Remittances are monies sent by people living and working overseas back to their country of origin – usually sent back to their families. To what extent are remittance inflows an important / significant contributor to economic growth and development in lower and middle income developing countries?

1. Remittances, Economic Growth & Development

2. What are Remittances?
Money sent by people living and working overseas
back to their country of origin – usually sent back
to their families
In 2014, the World Bank estimated the global
value of remittances at about $583 billion
Ten percent of the world’s people are directly
affected by this money
More than two-thirds of states in sub-Saharan
Africa will receive less aid in 2017 than in 2014

3. Summary of Key International Financial Flows
Remittances
Overseas Development
Assistance (Aid)
Debt & Portfolio
Investment
Foreign Direct Investment
International
Financial Flows

4. Main Financial Flows to Developing Economies
The chart shows that foreign direct
investment and remittances are now
far more significant than overseas aid
as a source of external finance for
developing countries
Private debt includes loans from the
issue of international bonds and
borrowing through commercial banks

5. Main Financial Flows to Developing Economies
External Financial Flows to Africa in 2013
External Financial Flows to Asia in 2013

6. Developing Countries Most Dependent on Remittances
Country
Net official development
assistance received (2012)
Remittances, inflows (2012)
(% of GNI) (% of GDP)
Tajikistan 5.5 46.9
Kyrgyzstan 9.2 27.6
Lesotho 9.0 25.7
Liberia 53.6 23.3
Moldova 6.0 22.8
Nepal 4.7 22.2
Samoa 16.6 21.9
Haiti 23.2 21.1
Lebanon 1.1 18.3
Jamaica 0.4 14.6
Guyana 6.2 14.5
Jordan 3.3 12.0
Bangladesh 0.9 10.8
Philippines -0.1 10.5

7. Significance of Remittances for African Countries
• Remittances are a more stable form of international financial flow
than some other financial flows and they bring many benefits to
developing economies including many nations in Sub Saharan Africa
• It is suggested that migration and remittances can be significant in
reducing extreme poverty and improving human development.

8. Advantages of Remittances for Families in LDCs
Additional disposable income helps to fund education & health care
Helps families to invest in land, seeds, livestock and equipment
Lower risk of extreme poverty
Can be used as collateral for loans including micro-finance debt
Less malnutrition which can impair brain development

9. Macroeconomic Advantages of Remittances for LDCs
Lower Gini coefficient if they flow to poorest rural areas
Higher productivity from better nutrition and health care
Help absorb the impact of external economic shocks
A key source of foreign exchange, they help to overcome a domestic
savings gap
Inflow on current account of balance of payments

10. Risks / Disadvantages of Remittances for LDCs
High cost of money transfers from money transfer businesses such as
Western Union (12% charge for sending $200 to Sub Saharan Africa)
80% of people in rural areas in LDCs do not have access to
traditional banking services
Reduced size of the workforce due to net outward migration of
skilled workers – may cause fall in long run aggregate supply
Inflow of remittances may cause the exchange rate to appreciate
– damaging export competitiveness
Some households receiving remittances may decide to remain inactive
in the labour market – economists call this moral hazard

11. Evaluating Remittances as a source of External Finance
"The effect of remittances on GDP
growth depends upon how the
money is spent by the recipients”
(2014)
"Remittances act as a major
counter-balance when capital
flows weaken” (2015)
"Remittances have more impact
when they provide capital for
starting businesses, promoting the
growth of the private sector”
(2015)

12. Remittances, Economic Growth & Development