The Impact of Remittances on Economic Growth and Poverty Reduction

o-ECONOMIC-GROWTH-facebookMigrants remit money to their homeland. It is a key instrument to decrease the scale and harshness of poverty across the globe. Other than monetary benefits, remittances relate to better human development outcomes covering various areas such as health, education, and gender equality. The revenue is a source of income for the poor.

Some of the expenditures and investments made by remittances receiving households accrue to the entire society. Remittances are countercyclical, unlike other monetary flows. For several nations, remittances surpass the official international aid. The flow of foreign exchange from migrants into the home nation enhances its creditworthiness and could enable them to receive positive terms of debt service since lenders recognize a lower risk of default.

Migration could have both positive and negative economic, social and cultural indications for the homeland. Financial stakeholders must devise strategies to reduce cost and enhance benefits, thereby maximizing the positive impact of remittances. Intense competition among institutions delivering money transfer services has resulted in decreasing the costs in high-volume remittance corridors.

Other than cost reduction, measures must be initiated to ensure the recipients of funds can access other financial services such as microfinance. This would significantly bolster development outcomes. The technology for connecting remittances to the programs exists. Policy makers must establish incentives/mechanisms for the investment of remittances.

It is not easy to emphasize the magnitude of remittance flows to developing nations. One negative opinion about remittance income is that it is not viable since recipients spend the money on consumption. However, the facts are different. Families spend income disproportionately on human capital building functions in comparison to other forms of income.

According to research, remittances in the household also result in positive health benefits. Migrants also influence health practices such as safe drinking water, improved sanitation. Migration has also had a positive effect on the educational standards.

Statistical evidence confirms that households receiving remittances are financially doing better across various dimensions than households not receiving them. Remittances are countercyclical financial flows; the flow of money enhances when financial markets decline.

Remittances have moved upwards during depressions, natural disasters since migrants send more money from overseas. Migration and the remittances flow it creates should not be looked at as a replacement for official development aid. Official funds are critical for resolving the unmet requirements of the vulnerable population.

Remittance income that eliminates poverty would indirectly contribute to economic growth. Remittance income enables households to engage in high risk, but profitable economic functions. On the other hand, from a macro perspective, the benefit from the remittance is closely related to the robustness of regional institutions and macroeconomic scenario.

Cash flows in the future can be used as collateral by governments and private sector units in developing nations to secure funds in global capital markets. As per some research, remittances could have a negative effect on currency valuation and labor market contribution.

The stakeholders concerned with remittances can augment the impact of remittance flows by ensuring they are cost effective, safer and extremely productive both for the migrants and nations receiving it.

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