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. BEA estimated that remittances from the United States in 2003  were $28.2 billion. 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. BEA revised its estimates back  to 1991 using this new approach, which resulted in an increase in estimated  remittances for all years. 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. 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. 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. 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. 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. The working group’s first objective was to clarify the definition of  remittances. 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. 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. 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. 2. 6. 9.
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.