Remittances are transfers of money by foreign workers to their home countries. Money sent home by migrants constitutes the second largest financial inflow to many developing countries, exceeding international aid.
Remittances contribute to economic growth and to the financial and social inclusion of needy people worldwide. Recent studies have shown that remittances not only play an important part in many people's daily lives but are particularly important for people during financial crises.
In Latin America and the Caribbean, remittances play an important role in the economy of the region, totalling over $66.5 billion in 2007, with about 75% originating in the United States. This total represents more than the sum of foreign direct investment (FDI) and official development aid (ODA) combined. In 7 Latin American and Caribbean countries remittances account for more than 10% of GDP and exceed the dollar flows of the largest export product in almost every country in the region.
A majority of the remittances from the US have been directed to Asian countries such as India, the Philippines and China. Most of the remittances happen by conventional channel of agents, however online money transfer has gained substantial momentum over the years.
One-third of the money sent originates in the United States, most of the rest is sent from Europe and the Middle East. A significant volume of remittance money circulates within the developing world as well.
Latin America and the Caribbean is the region receiving the highest level of remittances per capita and the money flowing to the region has risen tenfold in real terms over the past 20 years. After climbing at double-digit rates in the last decade, the flow now appears to be levelling off.
Most of the money received in this region is used for everyday living expenses, from food and home repairs to school tuition. What interests economists most, though, is the potential for remittances to contribute to economic development. Remittances tend to increase bank deposits, reflecting potential for investment.
Research has also found that higher remittance flows are associated with lower poverty, better health and higher levels of education in the developing world.
Yet the increasing remittance flows have a downside-families and national economies that rely on the money sent from nationals working abroad become vulnerable to distant events and trends. Also, many countries dependent on remittance see their working-age adult population shrink. Family members left behind may stop working and wait month-to-month for money from overseas.
However, today remittance checks are helping millions of households across the globe to keep food on the table and a roof overhead. Although the evidence hardly hails them as a long-term solution to global poverty, as long as remittance flows continue, they should be both facilitated and regulated.
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