Remittance and development

When migrant workers transfer money to their home country, it is termed as remittance. It has increasingly become an important inflow to many developing countries, sometimes exceeding the inflow of foreign direct investment (FDI) or development aid. Remittance has several beneficial effects on the recipient countries like improvement in poverty reduction and increase in economic growth. As the number of international migrants has increased, remittance flows have also increased. As Figure 1 shows, world remittance flows have increased from US $418 billion in 2009 to US $ 519 billion in 2012, an increase of more than US$100 billion in just three years. Again, remittance is forecasted to reach US$707 billion by 2016.ImageSource: World Bank

During the period 2009 to 2012, remittance flow to low-income countries as a percentage of world remittance flows has increased from 5.0 per cent to 6.2 per cent; this is predicted to further increase to 7.4 per cent in 2016. However, in dollar terms, remittances to low-income countries have increased from US$ 21 billion in 2009 to US $32 billion in 2012, as shown in Table 1. It is forecasted to reach US$52 billion by 2016. Remittances to middle-income countries have increased from 67.2 per cent in 2009 to 68.8 per cent in 2012; these are predicted to be 69 per cent by 2016. Again, remittance inflow to high-income countries has decreased from 27.5 per cent in 2009 to 24.9 per cent in 2012 that is expected to further decrease to 23.6 per cent by 2016. However, in dollar terms, most of the increase in the remittance flow is expected to happen in middle-income countries. During the period 2009 to 2016, remittance flow to middle-income countries is predicted to increase by US$207 billion.

Figure 2 shows the remittance flows to all the developing countries and specific regions of the world. Between 2009 and 2012, remittance flow to all the developing countries increased by US $86 billion. This is predicted to increase by US $151 billion between 2012 and 2016. ImageSource: World Bank

Of all the developing regions, remittance flow to South Asia increased the most (US$ 32 billion) between 2009 and 2012. It was followed by East Asia and Pacific (US$ 28 billion). During the same period, remittance flow to Sub-Saharan Africa increased the least among all the developing regions, by US $2 billion only. Again, increase in remittance flow is expected to be the highest for East Asia and Pacific (US$ 47 billion) during the period 2012-2016. South Asia is predicted to follow with an increase of US $38 billion. Therefore, it can be suggested that East Asia & Pacific and South Asia are the two developing regions that have experienced, and are forecasted to experience, significant increases in remittance flow. In 2012, these two regions accounted for 55 per cent of the total remittance flow of US$ 389 billion to the developing countries.ImageSource: World Bank

Figure 3 shows the top ten remittance receiving countries. The two most populous countries in the world, India and China, are also the top two remittance receiving countries, expected to receive US$ 71 billion and US$ 60 billion respectively in 2013.

Bangladesh has a tie with Pakistan for the seventh position with an expected remittance inflow of US$ 15 billion. The top ten remittance receiving countries are predicted to account for 49.2 per cent of world remittance flow of US$ 549 billion.ImageSource: World Bank

The United States was the top remittance sending country in 2011, as shown in Figure 4. It sent remittances of US$ 51.6 billion, followed by Switzerland (US$ 30.8 billion) and Saudi Arabia (US$ 28.5 billion). South Korea also features in this list of top remittance sending countries. These top ten countries accounted for 42.4 per cent of world remittance flow of US$ 506 billion in 2011.ImageSource: World Bank

Bangladesh experienced an impressive increase in remittance inflow during the period 1981 to 2012. It increased from only US$ 381 million in 1981 to more than US$ 14 billion in 2012, as shown in Figure 5. During this period, remittance inflow increased by 37 times. Again, remittance inflow substantially increased in the last decade as the graph shows.ImageSource: World Bank

According to Migration and Development Brief 21 of the World Bank, remittance inflow is larger than foreign exchange reserves for some countries. In 2012, almost half of Tajikistan’s GDP was contributed by remittances. In South Asia, remittances consisted of a quarter of Nepal’s GDP. The brief states that remittances compose of nearly three times the size of official development assistance to developing countries. Again, the brief mentions that private debt and portfolio equity flows are exceeded by remittances to developing countries. This demonstrates the importance of remittances to developing countries. For some developing countries, remittances exceed the FDI inflow to those countries.

Remittances are increasingly becoming an important tool for the developing countries to address issues like poverty and development, funding for industrialisation as well as infrastructure construction. Remittances help develop the banking sector and bring increased inclusion of the population within the sector. Mobile banking has developed as a consequence of increased remittance flow to developing countries. Remittances can be an important way of earning foreign exchange for countries that do not have substantial export earnings. Overall, remittance can be very beneficial for countries, especially developing countries for their growth and development.

However, remittances may have its pitfalls. If there are limited investment opportunities in the recipient country, remittances may increase the price of assets. For example, it may lead to increases in real estate prices in countries that are land scarce. Therefore, there is a risk that remittances may lead to an asset bubble. On the other hand, increased opportunities for investment and deployment of the fund to alleviate poverty and build infrastructure may allow a remittance-receiving country to reap rich rewards.

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