PoliticsSocietyCultureBlogNausicaa LabCultural Association

Sending that cash home

24 June 2010
Published in Fiori, Politics
by Nath Gbikpi

Immigration has always been a controversial issue and no more so than in the twenty-first century, viagra when the opportunities to cross the world in search of improved economic conditions have significantly increased. Yet beyond providing a source of cheap labour and fodder for right-wing tabloids, what effects do the movements of these people actually have? We often hear speak about their impact on the countries that host them, but what about those on their countries of origin?

Until recently we lacked the kind of reliable data necessary to analyze migrant characteristics and patterns of movement. There is however one indicator that remains a constant measure of one important aspect of migration: remittances; the money that migrants send to their families back home.

In 2007, the World Bank estimated remittance flow to have exceeded US $ 318 billion. In fact, the amount sent through formal channels, like Western Union for example, is a small percentage of the overall amount. Generally, migrants prefer to send money through friends or family, or to bring it personally when they go back, in order to avoid paying taxes on the exchange rates or loosing money with money transfers. If we add these informal transfers to the World Bank estimates it appears that the actual amount is almost double the official figure.

Some argue that remittances increase the inequality between people, and that they are not always well invested. Yet there is clear evidence that remittances generally reduce the level, depth and severity of poverty. How does this happen and why?

To begin with, remittances inevitably increase the GDP of the receiving country, injecting wealth into areas that might otherwise be left stagnating. In addition to this, remittances have been showed to efficiently do the job that official aid money so often fails to do. While aid and foreign investment often has to go through government channels, remittance money goes directly to the people in need, skirting corrupt officials or inefficient bureaucratic channels.

Remittances can also reduce some of the damage caused by natural disasters. Senders are likely not to be directly affected by those disasters, their income remains unchanged and so they tend to send more money at home. The Sri Lankan Central Bank, for instance, registered an increase in the amount of remittances from the Gulf State in the months following the 2004 tsunami that had devastated much of the country’s coastal areas.

There is evidence that suggests that people use the money they receive as a building block on which to develop their lives. Budding entrepreneurs can use remittances to invest in small enterprises, such as stores or restaurants, or on houses. Impoverished families can use it on the education of their children. In Nicaragua, for instance, a significant rise in remittance related self-employment has been registered. All in all, these strategies can lead to a long-term growth of capital and resources, which can benefit the country on a wider level.

People also send back money aimed at more than their immediate families but to the communities they came from. Many expatriate organizations now invest in community businesses and infrastructures from abroad, cooperating with community members and the governments of their countries. There are more and more hometown associations of this kind, like, for example, the French organisations de solidarité internationale issues de migrations (OSIM).

Although remittances are unpredictable, thus making it difficult for governmental economic policies to rely on them, their benefits on a macro-level are clear: they improve the creditworthiness of a country and stabilize its national balance of payment.

Let’s take as an example a Nicaraguan man who migrates to England. He sends back home some British pounds, which his wife converts at the bank in the local currency, Córdoba. This then increases the demand for Córdobas, and thus, according to the theory of supply and demand, makes its creditworthiness improve. As a result, on a large scale, the Nicaraguan government will be able to borrow more money abroad, and take part in the international market. In a similar way, remittances can improve the national balance of payment. In fact, the Nicaraguan worker will take money from England and send it to Nicaragua, which will have a higher money entrance and a lower money exit. 

Of course remittances can also lead to inequalities within the community. In fact, when the cost of migration is high, the worst-off often cannot afford to move. Again, we can fairly assume that even when they can migrate, poor or non-educated people will receive a low wage, and then send less money back home. However, whenever people leave their community, they enlarge the migration networks. It follows that even poorer families will be able to send migrants, decreasing the initial inequality.

Still, looking at the dark side, some may claim that emigration of skilled workers, the so-called ‘brain drain phenomenon’, damages host countries that have invested in the education of these people and do not receive any advantage after. Despite the undeniable importance and extent of this problem, the money that these workers send back home can still be used in the process of development of their countries.

Speaking of migration as a wholly positive phenomenon for both the country of origin and the host country, is obviously a blinkered approach as it excludes lots of the issues that accompany it. Yet it remains important to attempt to balance the problems and the benefits that it brings. From an economic angle however, it seems safe to assert that there is clear evidence that migration cannot but help the long-term development of both countries.

Image credits: Brandi Strickland

Comments are closed.