Academic journal article Economics & Sociology

The Impact of Foreign Remittances on Poverty Alleviation: Global Evidence

Academic journal article Economics & Sociology

The Impact of Foreign Remittances on Poverty Alleviation: Global Evidence

Article excerpt

(ProQuest: ... denotes formulae omitted.)

Introduction

Most often, poverty is viewed in terms of income. People can be considered to live in poverty when they do not have income and other resources required to fulfill the conditions of life such as diets, material, facilities goods and services; this requirement would have made them to play roles and participate in the relationships and traditions of their society (UNDP, 2006). However, it is believed that income gives an inequitable sketch but does not cover the wider standard of living or human development. Poverty is defined by the World Bank as "encompassing not only material deprivation (measured by an appropriate concept of income or consumption) but also low achievements in education and health" (World Bank, 2000, p. 15; Moser & Ichida, 2001, p. 6). Objectively, poverty alleviation has been the foremost goal of foreign aid inflow. Therefore, foreign aid or assistance on concessional terms is usually transmitted either directly or indirectly through multilateral institutions or private voluntary organizations in order to improve the social and economic development of the developing countries1. Thus, the broad purpose of international aid is to stimulate economic development and poverty alleviation. Initially foreign aid seems to enhance average income in the aid receiving country and then plays role in poverty mitigation (Alvi & Senbeta, 2012). Sachs and McArthur (2001) demonstrated that the targeted aid can help largely to eliminate poverty in developing countries. In a similar study, Connors (2012) points out that the fundamental objectives of foreign aid are to mitigate poverty; these objectives include encouraging economic growth, boosting institutional reform, and decreasing poverty in the developing world. Riddell (2014) provides reasons for providing aid by arguing that foreign aid offered in principle, directly or indirectly will facilitate the improvement of the lives of those people who really need it.

Regarding the effectiveness of foreign aid, the literature reveals that it does its "work". For example, Arndt et al. (2011) suggest that foreign aid remains an important tool for augmenting the development prospects of poor countries. In a study of the long-term effect of Swedish aid on poverty reduction in three Asian countries, it is concluded that aid has been playing a positive role in Laos and Vietnam, but the results are inconclusive in the case of Sri Lanka (McGillivray et al., 2012). ITAD (2013) reports that the recent sharp decrease in poverty is due to the contribution made by foreign aid funds in Tanzania. The study of Alvi and Senbeta (2012) though shows that foreign aid inflows result in poverty alleviation, however, it does not appear to contribute to economic growth. In a study, Adamu (2013) indicates that foreign aid contributes to economic growth and development through the provision of capital and transfer of technology which boost good governance and practices. In a recent study, Riddell (2014) concludes that in several countries foreign aid has made vital contributions to development and poverty mitigation.

Albeit, the most pervasive ambition of donors' foreign aid programs is to largely eliminate poverty in the developing world. In 2013 the statistical data on development aid reveals that it increases by 6.1% in real terms to reach the maximum level ever documented; the donors offer almost US$ 134.8 billion (£80.3 billion) in net ODA and US$128 billion in 2012 (OECD, 2014). The World Bank (2014) shows that "our dream is a world free of poverty" and to do progressive work in more than 145 client countries that endeavor to mitigate extreme poverty and encourage communal prosperity. The report maintains that in the developing world, almost 21 percent of people live at or below US$ 1.25 a day, while the estimates are 43 percent and 52 percent in 1990 and 1981, respectively. The data reveals that almost a total of 1. …

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