Migration and Finance: Remittances, Banking and Informal Networks in the Italian Case
Paolo Baffi Centre Bocconi University Working Paper No. 157
Posted: 2 Oct 2003
Date Written: August 2003
The objective of this paper was to offer an initial systematic reflection of economic analysis on the relationship between migratory flows and financial flows in Italy. To this end, we introduced a simple logical scheme based on the identification of components important from the standpoint of supply and demand.
On the demand side, we pointed out that the migratory flows may potentially generate a legal physiological demand for financial services, especially but not solely linked to a demand for the remittance of funds to the countries of origin, and a pathological illegal demand for the purpose of financing terrorism.
On the supply side, we stressed that the financial services may be offered by formalized intermediaries, bank and non-bank, and by underground networks. The formalized and the underground offerings of financial services cover both the legal demand and, apart from the degree of awareness of the individual operators or intermediaries, the illegal demand.
The paper then proceeded with an empirical analysis, focusing on demand. Starting from the legal demand for remittance services, we crossed information deriving from an unpublished field survey and data from both official and unpublihsed statistics of Italy's Foreign Exchange Office (UIC) to produce an initial estimate of the financial flows linked to the increasingly massive presence of immigrants in Italy. In 2001, that total flow reached an amount of at least four billion euros, of which only 750 million went through bank channels. We also provided estimates on the propensity of the various communities to use the various remittance channels, bank and non-bank.
We then went on to consider the risk of an illegal demand for financial services linked to the need to finance terrorist organizations. To that end, we produced a theoretical analysis on the similarities and differences between the recycling of illicit capital (money laundering) and the financing of terrorism (money dirtying). In empirical terms, based on currently available data, the existence of a risk of financing Islamic terrorism related to the intensification of migration flows cannot be supported by the aggregate analyses. It will then be necessary, on the one hand, to focus on specific cases, brought to light by the concerted action of sector authorities, investigative and judicial, and, on the other, to launch an action whose ultimate consequence will be the expansion of the forms of formalized finance with respect to the covert forms.
This is the chief policy indication that emerges from our work. It is obviously in the common interest to separate the legal demand, a source of economic and social value for all the parties involved - migrants, host countries, countries of origin - from the illegal demand. To this end, the principal avenue is to make use of formalized channels, bank and non-bank, increasingly efficient, cost-effective and transparent with respect to the covert and informal channels. The process is certainly not a simple one, as it requires a capacity to program at various levels: individual intermediaries (bank and non-bank), the banking and financial system (associations included), sector authorities (beginning with the monetary authorities), and national policymakers. But it is apparently an imperative option if we truly wish to combine efficiency and integrity both in the policy on migratory flows and in the policy on financial flows.
JEL Classification: F22, G21, K42
Suggested Citation: Suggested Citation