The Role of Remittances in Developing Countries: Difference between revisions
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== How are Remittances Transferred? == | == How are Remittances Transferred? == | ||
Remittances are usually transferred in the form of goods or cash. Workers send remittances in different ways: they can send it through wire-transfers, bring remittances back to their home country. In the case where the remittance is deposited in an agency, the agency then delivers the remittance to the requested destination. Remittances are also transferred through unofficial channels. "Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows" (Remittances: Lifeline for Development). | |||
== Importance of Remittances == | == Importance of Remittances == | ||
Revision as of 21:45, 3 December 2006
What are Remittances?
Remittances are transfers in the form of goods or money that migrants send back home to their families. When their native land is in a poor economic state, people will often immigrate to another country of a high level of economic situtations, with the hope of finding better jobs in order to provide for their family members. Every year, people go to the Middle East, the United States, Japan, Australia, etc.
According to "Workers' Remittances: An Important and Stable Source of External Development Finance" by Dilip Ratha, each year about "a million people enter the United States legally and 500,000 illegally. The numbers are similar in Europe. Immigration to many Asian countries - among them the Republic of Korea, Malaysia, Taiwan, and Thailand - surged in the 1990s." Over the course of the past several decades, the flow of money has increased drastically. In 1980, remittances were at $43.3 billion dollars (U.S. currency) and by 1995, they had increased to US$ 70 billion. Last year, in 2005, international migrant remittances exceeded $232 billion. (Ratha, Remittances: A Lifeline for Development).
How are Remittances Transferred?
Remittances are usually transferred in the form of goods or cash. Workers send remittances in different ways: they can send it through wire-transfers, bring remittances back to their home country. In the case where the remittance is deposited in an agency, the agency then delivers the remittance to the requested destination. Remittances are also transferred through unofficial channels. "Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows" (Remittances: Lifeline for Development).
Importance of Remittances
Remittances are very important to developing countries because they are a significant portion of external financing. In 2004, remittances were recorded to be the the second largest source of external financing, after Foreign Direct Investment. "Remittances (appear to be) the least volatile source of foreign exchange earnings for developing countries in the 1990s" (Ratha). While remittances have been continually increasing since the 1990s, FDI has fluctuated, especially during the last decade as shown in the graph below.
"According to World Bank in 2006, the magnitude of remittances in many developing countries has surpassed official development assitance (ODA), private equity flows, and foreign direct investment (FDI), and their rate of growth has outpaced that of official and private capital flows" (Ralph Chami, Cosimano, and Gapen - "Beware of Emigrants Bearing Gifts").
Remittances are also very important to developing countries because they are encompass a large part of their Gross Domestic Product (GDP). "Remittances to low-income countries were larger as a share of GDP and imports than were those to middle income counries" (Ratha). In comparing larger countries with smaller ones, it appears that remittances in terms of the U.S. dollar flow out to larger countries. However, in terms of GDP, remittances flow out to smaller countries.
For example, "in recent years, overseas workers from Asia have been sending remittances of about $8 billion anually to their home countries" (Charles W. Stahl, Overseas Workers' Remittances in Asian Development). In 2005, $167 billion flowing to developing countries had increased from $72.3 billion in 2001 (Ratha).
