Importance of Remittance in Developing Countries

Remittance is the transfer of money from an individual to family members/friends who reside in another part of the same country or in a different country. International remittance has become an importance source of money for many in developing countries. Remittances are an important source of earnings.  One advantage is that it reaches the direct beneficiaries, and the other is that it is fungible, meaning that it can be used by the recipients any way they like. One disadvantage is that most of the transfers are small amounts, so they cannot be used by the families to do large-scale investments.

Nonetheless, millions of people become temporary migrants in search of increased earning potential abroad, and then send money to their families back home. Examples are the millions of South Asians working in the Middle Eastern countries. The amount these migrants send home is huge. The World Bank notes that the top recipients of remittances among developing countries are:

India - $71 billion

China - $64 billion

Philippines - $28 billion

Mexico - $24 billion

Nigeria - $21 billion

Egypt - $18 billion

Pakistan - $17 billion

Bangladesh - $15 billion

Vietnam -- $11 billion

Ukraine - $9 billion

However, as a share of GDP, it is usually the smaller countries that rank at the top:

Tajikistan - 42 percent

Kyrgyz Republic - 32 percent

Nepal - 29 percent

Moldova - 25 percent

Lesotho and Samoa - 24 percent

Armenia and Haiti - 21 percent

Gambia - 20 percent

Liberia - 18 percent

A large part of it goes straight to families, and few is lost due to corruption. For many countries, remittance outpaces the amount of foreign direct investment or foreign aid that they receive in a given year.

It is evident that such large amounts that the families get collectively helps to increase economic activity in developing countries. Families that receive remittance get richer, poverty decreases. However, it also increases the risk potential migrants are willing to take to reach other countries. Recently, we have noted how Rohingyas are being stranded on boats in sea, trying to reach Malaysia. Similarly, people are risking their lives traveling on boats across the Mediterranean to teach Europe. Recently, thousands of people died while trying to cross the Mediterranean. Although a large number of those migrants are escaping their countries because of humanitarian reasons, some of them are economic migrants. 

People will want to migrate, temporarily or permanently, to better their lives. Governments and international development partners can ensure that such migration happens in a safe way. Migrants can be a win-win situation for the sending- and the recipient- countries. The sending-countries benefit from receiving remittance and by reducing pressure on the domestic economy to create job opportunities. The recipient-countries benefit by getting cheaper workers who benefit the economy by increasing economic activity in those countries. 

In addition, governments of migrant-sending countries must also ensure that the migrants, when they return home, get the necessary training and resources to integrate back to the local economy. The sending countries can provide the returning migrants with capital and they can use the technical know how they learned abroad to set up business in their home countries.