REMITTANCES AND GROWTH

Migration study usually covers the movement of people and resources among different regions. It is concerned with globalization and the impact of these movements on economic growth and development. Migration (forced or voluntary) has and would continue to play an important role on the pattern of development experienced in most regions of the world. From the Forced migration of Africans to the ‘New World’ during the era of slave trade to the voluntary migration of individuals to greener pastures in recent time, one common factor is human capital which drives economic sustainability, self-sufficiency and growth. The role of human capital as it relates to growth will never be over stated. Robert Solow (1956) postulated that; for growth in the short term, investment in physical capital was sufficient but that to ensure long term growth, technological advancement was necessary. However, it should be noted that human capital drives both short and long term growth. Human capital formation in the necessary areas drives physical capital accumulation in the short run and technological advancement on the long run.

While, migration has cultural and socio-economic implications on the society, remittances are perhaps the most tangible and least controversial link between migration and development. According to the official estimates, migrants from developing countries sent about $431.6 billion to their countries of origin in 2015, three times the size of official development assistance to such countries. The past few years has witnessed remarkable interest in issues of how remittances affect economic growth by policy makers as well as scholars. This has resulted in a shift from pessimistic to optimistic views on these issues, characterized by increasing research particularly on international labor migration as well as a growing number of research and teaching centers that focus entirely on migration.

There has been a growing debate on what drives remittances and how the often voluminous migrant remittances are used and their contribution to the development of the migrant’s country of origin. This issue was included in the G8 meeting agenda of 2004 and in the spring meeting of the World Bank in 2005, emphasizing the increasing importance of migration and the associated migrant’s remittances. Remittances have been argued to have indirect relationships with Gross Domestic Product (GDP) as migrant workers are expected to increase their support for family members during periods of fall in economic activities back home to help them in compensating for the reduction or loss of family income due to unemployment or other crisis-induced reasons.

In most economic literature, four motives have been identified for making remittances; the altruistic motive, the motive for self-interest, motive for co-insurance and the motive for loan repayment. Altruistic motives views remittance as a way of showing commitment to family members left behind. The underlying concept of this motive is to satisfy the consumption need and increase welfare of the recipients of such remittances. Thus, an increase in remittances is expected to cause increase in household welfare and consumption. The motive of self-interest holds that economic and financial interest are the main motives for sending remittances to the recipient. Migrants save and send money that can be invested and therefore positively affect the productivity and welfare of the entire economy. Therefore, it is expected that an increase in remittances would cause investment to increase in the receiving economy. The motives for co-insurance and loan repayment views remittances as a means of repaying previous loan or debt incurred during training of the migrant or cost of migration. It is expected that higher remittances increases the opportunity to fulfill obligations.

Remittances can serve as a stable source of foreign exchange that eases the foreign exchange constraints and help finance external debts. It can also serve as a source of household savings for investment that can be channeled towards capital formation, development and income redistribution through job creation. At household level, it also has the potential to increase standard of living, human capital formation and reduce poverty. However, it could result in reduced pressure on the government to implement structural reforms since citizens live under the illusion of a rise in standard of living. If households expect remittance flow to continue into the unforeseen future, then they would have to reduce savings and this would have negative impacts on growth and development. It can also reduce labor contribution to growth as people would tend to cut back their work hours because their remuneration is augmented by this windfall gain. The need to send remittances and reduce poverty may result in brain drain since more people would want to leave in search of greener pastures, this would reduce the number of professionals available to facilitate economic growth and development.

Understanding how remittances cause a reduction in savings of recipient families thereby negatively affecting growth may seem difficult. However, if people consider that remittances flow will continue for the foreseeable future, then according to the permanent income hypothesis, they tend to increase current spending and consumption by cutting back their saving. As a result, in the long run the outcome turns out to be negative rather than positive for the development of most economy.

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