Tag Archives: Remittances

Remittances – advantages and limitations

Remittances come up in the CIE A2 Economics Syllabus under Developing Economies. The Economist in their ‘Economic and Financial Indicators’ sections has an informative graph and commentary of 2015 remittances. Key points for 2015:

  • Migrants from developing countries sent home $439bn
  • 25% of GDP in Haiti is made up of remittances
  • Flows into Europe and central Asia fell by 23% in 2015 mainly due to the weak Russian economy
  • India received $69bn in remittances – the most of any country.

remittancesThe figures quoted might even be higher as it is a lot harder to track transactions from smaller money shops. 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

Advantages of Remittances

  • money goes directly to the people it is intend for which means is less opportunity for waste or corruption
  • money can be spent by the individual on areas like education and healthcare which may not be possible with official aid
  • the consumer has considerably more sovereignty
  • the sender is confident that the money will be used effectively which might not be the case with official aid.

Limitations of Remittances

  • the development of infrastructure projects need sizeable funds which individual remittances cannot provide. For instance schools, hospitals, roads, bridges etc. need concentrated funds.
  • relying on remittances may mean that you lose some of your skilled labour force, although money does flow into the economy. However, some suggest that this should motivate others into the same job.
  • they tend not to target those who are desperately in need – both countries and individuals.
  • some countries are too isolated for their population to go and find work and ultimately they earn very little from remittances. To them foreign aid is essential.

     

    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.

     

 

Aid or Remittances? – that is the question.

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.

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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.

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