Monday, October 22, 2007
by Brandon Fuller
As a recent Marketplace story points out, the largest source of aid for poor people in developing countries is family members working abroad. According to a report by the UN’s International Fund for Agricultural Development, approximately 150 million migrants worldwide remitted roughly $301 billion to relatives in less developed countries during 2006. Unlike traditional aid, which typically filters through government and other institutions before reaching the poor, remittances go directly to families in developing countries. While traditional aid may end up financing bureaucracy rather than poverty alleviation, the impact of remittances is concentrated and immediate.
Increasing international labor mobility, legal or otherwise, fuels the increase in global remittances. As remittances rise, their economic importance in recipient countries rises as well. In smaller Asian economies such as the Philippines, Nepal, and Tajikistan, remittances represent between 20% and 70% of income per person. The cost of sending money home varies from region to region. In Latin America, the business of money transfer is highly developed and competition between financial institutions keeps the cost of sending remittances relatively low—about $10 to send $200 to the region. By contrast, the cost of sending remittances to Africa is much higher because of restrictions on the types of institutions that can handle money transfers. As a result, African families receive a smaller percentage of the before-transfer-fee remittance.
Discussion Questions
1. How do immigration policies in developed economies like the United States affect the size of global remittances? How will the transactions costs associated with remittances differ between legal and illegal immigrants?
2. How might global aid organizations help to reduce the transactions costs of remittances? What can governments in less developed countries do to encourage the flow of remittances?
3. Poor people in less-developed countries often have very limited credit access. How might remittances change credit conditions for poor families? How might remittances impact other important development indicators such as food security, school enrollment rates among children, or health outcomes like life expectancy and infant mortality rates?
4. How would foreign aid be different if developed countries simply gave cash vouchers to individual poor families, mimicking the flow of remittances?
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