Dollars Without Borders

Can the Global Flow of Remittances Survive the Crisis?

Between 2003 and 2008, on the back of a growing world economy, remittances more than doubled, reaching as much as $330 billion in 2008. Now, with the world's largest economies in steep decline, many fear that the flow of remittances will also take a hit, threatening the millions who depend on funds sent by relatives and friends working abroad to meet basic needs.

In fact, remittances are proving to be one of the more resilient pieces of the global economy in the downturn, and will likely play a large role in the economic development and recovery of many poor countries. Remittances provide the most tangible link between migration and development, a relationship that has only increased in importance since the crash. To ensure that these funds can move efficiently and easily around the globe, governments of rich and poor countries should attempt to make remittances as accessible and cheap as possible.

In the economic boom years of the last decade, the amount of remittances to developing countries grew to several times the size of official development aid. For many states, remittances are now the largest and least volatile source of foreign exchange, and for some countries -- such as Lesotho, Moldova, Tajikistan, and Tonga -- they exceed one-third of national income. Meanwhile, in many countries such as El Salvador and Nepal they help anchor the value of the national currency by bringing in the foreign currency required for financing imports and foreign debt. More locally, remittances provide funds for education and health expenses as well as capital for small businesses. In Sri Lanka, for example, the birth weight of children in remittance-recipient households is higher than that of children in other households.

Lant Pritchett, an economist at Harvard University, recently estimated that allowing 3,000 additional Bangladeshi workers into the United States would generate greater income gains than the annual income contribution of Grameen, the pioneering microfinance bank, to Bangladesh. Although private remittances cannot take the place of official aid efforts, this does suggest that an increase in remittance flows could be an effective way to continue development efforts in the face of shrinking national budgets.

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