How do remittances benefit social growth?

What remittances mean for families

But first - what do remittances mean for the families who receive them? On a small scale, we can certainly identify the immediate effect when we see what money is being sent for. In a recent survey we conducted with some of our customers, some of the main reasons people sent remittances home included:

• Daily expenses

• Medical expenses

• Education

• Gifts

• Rent/mortgage payments

• Utilities payments

A report by Oxford Economics (The remittance effect: A lifeline for developing economies through the pandemic and into recovery, 2021) highlights some of the key ways that remittances help households specifically, and complements our findings above.

Remittances provide additional income and help with essential purchases, which go some way to helping reduce the rate of extreme poverty. This means they also act as a kind of “social insurance” by making households more economically stable - if a country’s economy begins to suffer, the flow of remittances can aid families in being less susceptible to the effects.

For longer term stability, these remittances can also go towards investments like healthcare, education, and property.

In short, remittances are beneficial for families both in the short- and long-term. When they’re sent for the immediate necessities like food and utilities, they’re a lifeline for many families, and when they go towards property or education, they contribute towards improving quality of life for years to come.

According to UNESCO (2019), international remittances have, on average, increased education spending by 35% across Asia and sub-Saharan Africa, and by 53% in Latin America.

Remittances, economies, and country development

So we’ve covered the smaller scale impact that remittances have, but what about the larger effect they have on the countries they’re sent to?

In general, the impact of remittances is much greater in those countries with smaller economies. Oxford Economics shows that the top three countries that receive the most money from remittances are India, China, and Mexico. But, the countries where remittances make up the highest percentage of total gross domestic product (GDP) are Tonga, Haiti, and Lebanon.

But is a high percentage a good thing? Surely you may think the answer is a resounding “yes!”, but let’s take a look at the pros and cons together.

This ratio means that money for basic living costs wouldn’t normally be available to people in their country without the help of money sent from abroad. A 2014 study of 77 developing countries showed that there is a correlation between remittances and a reduction in poverty; a 10% increase in remittance flows reduced the poverty ratio by 3%.

Over time, money from remittances sent to developing countries will find its way into the economy, whether it’s spent on short-term needs like food or long-term investments like property, which ultimately helps in strengthening the financial stability of a country.

On the other hand, a high percentage of GDP coming from remittances does mean that these countries become highly reliant on remittances. This makes them vulnerable if anything causes the flow of remittances to slow or even stop. It may also affect the workforces if a high number of citizens look to migrate abroad. This loss of workers has the potential to slow the economic and infrastructure growth of a country.

In time, as economies grow, countries with a high remittance flow can become less reliant on them, as has been the case in Nigeria.

In short, there isn’t a definitive answer as to whether a high percentage of GDP coming from remittances is a good or bad thing; either way, money that gets sent for long- or short-term purposes benefits both its recipients and the country in which it gets spent.

The “multiplier effect”

We’ve covered the more immediate effects of remittances and the long-term ways they aid economic growth - now it’s time for some numbers.

The remittance multiplier effect refers to how quickly or slowly money contributes to the economy of the country it’s sent to. On average, according to the Oxford Economics study previously mentioned, the “multiplier effect” is placed at 0.4. Alone, this figure may not mean much at all but essentially what it means is that for every USD $1 sent, there is an increase of around USD $0.40 in the final GDP.

So, no matter how much money you send home to your loved ones, you’re providing some vital support to the economy of the country they’re in. Whether you send for education, utilities, or just for a little extra treat, WorldRemit is here to help. Send money home through our app or on our website and see your contribution support so many people back home.

Source: The remittance effect: A lifeline for developing economies through the pandemic and into recovery, Oxford Economics, 2021