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posted on 03 June 2015

One in Nine People Go Hungry. Can Remittances be the Remedy?

Written by , GEI Associate

Although "the gap between migrants in developing countries and developed countries is not very wide", remittances - the transfer of money by a foreign worker or a family member to an individual (usually a spouse or parent) in his or her home country - are mainly one direction oriented from developed to developing countries. For example, in 2014 the U.S. sent $131 billion as remittances, while it received $7 billion.

Remittances are not trivial: they surpass official international aid. Lucas and Stark (1985) and Bartolini (2015) found altruism, insurance, investment, and repayments to be chief determinants remittances. According to Dean Yang, remittances have the specificity of being sent frequently and in small amounts.

Remittances have a tendancy to be countercyclical: more money is sent when one's distant folks are in financial troubles, affected by economic issues, vulnerable to natural disasters,etc.. However, that remittances are expected to rise does not necessarily presage bad times.

Remittances present another particularity. Most of the developing world exports their workers so that the home country can obtain hard currency imports. Hard currencies cover currencies that are issued from countries considered politically as well as economically stable. Examples include the U.S. dollar, the British pound, or the Japanese yen. One particularity for these is that they are not being projected to be depreciated as much as are many devoloping country currencies. Hard currencies are viewed as more stable and safe: having them is considered as an insurance for the future for both households and countries.

Remittances affect recipient countries: when people have more money, their comfort and their country's levels of consumption and investment are ameliorated. Laura Bartolini found that regularity and significance of remittances depend on immigrants' relationship "with the origin households". Healthier, more educated, and better nourished people present higher chances of spurring economic growth over the longer term. From a macro-economic view, remittances can stimulate production and "reduce the severity of poverty in the developing world." Recently, a large company for transferring money, Ria, sensed Nepali need caused by Nepal's earthquake: Ria set zero remittances fees to Nepal until the end of June to facilitate remittances to Nepal.

Remittances' cost, which vary depending on the firm used, are attributable to transactions fees and exchange rate margins. These costs could be alleviated through technological advances. Ratha said

"Virtual currencies (such as Bitcoin) are a reality and it is only a matter of time before we'd all be using these currencies."

However, sending money by depositing in a bank account is mostly free, such as it is from America to India via Western Union. But not everyone has a bank account, access to the internet, know how to use a computer and therefore it is those receivers who go pick up the money at an agent location who have to pay a fee.

"With new thinking these mega flows [of remittances] can be leveraged to finance development and infrastructure projects."

But, for remittances to flourish, globalization, "a democratic force; and a force not kind to those "unnaturally" at the top of the heap, abruptly changing challenging social norms" must continue. In an example Hildebrandt and McKenzie (2005), stressed the importance of knowledge transfer. They found that the awareness about contraceptives increased with Mexicans knowing people emigrating (moving permanently) in US.

Although numerous benefits are associated with remittances, Yasser Abdih et al found that "a higher ratio of remittances to GDP is associated with lower indices of control of corruption, government effectiveness, and rule of law." For example, households must purchase public goods instead of receiving them free from the government.

Summary of the data given by Dilip Ratha et al for 2014-2015

Remittances to East Asia and Pacific (EAP) region, where one of the largest recipients by country is China, are expected to grow at a slower pace in 2015. In Europe and Central Asia (ECA,) remittances are expected to fall. Remittances in Latin American and the Caribbean (LAC) region are expected to grow, but at an irregular pace across the region. The Middle East and North Africa (MENA) region, which had a strong growth of remittances inflows in 2014—MENA's principal recipient, Egypt, had a 10 % increase, —is expected to have a slower remittance' pace in 2015. Remittances to South Asia are expected to remain undisturbed from the ones that picked up in 2014 (a 4.5% estimated increase in 2014, and a 3.7% projection in 2015.) Remittances to Sub-Saharan Africa are expected to increase at a slower pace (.9%) in 2015 (c.f. 2.2% in 2014,) but they are expected to recover in 2016 with a 3.4% rise. Eventually, with the exception of ECA, injured by the economical shock from Russia, developing regions had a positive growth of remittances in 2014.

With the strength in the USA dollar, dollar denominated remittance totals will be soft in 2015. But remittances continues to be a major factor in income for the developing world.

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