Remittances

Remittances offer a range of benefits, both to individual recipients and to the migrant worker’s home country. For a migrant’s family members, remittances enable them to acquire furnishings and appliances that improve their standard of living. These funds can also provide the capital needed to launch new business ventures, further stabilizing their household finances while empowering them to accumulate greater wealth. By improving the lives of individuals, remittances also exert a broader positive effect on the migrant’s home country as a whole. In addition to spurring economic activity, remittance funds can also serve as collateral, enabling a government to negotiate lower interest rates on loans and thereby strengthen its long-term debt status.

While remittances provide clear economic advantages, they sometimes come at a price. Fees associated with global money transfers are generally unregulated and can take a significant additional bite out of migrant workers’ wages. Market forces, such as inflation or slowdowns in hiring, can also impact the value of remittance transfers over time. Further, there is an underlying social cost tied to the remittance system, as migrant workers must remain separated from their families – often for many years – in order to maximize their earnings from foreign employment.

In many cases, remittances account for a substantial portion of a nation’s gross domestic product (GDP). In 2023, for example, remittances represented nearly one-half (48%) of the GDP of Tajikistan. During times of crisis, these figures can rise even higher. In 2006, amidst ongoing civil conflict in Somalia, remittances accounted for 70% of the country’s GDP.

During the 2010s, remittances surpassed all other forms of economic aid – including foreign direct investment (FDI) and Official Direct Assistance (ODA) – as the single-largest source of funds entering LMICs. Between 2015 and 2023, the dollar amount of remittance funds that flowed into these nations rose from USD 447 billion to USD 639 billion, an increase of 43%. A system of giving shaped by globalization and mass migration, remittances play a vital role in boosting the economic potential of LMICs.

Contributor: Stephen Meyer