Remittances

Geographic explosion of Remittances

Prior to the 1970s, relatively little remittance income flowed among nations. Since that time, remittance transfers have increased dramatically in volume. Between 2000 and 2007, global remittance flows more than doubled, from $132 billion to $337 billion (Figure 1). The developing world alone received $251 billion in 2007. To put these numbers into perspective, Ireland's gross domestic product (GDP) was $255 billion in 2007. Perhaps more important, remittances represent substantial contributions to overall GDP for many developing world economies. In 2006, remittances constituted more than 10% of the GDPs of 24 poorer nations.

Most world regions have received substantial remittance income. Latin America and the Caribbean received the plurality of remittance income ($61 billion), closely followed by East Asia, with Europe and South Asia not far behind, in 2007 (Figure 2). On a per-country basis, India, China, and Mexico each received over $25 billion in remittances in 2007 (International Monetary Fund, 2008). Lamentably, the area most in need of international assistance, sub-Saharan Africa, received only $11.7 billion in remittance transfers in 2007.

Remittance Uses

The use of remittances is widely variable and highly dependent on the economic status of the [Page 2413]recipient household. Poorer households, especially those that practice subsistence agriculture, often use remittances for family maintenance, including diet diversification through the purchase of food grown off their farms. They are more apt to purchase medicines, improve the condition of their homes, and allow their children to spend more time in school. At times, when a household's primary breadwinner is away, remittances are used to contract agricultural workers to tend a household's land.

Figure 2 Regional remittance inflows 2007

Source: International Monetary Fund. (2008). Balance of payment statistics yearbook. Washington, DC: Author.

More economically stable remittance-receiving households have been criticized for the disproportionate use of remittances to increase their conspicuous consumption. It is common to encounter multilevel “trophy” homes in communities that receive large volumes of remittances. Other nonessential items purchased with remittances include packaged food, electronics, and high-end clothes and automobiles. There is also a strong expectation in many villages that migrants will host large celebrations on their return.

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