Economics

The Power of Remittances

Bob Hindle

19th October 2014

In this TED talk, Dilip Ratha, of the Migration and Remittances Unit at the World Bank, sets out simply both the size of remittances and the economic impact on the countries that receive them.

The world has 232 million migrant workers and 180 million of these send some of the money they earn back to their country of origin. Total remittances for 2013 were over 3 times the size of the sum spent on development aid, totalling $413bn and exceeded global FDI flows by some distance.

Research by the Bank shows that families who receive these remittances contain fewer under-weight babies and also have a lower school drop out rate. The latter is a real issue in countries such as India, where research by Teach for India shows only 58% of students complete their primary education and only 10% stay on after the age of 16. India is the largest recipient of inflows of this type, with over 14 million people worldwide who were born in India living outside the country.

Dilip Ratha's Migration and Development brief for the World Bank looks in some detail at the construct of world remittances, noting that those from oil and gas producing countries, such as Russia and the Middle East, tend to move with their respective prices.

Exchange rates and the cost of sending remittances are also key determinants.

The latter can be as high as 20% of the initial sum in West Africa and is over 90% in Venezuela. It has the unintended consequence of encouraging money laundering, the external costs of which are then covered by hiking the cost of remitting.

Given strains on overseas aid budgets and the likely world slowdown in FDI as growth stutters, easing the transaction costs of remittances could be an ‘easy win’ to boost GDP in some of the world’s poorest countries

Dilip Ratha also calls for the use of 'remittance bonds', where migrants money is pooled to hep fund larger scale development projects such as infrastructure and schooling.

Bob Hindle

Economics teacher,examiner and lecturer with several years experience at A/AS, IB and IGCSE. Key interests are in the economics of India and raising social mobility through education.

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