Challenges to sending money back home
Remittances as development finance
Are remittances financing development?
Authors:
; Organisation for Economic Co-operation and Development
Publisher:
Organisation for Economic Co-operation and Development , 2005
This brief paper discusses the literature on remittances in three areas: the developmental impact of remittances; policies to enhance the developmental impact of remittances; and remittances and migration policy.
It highlights that the literature might over-emphasise the extent to which remittances are used for investment, but that remittances may initially concentrate on consumption and then be used for investment in both human and physical capital once immediate consumption needs are satisfied, thus making a valuable contribution towards satisfying basic needs and relieving poverty, which many donors see as the key goals of aid.
Although many policies to promote the use of remittances for developmental purposes are not new, each of them can already show some success stories. However, implementation and awareness are very patchy. Some of these policies include:
- promoting competition among money transfer firms to reduce transaction costs
- encouraging remitters to shift their business from purely money transfer operators towards broader-based financial institutions that can provide bank account and credit services to recipients
- creating innovative financial products that encourage recipients to save part of remittance flows.
The literature on remittances and development focuses on incremental actions, and pays little attention to more basic determinants of the flow of remittances, particularly those bearing on the opportunities available for people in developing countries to work in other countries with higher levels of real per capita income. There is also a relative dearth of literature concerning the social protection of remittance-sending workers.
