Migration and development

Remittances from employed migrants

The importance of remittances is ever increasing:

• Remittances are the second source of external financing for developing countries, topped only by foreign direct investment (FDI). According to the World Bank, in 2001 remittances accounted for US$ 72.3 billion: as much as 42.4% of FDI in developing countries as a whole, but an even more significant 213.5% of FDI in low-income countries (Global Development Finance 2003). Remittances exceeded official development assistance (ODA). They amounted to 260% of ODA for all developing countries taken together, and to 120% of ODA for the most important recipients of ODA, i.e. the low-income countries.
• In some countries remittances have attained significant proportions. For example, in 2001, they accounted for 17% of Albania's GDP, and 12.8% of Serbia/Montenegro's.
• After the United States and Saudi Arabia, Germany is the third most significant source of remittances with 8.2% of all remittances worldwide.
• Remittances are more stable than private capital flows: the flow of private capital slows sharply in cyclical weak periods while remittances are known to swell in economically difficult times.

Worker remittances significantly compensate for the loss of human resources.

However, they can only do so if their overall effects are positive. There are two extremes in opinions: One, the New Economics of Labour Migration (NELM), argues that the decision to emigrate is part of a family strategy intended to raise family income, gain investment capital, and secure some insurance against income losses and the risks involved in production. In such a model, the remittances can help overcome obstacles to production and investment. Accordingly, the sending countries are likely to benefit from migration and would therefore be well advised not to impede but to encourage the economic activities of nationals working abroad.

The other extreme argues that migration depletes human resources in the region of origin. In a self-perpetuating process, areas, even entire countries, are transformed into nurseries for raising and exporting migrant workers. According to this strand of theory, remittances do no more than finance the consumption of the families left behind. Apart from some relief for the balance of payments, remittances would tend to have a negative impact on development.

If the truth lies somewhere in between these two extremes, what can migrant sending countries do to benefit more from the remittances they receive from their diaspora communities?

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