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Remittances and Development: Lessons from Latin America

WASHINGTON DC, April 8, 2008 - Remittances are of utmost importance for those interested in development topics in the Latin American context. Latin America and the Caribbean  is the region that receives the largest volume of remittances: around US$50 billion in 2005. These flows represent about 70 percent of foreign direct investment and are almost 8 times larger than official development assistance to the region.

 

Whereas workers’ remittances have become a major source of financing for the region, there is still limited evidence on the development impact of those flows across the main recipient countries in the region. Existing evidence on the development impact of remittances is restricted to only a few countries – e.g. Mexico and El Salvador in the case of Latin America.

 


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AUTHORS' BIOS

  Pablo Fajnzylber
   Humberto Lopez

 

To help fill this gap, this book combines the analysis of cross-country panel data with that of household surveys for as many as 11 countries. We cover countries with varying migration and remittances patterns. This is important because as the nature of the phenomenon – migration and remittances – varies across countries, its development impact and policy implications are also likely to differ in ways that to the present are still largely unknown.

 

Among other issues, Remittances and Development investigates the profile of Latin American migrants and remittances recipients, and analyzes the impact of those flows on growth, poverty, inequality, schooling, labor supply, financial development, and real exchange rates. To that end we employ micro-econometric country case studies based on household survey data, as well as cross-country analysis based on large samples of countries encompassing other regions of the world. Whenever possible our approach is that of using those cross-country frameworks to investigate potential LAC specificities in terms of the development impact that remittances may have in the region. We also employ U.S. Census data to investigate the impact of migrants’ characteristics on remittances flows, and to explore the profile of migrants – i.e. remittances senders – from the Caribbean, South, Central and North American countries.


One of the main conclusions of Remittances and Development is that remittances do tend to reduce poverty and inequality and they have several positive growth-enhancing effects – e.g. higher savings, human capital investments, entrepreneurship, and bank deposits. However, these positive effects tend to be relatively modest compared to the development challenges faced by most countries in the region. Moreover, remittances can also reduce labor supply and lead to real exchange rate over-valuations. Overall, it appears that a healthy policy stance is that of combining measures to minimize negative effects on competitiveness and maximize the impact of remittances on access to financial services among the poor, while making improvements in the regulatory environment aimed at promoting secure and low cost remittances services and maintaining the focus on complementary growth-enhancing policies.




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