Remittances represent the movement of hundreds of millions of dollars across international borders annually. Recognized by financial analysts worldwide as an economic force, remittances have a sizable impact on the global economy in multiple ways. The inflows of remittances contribute to national GDP, economic growth, living standards and lifestyle changes in several countries. The magnitude of remittances is significant enough in some nations to influence monetary policy and trade agreements. A sizable chunk of these international money transfers is facilitated by a number of small but specialized service providers rather than big banks, thereby generating additional employment opportunities. The following sections outline the major areas of impact.
A 2017 report by the United Nations Department for Economic and Social Affairs (UNDESA) placed the worldwide number of international migrants at 258 million. That the migration was predominantly motivated by economic factors was proven by the fact that “Three-quarters of the migration was to high-income countries”. Moreover, the UNDESA report stated that “The share of international migrants among the population (in high income countries) increased to 14 percent”. Therefore remittances are the primary driving force for international migration worldwide. The migration in turn has other long term and far reaching social and cultural impacts.
Remittance flows to low- and middle-income countries (LMICs) increased by an estimated 8.5 percent in 2017, to reach $466 billion (UNDESA 2018). This was a new record. In some countries remittances comprised a large percentage of the national GDP. Case in point is a small Central Asian nation called the Kyrgyz Republic, which in 2017 earned 35% of its national GDP through remittances. It has been reported that in several small nations remittances routinely exceed the collective private capital inflows and official development aid. In recognition of these facts several countries have formulated comprehensive policies aimed to facilitate emigration and ease international money transfers. Mexico, Bangladesh and the Philippines feature in the list of such countries.
Remittances comprise the primary source of income for millions of families worldwide. In many developing nations the opportunities for local employment remain limited and the rate of domestic economic growth is low. Consequently wages in many local pockets in these LMICs remain much smaller than the minimum wage in most developed nations. Without remittances multitudes of children in developing nations would be forced to forego schooling. Such children are at the risk of ending up working as child laborers in appalling conditions for exploitative employers and meager wages. International remittances go a long way to ensure that these millions can afford a basic quality of life including housing, healthcare, nutrition and basic education. In this way remittances contribute to the prevention of exploitation, alleviation of poverty and the development of human capital. At the same time the positive economic consequences of job related migration on such massive scales are not without some local side effects.
Due to the increasing value of worldwide remittances in both absolute and per capita terms the masses in many LMICs have recognized emigration for employment as a viable career path. Education and the acquisition of marketable professional skills is becoming better oriented to the export of skills for both the white and the blue collar industry sectors. Employers can choose to hire from a pool of better skilled foreign workers. As a result the international labor market is steadily moving toward a higher value paradigm.
Cultural and social impacts
Foreign workers inevitably imbibe and bring a host of ideas, practices and skills back home. Having lived and worked in developed nations for years, expat workers yearn for the same quality of life upon their return. They often try to find ways to replicate similar standards of education, healthcare and security for their families in their home countries. With exposure to advanced technologies and a wealth of knowledge about how businesses are run in developed nations, returning expats also have a much higher propensity for entrepreneurship than non expats. This tendency toward entrepreneurship among expats and its economic impacts have been studied and documented in several parts of Africa and other places.