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The Role of Remittances as More Efficient Tool of Development Aid in Developing Countries

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  • Robert Stojanov
  • Wadim Strielkowski

Abstract

This paper examines the effectiveness of remittances and official development assistance (ODA) in developing countries. It compares the outcomes of aid poured into the economies of the Third World for decades without any visible effect and remittances transferred by emigrants to their countries of origin which proved to be quite effective. We find that remittances have a stronger net positive effect on the increase of GDP per capita in developing economies than development aid. In addition, remittances tend to be higher than ODA funds, they are absorbed by 80-90 per cent (in comparison with 50 per cent of aid budgets spent on administrative and other costs) and do not hinge on institutional quality. The paper advocates the importance of remittances over ODA and supports the wide usage of coherent development policies executed by the developed Western economies with an aim to enhance transparent and efficient remittance transfers as one of the best methods to promote development in less-developed countries (e.g. economies in Africa, Asia or Latin America).

Suggested Citation

  • Robert Stojanov & Wadim Strielkowski, 2013. "The Role of Remittances as More Efficient Tool of Development Aid in Developing Countries," Prague Economic Papers, Prague University of Economics and Business, vol. 2013(4), pages 487-503.
    • Handle: RePEc:prg:jnlpep:v:2013:y:2013:i:4:id:464:p:487-503
    DOI: 10.18267/j.pep.464
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    Cited by:

    1. Muhammad Zahid Naeem & Shama Arzu, 2017. "The Role of Remittances on Human Development: Evidence from Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 6(2), pages 74-91, June.
    2. Chan Bibi & Amjad Ali, 2021. "Do Remittances Impact Human Development in Developing Countries? A Panel Analysis of Selected Countries," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 7(2), pages 27-42, June.
    3. Marko Gregl Klavdij Logožar, 2017. "The Impact of Development Aid on the International Migrations in the African, Caribbean, and Pacific Group of States," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 20(1), pages 101-112, May.
    4. Ingrid-Mihaela Dragotă & Cosmin Octavian Cepoi & Lavinia Ştefan, 2023. "Threshold effect for the life insurance industry: evidence from OECD countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 48(4), pages 799-820, October.

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    More about this item

    Keywords

    developing countries; international migration; official development aid; remittances;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa
    • P45 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - International Linkages

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