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The Impact of Remittances on Economic Development: Lessons and Initiatives

This article discusses the increasing trend of remittances and its political debate, the countries benefiting from remittance flows, and the main issues raised during an international conference. It explores the role of financial infrastructure, reducing transfer costs, and enhancing the efficiency of remittances for economic development. The article concludes with the positive effects of remittances on poverty reduction and the importance of aligning policies with the interests of emigrant workers.

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The Impact of Remittances on Economic Development: Lessons and Initiatives

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  1. MIGRATION, REMITTANCES AND THE ECONOMIC DEVELOPMENT OF SENDING COUNTRIESMain outcomes of the international conference organised by the OECD and the Central Popular Bank of Morocco, Marrakesh, 23‑25 February 2005Jean-Pierre Garson Directorate for Employment, Labour and Social Affairs Head of Division on Non-member Economies and International Migration

  2. I.The current context: remittances are increasing • Globalisation of migration and globalisation of the economies • Migrants remittances have recently grown in volume (estimates: 126 billion US $ in 2004) Source: Global Development Finance 2004

  3. I.The current context: remittances as a subject of political debate • In some emigration countries, remittances exceed the volume of official development aid (ODA), in certain cases even of FDI or exports. • Although remittances contribute to improve the living conditions of migrants and their families, it seems less evident that they have had a positive impact on the economic development of the sending countries

  4. II. Which countries benefit from the increase in remittances ? • Relative to macroeconomic indicators (GDP, exports, …), remittances are significantly higher in low income and lower middle income countries than in the other developing countries. • Migrant remittances are unequally distributed across regions, with Asia receiving the lion’s share.

  5. III. Main issues raised during the conference:(a)lessons from the experience of OECD countries Remittance chanels and financial infrastructure : The Italian, Mexican, Portuguese and Turkish examples • The crucial role of the banking system • Best practices to collect and to channel the remittances and to reduce the cost of the transfer of remittances • From a “transaction” approach to the development of relationships: migrants as clients for all the bank’s services

  6. III. Main issues raised during the conference:(b) reducing the costs of transfers The example of Mexico, Morocco and the Philippines • Developing partnerships between migrants, federal, regional and local governements, as well as banks and financial institutions overseas • Taking advantage of new technologies : money transfers, internet, mobile phones, credit cards • Increasing competition among service providers in receiving and sending countries

  7. III. Main issues raised during the conference:(c)the impact of remittances on the economic development Prerequisites for enhancing the efficiency of remittances in an economic development perspective • Difficult to attract and orient remittances towards the economic development of sending countries. Diversity in the personal characteristics of immigrants and in the ways in which they make use of their savings • Implementing sound macroeconomic policies and policies of good governance in the sending countries • Emigrants want to be able to make free use of their savings

  8. III. Main issues raised during the conference: (c)the impact of remittances on the economic development Ongoing initiatives at local and bilateral levels : the key factors • Initiatives directed to all economic agents and not only towards emigrants • Financial and economic risks are important, so it is important to create regional structures to overcome these difficulties in creating local development strategies and related financing methods (Portugal, Mexico and Morocco) • A great proportion of migrants have not been involved in the economic and financial networks of their country of origin • Dissemination of information on regional development programe is an important element to attract remittances

  9. Conclusions • The scale of remittance transfers allows emigrant workers to improve not only the living conditions of member of their families but also the welfare of other people who have remained in the home country • Impact of remittances on the reduction of poverty and improvement of education and health care • While any policy directed towards the liberalisation of capital movements in sending countries will attract more remittances, it would be a mistake to arbitraly channel emigrants’ savings into projects that do not interest them or whose profit picture they do not understand

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