Leveraging Remittances for Development

This report explores the increasing significance of remittances and their impact on development. Through analysis of remittance flow trends, the author identifies features of remittances that make them ideal leveraging agents for poverty reduction and migration management agendas. Remittances, when compared to private capital flows, tend to show more even distribution across developing countries, and greater stability or even counter-cyclical patterns relative to the recipient economy. Unlike official aid flows, they do not suffer from governance issues.

The author links remittances to increased household investments in education, entrepreneurship, and health; and suggests that they not only directly augment the income of recipient households but also reduce poverty through such indirect multiplier effects.

However, the report cautions governments against relying on remittances as a substitute to official aid, as efforts to tax and channel remittances to specific development are likely to hurt recipients and force remittance flows underground to informal channels. Instead, he recommends provisions that indirectly leverage these flows by making remittance services cheaper and more convenient, in conjunction with efforts to improve the overall investment climate in origin countries. He proposes a four-part international remittances agenda which includes: (1) monitoring and analyzing the nature and impact of remittance flows; (2) developing new retail payment platforms and regulated remittance transaction systems; (3) offering remittance-linked savings, investment, loan, and insurance products through financial institutions; and (4) leveraging remittances to enhance developing countries’ access to international capital markets.