Today's New York Times has an article following the life of Dilip Ratha, a World Bank employee who produced a break-though study on remittances, as he returns home to his small village in India. The article takes a look at the scale of remittances and their role in the larger development debate, migration, and how the funds sent home by Mr. Ratha have changed the lives of his family members back home.
Mr. Ratha's study on remittances 5 years ago was the first to see them as something greater than small amounts of extra cash sent back home. Now totaling more than $300 billion a year, in many cases remittances rival or trump the amount of development aid received by some countries, without the restrictions that normally accompany such funds. They are direct budget support of a more personal kind: bypassing aid agencies and governments, remittances could be considered a form of micro-finance with no interest (other than personal).
In tallying up remittances, the article writes that:
"There are about 200 million migrants worldwide, supporting as many if not more people at home. That suggests that remittances may reach almost a tenth of the world’s population.
India ($27 billion), China ($26 billion) and Mexico ($25 billion) are the leading beneficiaries. But in relative terms, small countries gain the most, with some increasing their national incomes by more than 20 percent. Egypt gets more from remittances than it does from the Suez Canal."
Some argue that because remittances bypass governments, they are little more than band-aids to development challenges. Funding family needs, they argue, does not change the underlying social structures badly in need of repair. Further, remittances are often spent on immediate needs or to fund new purchases. Mr. Ratha argues that not only is increased purchasing power for the poor not a bad thing, but also that remittances may be some of the best-monitored development aid out there because recipient and sender are often family. “It comes with a lot of goodwill, advice, knowledge and punishment if necessary — keeping in mind the welfare of the recipient,” he said.
While it may be true that remittances are not designed to change institutions, I would argue that they should not be expected to, at least not directly. Remittances by their design are intended as immediate relief to people in need. They are the financing of everyday survival and perhaps some investment at a very micro level. By the same token, however, remittances may end up contributing to social sector reform by giving the poor more leverage in terms of their income. As people with resources, a village may now be able to petition the government to build a school, offering to contribute some of their own funds as an added incentive. And, if the government does not respond, they can bypass it altogether and build their own.
As a migrant himself, Mr. Ratha has more personal experiences with remittances than most economists. While his remittances were initially directed at his immediate family, he has also sent funds for the construction of a school. Following him home to his village, the article reports on his observations on how much had changed since his last visit home: paved roads, new cell phone towers, children with proper clothing, and an absence of people begging on the street.
It is impossible to say if any of these improvements are related to the funding that Mr. Ratha has sent, or how much can be traced back to more traditional development projects. The effects of his support on his family, however, are clear. His sister achieved a master's degree; his brother, who now lives in Michigan, a PhD. His father has a house. His village has a school. Arguably none of this would have been possible without outside funding. That the funding came from remittances and not aid quite possibly made these changes all possible much faster.
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