Academic journal article Economics & Sociology

The Impact of Remittances on Human Development: A Quantitative Analysis and Policy Implications

Academic journal article Economics & Sociology

The Impact of Remittances on Human Development: A Quantitative Analysis and Policy Implications

Article excerpt

ABSTRACT. This paper contributes to the discussions on the nexus between migration and development by assessing the effects of remittances on human development. We do so first through a quantitative approach, and second, by elaborating the findings of our quantitative analysis within a broader theoretical and policy framework. By using OLS, we measure the impact of remittances on human development and compare it with the effect of foreign direct investment (FDI) and official development assistance (ODA). The findings indicate that remittances have a positive correlation with the human development level and are indeed an effective way to enhance human development in countries with medium income, especially in the medium run. We demonstrate that remittances show divergent developmental effects in countries with different government approaches to migration. In the second part of the paper, we discuss different hypotheses about the causes of the problems that our findings reveal and compare different actual policy solutions found in the developing world. We argue that remittances have the most positive effect in terms of boosting human development in the countries where the state perceives migration as an effective labour export strategy.

Keywords: migration studies, human development, effects of remittances, quantitative analysis,

Introduction

The migration - development nexus has been discussed in social sciences from a variety of perspectives. Remittances, the money migrants send home, are the most tangible contribution of migration to home economies (Adams, 2003, p. 4; Skeldon, 2008, p. 3; Taylor et al., 1996, p. 181). The extent to which remittances are crucial catalysts empowering and speeding up human as well as economic development is widely scrutinized (De Haas, 2005; Jennings et al., 2005; Taylor et al., 1996, p. 181). Although perspectives from receiving end of migration dominate migration research1, incorporating perspectives from sending countries into migration research is a theoretical necessity (Nyberg-Sorenson et al., 2002, p. 18). The relationship between migration and national development has been discussed since 1960s; migration was considered a panacea for countries in the phase of development. With increasing number of people moving across international borders in the last two decades, the debate on migration and development has been revisited.

According to the World Bank statistics, in 2007, the amount of remittances in the world was 380 billion USD. This amount by three times exceeds the remittances in 1997 which were then around 119 billion USD (WB, 2009).2 The data also show that two thirds of these inflows were directed to middle income countries and middle human development countries and their share in total amount of remittances has steadily increased in the last decade (see Graph 1). It is striking that for more than a dozen countries including Jamaica, Tajikistan, Philippines, Senegal, Haiti, Liberia, Serbia, Lesotho and Nepal, remittances constitute more than 10 per cent of their GDP (WB, 2009).

The amount of remittances sent by migrants to their households back in the origin states worldwide has increased almost 45 fold and became a second largest source of foreign currency after FDI, which made remittances an pivotal area of attention for international institutions such as the World Bank and the UN (Aggarwal et al., 2006; Ratha & Mohapatra, 2007). Recent studies on remittances have focused on their economic effects for migration sending regions and reached conflicting conclusions (Catrinescu et al., 2009; Chami et al., 2005). Although there is ethnographical evidence on the use of remittances for the enhancement of human capital at the community level (Cox et al., 2003; Goldring, 2003) - to our knowledge - no quantitative study has engaged in the cross-sectional analysis of the effects of remittances on human development.

The question gains relevance within a context where the amount of remittances received by developing countries is rising. …

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