Published on People Move

Remittances reduce poverty

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I'm originally from a small village in India. There is no doubt that many of the people I knew growing up were able to survive because of the money their relatives sent back home to purchase the most basic staples. In development jargon, this money is known as remittances, but from my point of view, this money was a lifeline.

Remittances directly augment the income of those households that receive them. In addition to providing resources for the poor, they affect poverty and welfare through a whole host of indirect multiplier effects and also macroeconomic effects. The beauty of these flows is that they don't suffer from the governance problems that may be associated with official aid (i.e. the money goes from one wallet to another, sans most of the red tape in between).

On a larger scale, analysis across countries worldwide shows the significant poverty reduction effects of remittances: A 10 percent increase in per capita official remittances may lead to a 3.5 percent decline in the share of poor people.

Recent research shows that remittances have reduced the poverty headcount ratio (percent of population below the national poverty line) significantly in several low-income countries-by 11 percentage points in Uganda, 6 percentage points in Bangladesh, and 5 in Ghana. In Nepal, remittances may explain a quarter to a half of the 11 percentage-point reduction in the poverty headcount rate over the past decade (in the face of a difficult political and economic situation).

Just based on the simple figures I've referenced, does it not behoove us in the development community, especially policymakers and governments, to facilitate the investment and flow of money across borders?


Dilip Ratha

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

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