Close to home: development impact of remittances in Latin America

The report focuses on the impact of remittances on poverty reduction in Latin America and the Caribbean. The report analyses the characteristics of households that are remittance recipients and how these characteristics affect the poverty-reducing impact of observed remittances flows. The report also devotes significant attention to the macroeconomic impact of these flows, and explores policies and interventions aimed at enhancing the development impact of remittances in the region.

The report finds that:

• Mexican and most of the Central American migrants are drawn from the lower end of the education spectrum of their home countries
• migrants from the Caribbean and South America tend to be proportionally more educated
• small Caribbean islands rank the highest when migration is measured in relation to each country’s population. This includes a serious problem of “brain drain”
• remittances have a generally positive impact in terms of reducing poverty and inequality, however the effects are generally modest
• for each percentage point increase in the share of remittances to gross domestic product (GDP), the fraction of the population living in poverty is reduced by an average of about 0.4 percent
• migration and remittances reduce poverty head counts in only 6 out of the 11 LAC countries
• remittances reduce poverty gaps in only three cases—Ecuador, Guatemala, and Haiti in the Dominican Republic and Nicaragua, we even found that those flows were linked to small increases in extreme poverty
• the largest reductions in inequality are obtained in Haiti, Guatemala, El Salvador, Nicaragua and Honduras

The report concludes that remittances are an engine for development, but they are neither a “silver bullet” nor a substitute for sound development policies. The report recommends:

• establishing regulatory requirements that balance the need to maintain security in the remittance system with the goal of eliminating hurdles to entrants
• removing regulatory barriers to the direct or indirect use of payment and settlement systems
• that regulators and service providers should take a proactive stance to increase market transparency and accessibility to financial services among remittances senders and recipients