They lift people out of poverty—but their impact could be much more decisive
sent home nearly $800bn, according to data from the World Bank. Around 80% of these remittances were sent to low- and middle-income countries. India received $100bn; Mexico got $60bn. Remittances were the biggest source of capital inflow for low- and middle-income countries in 2022, exceeding foreign direct investment and aid. Their importance is growing. In 2023, global remittances are expected to increase to $815bn. Can that money help drive growth in recipient countries?.
in 1977, described how the inflow of foreign currency into the Netherlands following the discovery of natural-gas deposits pushed up the value of the local currency, making exports less competitive and hurting markets. Remittances could have a similar effect. Estimating the overall effects of remittances on growth, then, is tricky. But according to an analysis of 95 studies published in, a journal, in 2020, on balance they have a small but positive effect on growth. That finding, however, masks significant variation. According to a study published in, another journal, in 2022, a 1% increase in remittances increased real GDP by 0.6% in the Dominican Republic but decreased it by 0.5% in Bosnia and Herzegovina.
Although the impact of remittances on an economy is ambiguous, the effect on poverty is clearer. Remittances allow recipients to spend more on nutritious food or children’s education. Another important benefit is allowing people to build up savings. During the covid-19 pandemic, for instance, remittances provided additional cash that helpedof lockdown-induced slowdowns. Several studies have found that increases in remittances are associated with reductions in poverty.
These effects could be made more powerful yet. For a start, the volume of remittances could increase if countries let in more migrants . And reforms could help remittance recipients keep more of the money their relatives send. According to the World Bank, in 2022 the average cost of sending $200 to low-and middle-income countries was $12, or 6%. For transfers to sub-Saharan Africa, that figure is 8%.
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