The final blog in this three-part series by Aidan Craney, PhD candidate at La Trobe University, focuses on remittances and labour migration as a means of poverty reduction. 

16 April 2015

What if the most effective way to get money into the hands of the poor and to raise people out of poverty in less-developed states had nothing to do with aid whatsoever?

There is solid evidence that remittances are amongst the largest and most cost-effective methods of income distribution to people in less-developed countries.

In 2012, remittances to the less-developed world totalled $401 billion, according to Clemens and Ogden. This figure dwarves the net disbursements of the World Bank of the same year, at $14.8 billion.

Whilst Free Trade is often criticised as neglecting the poor and furthering income inequality, there are strong arguments to be made for relaxing trade and employment barriers for people of the less-developed world. Changes could apply across the spectrum to encourage skilled migrants and unskilled migrants alike.

A growing literature supports the notion that skilled migrants benefit both origin and destination countries. As opposed to the long-feared brain drain, skilled migrants are now believed to provide positive feedback to the origin country through remittances, increased skills learned abroad being practiced upon return and increased business and trade networks.

Meanwhile New Zealand’s Recognised Seasonal Employer programme has demonstrated positive effects for unskilled migrants. The programme accepts workers from Pacific islands on seasonal contracts to cover labour deficits in the horticulture and viticulture industries and studies evidence that participating households in the origin countries experience a per capita income rise of 30%.

Recognising the size and potential impact of remittances, donor states and multilaterals could look to involved themselves as medium of remittances. With intermediaries currently taking a 9% cut, on average, of remittances, there is massive scope for agencies to involve themselves, cutting commissions and seeing more of the remitted money finding its way into the hands of the intended beneficiaries.

As we know, however, there is no silver bullet to the problems of development and remittances and labour migration are not without their issues. And with recent moves to limit who can provide remittances, based on fears that terrorist groups incorporate remittance transfers into their financial plans, remittances have become not simply more difficult to send, but also more expensive. And this is without even entering the dark territory of shady banking practices on international money transfers.

With as many as 700 million people globally reliant on remittances, this is a situation which needs rectifying sooner rather than later. A potential solution lying in mobile-money-transfer technologies, which may render traditional remittance agencies redundant, though this appears a long way off.

If opening barriers and streamlining remittances can provide the global poor with better access to finances, which we’ve seen are best used when granted without conditions, then the involvement of donor states and multinationals in breaking immigration and financial barriers and strengthening remittance safeguards seems a no-brainer.

Postscript

Thanks for engaging with this blog series. I hope you’ve found it more stimulating than the endless re-runs of Big Bang Theory.

I find the ideas discussed within interesting, but am in no giddy state of naivete to believe these ideas are without problems.

Henrich’s ideas speak for themselves about the need not to brand anything as all-encompassing or reliable. Blattman, himself, discusses the pitfalls of relying on cash transfers as a silver bullet for development (he even wrote piece for the New York Times that brings the issue from global to local).

Regarding remittances, it’s important not to overlook that the cost of sending a family member overseas immediately restricts the poorest of the poor from access to such an investment. Then there are issues of gender disparity, including who is likely to be provided the opportunities for migration and up-skilling, as well as the potential negative impacts of a shift in household power when a husband or father leaves for a prolonged period. Certainly not finally, but also of significance, is the risk of creating a new form of dependency and clientelism between origin and destination countries, exacerbating current debates about income inequality.

As with all things development, though, let’s not get too caught up in the size of the problems and instead work on ways to address them.

@AidanSeamus