Remittances and the Micro- Economy

From a micro-economic perspective, exploiting a wage differential clearly benefits the individual and the household to which he or she belongs. It is quite obvious that the overall impact of remittances on access to basic services such as education and health is positive. Besides, there is increasing recognition of the rather positive impact remittances have on investments as well as an almost universal recognition of their positive impact on poverty reduction, among the recipient households.

Remittances and Development

“Remittances facilitate human capital formation mainly by improving access to education and health. They also lead to an increase in investments and the reduction of poverty, particularly within recipient households. Remittances have also been critical sources of foreign exchange for the national accounts and have been found to promote macroeconomic stability”.

Resilience of Remittances

Remittances are one of the less volatile sources of foreign exchange earnings for developing countries. While capital flows tend to rise during favorable economic cycles and declines in bad times, remittances tend to be counter-cyclical relative recipient countries economic cycles. Historically remittance flows have also been resilient to downturns in the migrant-destination countries. Remittance flows to developing countries are expected to remain more resilient than private flows-which are expected to fall sharply if global liquidity continues to remain tight-and even compared to official development assistance (ODA).

Remittances the fact of Migration and Development

Remittances are in effect a share of the additional output created by the productivity gains which migration delivers. The flow of remittances is primarily a function of the numbers of migrants, the amount of money they earn, and their propensity to remit. Remittances can provide developing countries with large injection of resources, enabling them to narrow the trade gaps, increase foreign currency reserves, service their debts, and make progress in reducing poverty and achieving sustainable development. From a report of World Bank, it has come out that a ten percent increase in the share of international remittance in a country’ GDP will lead to a 1.6 percent decline in the proportion of people living in poverty[1].