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?

Topics

Authors

Dilip Ratha

Manager, Migration and Remittances Unit and Head, KNOMAD, Global Indicators Group, World Bank

Join the Conversation

Tomas
July 11, 2008

Great idea to start this blog, particularly as the relationship between global remittances and improved development outcomes continues to gain growing attention from economists, development practicioners, academics, bankers and just this week, G8 Heads of State!! I think the latest development from the G8 and tasking the World Bank to lead the coordination of the Global Remittance Working Group is an important signal from world leader's of the key role that P2P transfers play in the global fight against poverty.

In the Pacific region, remittance costs remain out of step with global norms. However, I am delighted to see in the past 12 months a number of SMEs are increasingly taking the battle for marketshare to the more established players. One NZ-based company proudly informed me they offered free remittance services for one month's duration to Pacific Island financial consumers in order to attract customers. The strategy has paid off as the company gains an established customer base. Samoan consumers now enjoy greater freedom of choice when it comes to RSPs, not to mention the decreased costs of transfer due to greater competition!

Slamdog Millionaire
March 03, 2009

The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. A movie entitled "Slumdog Millionaire" has been a big hit and won as the Best Picture at the Academy Awards. The movie was so inspirational. It has called attention to the terrible poverty that people in other countries experience. Azharuddin Ismail and Rubina Ali, two child actors featured in Slumdog Millionaire, are both to be moved to new homes with their families. The Indian government has agreed to pick up the check, citing that the film, and the two diminutive thespians, has made their country proud. The kids featured in Slumdog Millionaire are both residents of India's slums.

RAMON ALFONSO
October 19, 2009

A la fecha es posible encontrar en los libros de macroeconomía, la mención de que los factores de la producción son: tierra,trabajo y capital. Y en tanto la relación con las remesas es posible observar que solo el tercero se encuentra en la posición de movimiento de un país a otro, ya sea como remesa o como inversión. Lo cierto es que la remesa conlleva un costo muy elevado. Muertes de inmigrantes que en busqueda del aseguramiento de un mejor nivel de vida de su familia, se arriesgan a vivir circunstancias que ponen en peligro su vida y que en muchos de los casos son son superadas.
Decir que las remesas mejorar el nivel de vida, quizà sea posible en algunos casos, la realidad en nuestros pàíses de atraso económico o de reciente industrialización es que tan solo sirven a las familias que las reciben para sobrevivir en un nivel de modestia básico, sin satisfacer muchas de sus necesidades primarias entre ellas la educación y la buena alimentación.
¿Tenemos necesidad de ellas? eso resulta claro, la falta de empleo en nuestros países en reciente industrialización empuja a que la fuerza laboral emigre a dichos paises industrializados y gane lo que aqui, ni con el mismo esfuerzo obtendría por ese trabajo. Hacia donde encaminar nuestro esfuerzo, hacia la creación de empresas cooperativas en donde los trabajadores, iniciativa privada y apoyo del gobierno vean aseguradas fuentes de trabajo competitivas a nivel mercado regional e internacional. Fuentes de trabajo que permitan a la población vivir aqui, en su país de origen, y generar riqueza para su gente, su pueblo. Enseñar a los trabajadores que ante la realidad ineludible, de que las empresas no pueden generar los empleos que el país requiere resulta necesario, que el trabajador se autoemplee y no en trabajos tercermundistas como: los carros de tacos, los hotdogs, la venta de tianguis. Sino en verdad fuentes de trabajo con generación de valor agregado, con creación de manufacturas para su venta y beneficio personal y y del propio país.

Un proyecto de está magnitud sin el apoyo de la iniciativa privada y del financiamiento del gobierno sería imposible, máxime si en forma errada se sigue con la convición de que cualquier margen de permisibilidad de la acción del trabajador en la economía, es síntoma de tendencias de izquierda.

Mientras se borran patrones equivocados de restricción a la asociación con el trabajador, el hambre y la pobreza siguen su rumbo ascendente.

ASEBASYT