TRACKING THE ECONOMY The Untapped Riches of Remittances?
Andrade-Eekhoff, Katharine
NORTH-TO-SOUTH REMITTANCES DERIVED from international labor migration have become a hot topic in the last few years. As international development aid and foreign investment have dwindled,...
...Working age household members continue to generate income from other activities, although the receipt of remittances may allow them to be a bit more selective about the activities in which they engage...
...As international development aid and foreign investment have dwindled, policymakers have become very interested in leveraging remittance monies for so-called "productive uses...
...Households that depend almost exclusively on remittances normally do not have members capable of participating in productive activities...
...Another common assumption is that remittance-receiving households develop a dependency on this source of income, causing their members to withdraw from economically productive activities...
...They provide start-up capital for those that venture into a small business activity and are used to improve product quality or to expand or diversify inventories...
...Yet the spending structures of households that receive remittances are essentially the same as those that do not: in both cases approximately 80% of all household income is used for "consumption...
...Under their current analysis, remittances are a squandered resource that could be tapped to promote local economic development...
...In other words, their lack of "productivity" is not attributable to their receipt of remittances...
...Rather than pinning their hopes on the misconstrued potential of remittances, policymakers would be wise to take a more global view of migration as one of a broader set of changes affecting local economies, changes that generate both new opportunities and new dilemmas...
...The downside is that in some cases the availability of such funds may promote "inefficiency" by propping up unprofitable businesses...
...Despite these benefits, remittances and migration alone--clear examples of the failure of the local economy to provide viable and attractive employment--can hardly be expected to turn unproductive locales and activities into productive ones...
...For other small business people, remittances ensure some income stability in a volatile market and can facilitate access to credit...
...However, remittances are much more regularly applied to basic needs: for example, to improve living conditions, to garner savings and investment funds, to help ensure children prolong their schooling, or to provide a social safety net for health care emergencies, deaths in the family or recouping after a natural disaster...
...This policy agenda assumes that families who receive these funds presently use them unproductively, unwisely and almost exclusively for consumption--even conspicuous consumption...
...Studies from El Salvador, where an estimated $2 billion a year in remittances accounts for 14% of GDP, challenge these assumptions...
...such households have more elderly members or are likely to be headed by a single parent...
...Approximately 20% of Salvadoran households receive remittances, but in most cases these monies represent only one source of household income...
...While capital is essential, and remittances can and should be seen as a source of capitalization, critical factors such as skills, infrastructure and a propitious macroeconomic environment are also required for sustainable local development...
...Remittances are also applied directly to productive activities...
...Policymakers also frequently contend that remittances skew household consumption patterns...
...Some sorts of remittance spending and "investing" could be considered to constitute conspicuous consumption, even though they conform to the overall dynamics of global consumption, such as the building of multistory houses with luxuries that seem out of place in less affluent social contexts (ceramic or marble floors, satellite dishes, etc...
Vol. 38 • January 2005 • No. 4
