustain their needs or to do investments. They migrate internationally because of
push and pull factors. (Refer to the first article in the analysis of data to find the meaning
of push and pull factors)

Cabuay and Tullao then explained the economic impacts of remittances. They said
that the most apparent one is the real exchange rate. The real exchange rate measures the
price of foreign goods relative to the price of domestic goods. This is rooted in the
Keynisian School of thought that shows the inflow of remittances increases the supply of
foreign currency, causing the real exchange rate to appreciate. (Keynesian economics is
an economic theory of total spending in the economy and its effects on output and
inflation.) Because of the appreciation of the exchange rate, exports are now more
expensive since less income in terms of domestic currency is derived from it, and imports
are now a lot cheaper because of the increase in the purchasing power of the domestic
currency. The level of exports will then decrease and imports will increase causing an
overall decrease in net exports (ceteris paribus).

They then explained how the other portion of the theory opens up to the Dutch
Disease (Refer to the second article in the analysis of data to find the definition of Dutch
Disease). They said that Dutch Disease implies negative consequences that are tied with
large increases in a country’s income. More than the increase in income the negative
consequence of the Dutch disease is the reallocation of resources away from the erstwhile
other export goods and services. In terms of migration, remittances may be classified as
the large inflows of income. They explained that the Dutch disease initially causes an
increase in imports (because of the increase in purchasing power of the domestic
currency), and a decrease in the price competitiveness of exported goods as well as the
amount of export (since the income from exports now give lesser domestic currency
equivalents and the exported goods are now more expensive to other countries).

In their conclusion, they said that the motivations of people to migrate can vary
but they can be generally summarized in terms of push and pull factors. The pull and
push factors can consist of several economic, demographic, political and social features
of the sending and destination countries. Whether they respond to wage differentials,
demographic and labor market asymmetries, migration culture and its network,
liberalization, and expansion of trade in services and a sort of other factors, people move
across national boundaries for something that pushes them from the country of origin and
that pulls them to places of destination.
“Migration and Foreign Remittances in the Philippines”

Burgess and Haksar describes the evolving pattern of migration and remittance
flows and analyzes some of the channels through which remittances affect economic
activity. But in this paper, let’s just focus on the economic impacts of remittances. They
said that remittances can be seen as a financial counterpart to migration, which can offset
some of the output and other losses that may be associated with the loss of skilled
workers—the so-called “brain drain.” Meaning that even though if the Philippines lose
skilled workers, the country can still benefit from it through remittances

Burgess and Haksar then explained that the economic impact of remittances is
likely to depend in part on the propensity of recipient households to consume or invest.
Remittances that are invested in productive activities will contribute to output growth.

Then they discussed that there is no doubt that remittances in the Philippines are
an important source of support, especially for the balance of payments (refer to the 3 rd
article to find why remittances contribute to BOP). It is proven that consumptions of most
households in the Philippines are supported by the remittances of OFWs especially in
middle classes.

III. CONCLUSION
In conclusion, OFW’s aff4
IV. REFERENCES
 J. Edward Taylor (2006) “INTERNATIONAL MIGRATION AND ECONOMIC
DEVELOPMENT”
 Cayetano W. Paderanga, Jr. “The Macroeconomic Impact of Remittances in The
Philippines”
(http://www.bsp.gov.ph/events/pcls/downloads/2014s2/BSP_4a_paderanga_paper
.pdf)
 CompareRemit “Contribution of The OFW To the Philippine Economy”
(https://www.compareremit.com/money-transfer-guide/contribution-of-the-ofw-
to-the-philippines-economy/)
 Tereso S. Tullao, Jr., Christopher James R. Cabua “International Migration and
Remittances: A Review of Economic Impacts, Issues, and Challenges from the
Sending Country’s Perspective”
 Robert Burgess, Vikram Haksar “Migration and Foreign Remittances in the
Philippines”