Remittances: The New Development Mantra?

Remittances have emerged as an important source of external development finance for developing countries in recent years. This paper examines the causes and implications of remittance flows. It first highlights the severe limitations in remittance data, in sharp contrast to other sources of external finance. It then examines the key trends in remittance flows, and their importance relative to other sources of external finance. The paper subsequently analyses the many complex economic and political effects of remittances. It highlights the fact that remittances are the most stable source of external finance and play a critical social insurance role in many countries afflicted by economic and political crises. While remittances are generally pro-poor, their effects are greatest on transient poverty. However, the long-term effects on structural poverty are less clear, principally because the consequences of remittances on long-term economic development are not well understood. The paper then concludes with some policy options. It suggests a role for an international organization to intermediate these flows to lower transaction costs and increase transparency, which would both enhance these flows and maximize their benefits