To give an indication of the scale of remittances, the World Bank has estimated that in 2010 the volume of remittances was three times that of official aid – $375bn as opposed to $125bn. The consumer has considerably more sovereignty and the sender is confident that the money will be used effectively which might not be the case with
Below are some examples of the importance of remittances in some developing countries:
Sri Lanka – remittances > tea exports receipts
Nepal – remittances > tourism receipts
Morocco – remittances > tourism receipts
Egypt – remittances > revenue from the Suez Canal
Although remittances do generate substantial income they will never replace aid as some poorer countries will always require assistance from their developed counterparts. A challenge to those countries that receive remittances is to guide this flow of money into projects that will benefit their country as whole rather than just the individual. One of the key questions a country must ask refers to the opportunity cost of losing a productive worker to a developed country but gaining the income of that worker in remittances.
The above is a brief extract from an article published in this month’s econoMAX – click below to subscribe to econoMAX the online magazine of Tutor2u. Each month there are 8 articles of around 600 words on current economic issues.