In This Review

Close to Home: The Development Impact of Remittances in Latin America
Close to Home: The Development Impact of Remittances in Latin America
By Pablo Fajnzylber and J. Humberto López
World Bank, 2007, 89 pp
Sending Money Home: Leveraging the Development Impact of Remittances
Sending Money Home: Leveraging the Development Impact of Remittances
By Donald Terry and Gregory Watson
Inter-American Development Bank, 2006, 16 pp

Labor has become Latin America's leading export, and hard-working immigrants remitted over $40 billion to loved ones back home in 2005 -- five times more than all official development assistance combined. To assess the impact of these mounting flows on economic development, the World Bank mobilized its unmatched capacities to gather and analyze large amounts of household and global macroeconomic data. How are the flows affecting poverty and inequality? Do remittances raise investment and growth, or are they mainly directed to consumption? What is the social impact on education, health, and entrepreneurship? And are there adverse consequences for local labor supplies and real exchange rates and, hence, national competitiveness? The overall conclusion of "Close to Home" is that remittances typically have a positive, if generally modest, impact on reducing poverty and inequality but cannot substitute for sound development policies; moreover, effects vary greatly across countries and socioeconomic groups. Among the many fascinating specific findings: children from families reporting remittances are more likely to stay in school, and Guatemalan and Nicaraguan children in recipient households have higher weight-for-age and height- for-age scores.

The Inter-American Development Bank is less circumspect: "Sending Money Home" shouts, "Remittances constitute one of the broadest and most effective poverty alleviation programs in the world." The IDB's Multilateral Investment Fund has worked hard to reduce the costs of sending remittances and proudly reports that money-transfer costs have been reduced by over 50 percent as a result. Still, only 19 percent of senders use a bank or a credit union (up from 8 percent), so that most remittances cannot be put to their optimal use. The IDB's latest survey of remittance senders identifies various creative financial products that, if more readily available, would be attractive to immigrants. For example, immigrants might purchase life or health insurance for their families back home or make direct payments to a university or private school attended by family members. The World Bank study also offers solid recommendations to financial regulators in both sending and recipient countries to enhance the efficiency and purposefulness of remittance flows.