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Efficient remittance services for development in the Pacific

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Author Info

  • John Gibson

    ()
    (Department of Economics, University of Waikato, New Zealand)

  • Geua Boe-Gibson

    (Department of Economics, University of Waikato, New Zealand)

  • Halahingano Rohorua

    (Department of Economics, University of Waikato, New Zealand)

  • David McKenzie

    (Finance and Private Sector Development Unit, Development Research Group, World Bank)

Abstract

Capital inflows to the Pacific islands from aid, foreign investment and remittances are an important source of development finance. Remittances are the fastest growing; they now total US$ 400 million per year and can be expected to grow even further as labour mobility is used to deal with seasonal labour shortages in Australia and New Zealand and limited job opportunities in the Pacific. The transaction costs of sending remittances to the Pacific islands are very high for the most widely used methods. This paper examines the New Zealand- Tonga remittance corridor, where typical transactions involve costs in the order of 15 to 20 per cent for bank drafts and transfers through money transfer companies such as Western Union. Cheaper transfer methods using automated teller machines (ATMs) are feasible and have transaction costs of less than 5 per cent but are not widely used. This spread of 10 percentage points between the most popular and the cheapest remittance methods means a potential loss for Tonga of the equivalent of 4 per cent of GDP. Extrapolating from this remittance corridor to the rest of the Pacific, avoidable transaction costs may total US$ 40 million per year. Hypotheses about the continued reliance on high transaction cost methods are examined and implications for development policy are discussed.

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Bibliographic Info

Article provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its journal Asia-Pacific Development Journal.

Volume (Year): 14 (2007)
Issue (Month): 2 (December)
Pages: 55-74

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Handle: RePEc:unt:jnapdj:v:14:y:2007:i:2:p:55-74

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Related research

Keywords: remittances; financial access; transactions costs;

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References

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  1. David McKenzie & John Gibson & Steven Stillman, 2007. "Moving to opportunity, leaving behind what? Evaluating the initial effects of a migration policy on incomes and poverty in source areas," New Zealand Economic Papers, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(2), pages 197-223.
  2. John Gibson & David McKenzie & Halahingano Rohorua, 2006. "How Cost Elastic are Remittances? Estimates from Tongan Migrants in New Zealand," Working Papers in Economics, University of Waikato, Department of Economics 06/02, University of Waikato, Department of Economics.
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Citations

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Cited by:
  1. Gibson, John & McKenzie, David & Zia, Bilal, 2012. "The impact of financial literacy training for migrants," Policy Research Working Paper Series 6073, The World Bank.
  2. Gibson, John & McKenzie, David, 2007. "Using the global positioning system in household surveys for better economics and better policy," Policy Research Working Paper Series 4195, The World Bank.
  3. Karunarathne, Wasana & Gibson, John, 2014. "Financial literacy and remittance behavior of skilled and unskilled immigrant groups in Australia," Journal of Asian Economics, Elsevier, Elsevier, vol. 30(C), pages 54-62.
  4. Edmundo Murrugarra & Jennica Larrison & Marcin Sasin, 2011. "Migration and Poverty : Toward Better Opportunities for the Poor," World Bank Publications, The World Bank, number 2535, August.
  5. John Gibson & David McKenzie, 2007. "Using the Global Positioning System (GPS) in Household Surveys For Better Economics and Better Policy," Working Papers in Economics, University of Waikato, Department of Economics 07/04, University of Waikato, Department of Economics.
  6. Demirgüç-Kunt, A. & Beck, T.H.L. & Honohan, P., 2008. "Finance for all?: Policies and pitfalls in expanding access," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3508393, Tilburg University.

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