Published on People Move

Remittances and natural resources: apples and oranges

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The July/August issue of Foreign Policy has a short feature highlighting the "dark side" of remittances. It cites an IMF study which argues:

"High levels of remittances often lead to greater corruption and irresponsible economic policies; and officials in remittance-rich countries are often let off the hook for failing to provide basic services, freeing them to divert resources for their own purposes. This gives citizens less of an incentive to demand reforms."

I am not persuaded. Is it not the other way around? When governments fail to provide basic services, people are forced to fend for themselves.
Remittances can buy only private services like tuition, health care, or water for the family; they cannot build roads, dams, and airports. Sometimes hometown associations or diaspora organizations fund a school or a park or a cemetery back home, but such "collective remittances" tend to be minuscule compared to the needs of the community and to the total volume of personal remittances. (The largest number I have seen for collective remittances to Mexico is about a $100 million, compared to personal remittances of $25 billion.)
The title of the Foreign Policy piece, "The Remittance Curse," invokes the idea of "the resource curse" which refers to rent-seeking and governance problems in resource-rich countries. Remittances, however, should not be compared to revenue from natural resources. Remittances are distributed among a large number of people. (In that sense they are akin to distributing oil money from an airplane!) And they are persistent over time, unlike natural resource windfalls. Remittances reduce poverty and lend voice to the people.


Dilip Ratha

Lead Economist and Economic Adviser to the Vice President of Operations, Multilateral Investment Guarantee Agency, World Bank

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