Remittances: The New Development Mantra?

What do remittances mean to recipient countries?

This paper examines the causes and implications of remittance flows. The paper analyzes the importance of remittance flows relative to other sources of external finance: Remittances are an increasingly significant source of external financing for developing countries. The bulk of international remittances do not accrue to the poorest countries. Remittances have emerged as the least unstable source of financial flows for countries afflicted by shocks. For the many small countries, remittances, along with foreign aid and tourism, have become the only viable sources of income. The paper subsequently analyzes the many complex economic and political effects of remittances. It highlights that remittance:

  • Is the most stable source of external finance;
  • Plays a critical social insurance role in many countries afflicted by economic and political crises;
  • Is generally pro-poor but its effects are greatest on transient poverty. 

The paper gives some policy options to address the obstacles in remittance transfer: Constructing a financial architecture that reduces the transaction costs of intermediation and increases its transparency. Promoting greater competition to increase the penetration of formal financial intermediaries. Actively monitoring and regulating labor market intermediaries. The paper concludes that:

  • Remittances are one of the most visible aspects of how international migration is reshaping the countries of origin. Remittance flows do not put any burden on taxpayers in rich countries. There is a need to identify/ quantify if social remittances or the flow of ideas have a more critical impact than their pecuniary counterpart.

About this Publication

By Kapur, D.