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Migration and development: the role of remittances

This article considers the importance of remittances for development in sending countries, particularly in Africa.
© European University Institute

A remittance is the transfer of money by a foreign worker to another individual, usually a family member, living in the country of origin. Remittances are not simply an aftereffect of international labour migration but are also an integral part of economic development in numerous countries across the Global South.

The continent that receives the largest share of global remittances is Asia. However, as Giorgia Giovannetti explains in her expert interview, remittances have become an increasingly important source of revenue in Africa. For example, in the case of the southern African state of Lesotho – where a large proportion of the young adult population migrates to South Africa to work in commercial agriculture, mines and domestic work – remittances account for over 25% of the nation’s GDP

In 2010 about 30 million Africans emigrated internationally. Over the last 30 years, African migrants in the world have more than doubled. Despite the recent increase, in 2010 African migrants represented only 17 per cent of the total population of migrants from the developing world and only three per cent of Africa’s total population. Moreover, roughly half of African migrants actually remain on the African continent.

Nevertheless, remittances have massively increased. Between 2000 and 2008 remittances to the top five receiving African countries rose by 406%, compared to just a 333% rise in Asia and a 239% rise in South America.

The impact of remittances need to be understood at both the microeconomic and macroeconomic level.

At the micro-economic level, remittances help reduce the immediate level of poverty for a family or local community in the origin country. They can raise access to health and education services, and can increase household investment, for instance in a small business such as a shop.

From a macroeconomic perspective, remittances constitute a particularly valuable component of the balance of payment in economic downturns. In Africa they are particularly important in smoothing consumption and contributing to the stability of the economies because they can compensate for foreign exchange losses during macroeconomic shocks, for instance droughts or armed conflicts.

Institutions, especially national governments, can play a pivotal role in maximising the benefits of migration for a sending country. This crucially involves establishing policy frameworks that actively enhance the impact of remittances upon social and economic development. Proactive policies can include improving the efficiency of money transfer systems and reducing the costs of transaction.

© European University Institute
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