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African migrants and remittances

Interview with Giorgia Giovannetti (University of Florence) about African migration and remittances.
What is really striking about Africa is the growth of remittances. Because the remittances in-flows to Africa have grown really, really rapidly– especially in the last decade– and they’ve become the largest source of foreign influence after foreign direct investment. So it’s really a lot of money. It has overcome the aid, for instance, from donors. If you look at the recorded remittances between 2000 and 2010, they increased by 300%. So the total amount of these remittances in 2010 was about $40 billion. And this is about 2.6% of the GDP– of the African GDP for 2010. So it’s a really, really big amount.
And not only that, but also Africans seem to remit twice as much on average than migrants from other developing countries. So the impact of remittances on education, on health, is really important for growth in Africa.
Well, there are obviously many different models that explain migration, and there are many different models that explain remittances. And there are some models that put together migration and remittances in the same theoretical framework. In both cases, you can have two different approaches. One is a micro approach that highlights the microeconomic aspect, such as the decision of the individual on what are the elements that trigger the decision of the individuals. And the other one is a macro approach that look more at the consequences, for instance, on growth.
Now, if you want to think instead of remittances, I think that the best– there is a really good paper by Docquier and Rapoport of 2005 that surveys all or almost all the models that had been developed until then. Now, again, there’s one that I find it more suitable. And the one that I found best is the one that accounts for trade and the impact of remittances. But that also looks at the endogenous growth framework to highlight the potential that remittances have for growth in the long term.
One thing which is important is also to dig a little into remittances between the micro and macro impact of remittances. If you think about the micro impact, the primary economic benefit of migration is that the receipt of remittances has reduced poverty, basically; increased the access to health and education services; increased the household investment. And this is a very important aspect, especially if you can channel the investment towards education. But also it is an insurance against adverse shock. So these three are the aspects as far as the micro side is concerned. On the macro aspect, remittances are a very important component of the balance of payment in a down turn.
Now, contrary to most other private and public flows– and what I mean by other private and public flows, I mean private aid, public aid, the donors’ role, and also foreign direct investment– remittances behave counter-cyclicaly. And there’s a very large literature that provides evidence of a rise in remittances during several financial crises– Mexico ‘95, Indonesia and Thailand in ‘98. But also now with the, let’s say, global financial crisis we have had in 2008. But also, it’s important in the aftermath of macro shocks, which are due to natural disasters and political conflicts. So this is particularly crucial for Africa.

Interview with Giorgia Giovannetti, University of Florence, Italy.

We asked Giorgia the following questions:

Question no.1: Why are remittances important for Africa?

Question no.2: What are the economic theories that explain migration and remittances?

Question no.3: How do these theories apply to remittances in Africa?

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