The Very Uneasy Case Against Remittances: An Ex Ante Perspective

Abstract:     
Money that individual migrants send back to their home countries has become a major source of foreign exchange for many developing and emerging economies. These remittances now represent a sizable percentage of the gross domestic product for many states; for some, remittance inflows are larger than all other sources of foreign capital. In recent years, scholars, policy makers, and international financial institutions have tended to view remittance inflows as a net benefit for recipient countries. Given the size of these transfers in the aggregate and their relationship to labor migration, it is essential for policy makers and scholars to continue to critically assess the effects of remittances and remittance policies on workers, the states that receive these remittances, and the states from which these remittances are sent.

This Article argues that the existing literature on remittances almost universally underestimates the overall costs and negative effects of remittances and remittance-driven migration by failing to include various costs and harms borne by migrating workers and their families. If these costs were included in efforts to measure the overall impact of remittance flows, it is at least possible that remittances and remittance-driven migration would represent a net loss for some states and their citizens. If the overall impact of remittances is not positive for any particular state, then policy makers in that state may want to consider adopting policies to reduce or limit remittance-driven migration. They might, for example, avoid or scale back managed labor-migration programs. Depending on the particular circumstances of their state, they might also consider policies that reduce workers’ incentives to migrate for the purpose of earning money to remit home, including taxation of remittance flows, currency exchange controls, or liberalization of exchange rate policies. At the very least, if states’ current policies affecting capital inflows are based on a comfortable assumption that remittance inflows are broadly beneficial, this assumption should be reexamined to explicitly account for the costs and harms borne by workers and their families.

Number of Pages in PDF File: 28

Keywords: remittances, labor migration, migration, exchange rate, currency controls

JEL Classification: D10, E21, E51, E61, F22, F31, J21, J61, J68

Accepted Paper Series