Remittance - Nepal
Remittances are funds transferred from migrants to their home country. They are the private savings of workers and families that are spent in the home country for food, clothing and other expenditures, and which drive the home economy. For many developing nations, remittances from citizens working abroad provide an import source of much-needed funds. In some cases, funds from remittances exceed aide sent from the developed world, and are only exceeded by foreign direct investment (FDI).
Remittances give countries the ability to fund development their own way; however, like a teenager flush with cash from a first job, developing ...view middle of the document...
Unlike oil revenues, which are typically held by the state, remittances are sent to individuals who are in charge of spending.
Remittances contribute to economic growth and to the livelihoods of people worldwide. Remittances are playing an increasingly large role in the economies of many countries, contributing to economic growth and to the livelihoods. According to World Bank estimates, remittances totaled US$414 billion in 2009, of which US$316 billion went to developing countries that involved 192 million migrant workers.
Remittances are not a new phenomenon in the world, being a normal concomitant to migration which has always been a part of human history. Several European countries, for example Spain, Italy and Ireland were heavily dependent on remittances received from their emigrants during the 19th and 20th centuries.
Remittances are sent due to a combination of altruistic and self-interest motives.
Understanding these motives has been on the agenda of researchers for at least three decades; Rapport and Docquier (2005) provide an excellent overview of theoretical models. On the one hand, it is widely acknowledged that altruism towards family members at home is an important motivation for remitting (Johnson and Whitelaw 1974, Lucas and Stark 1985). This implies a utility function in which the migrant cares about the consumption of the other members of the household.
Other papers (Poirine 1997, Ilahi and Jafarey 1999) have emphasized the idea of remittances as repayments to the family who finances migration in the first place. This suggests a U-shaped relation between the family’s pre-transfer income and remittances. Poor families are unable to make the investment in migration costs while wealthy families have less incentive to send a family member abroad to increase family income. Thus, assuming that wealthy families can invest more in education, remittances should first increase and then decrease in the migrant’s skill level.
Macroeconomic studies have emphasized determinants such as the level of economic activity in the host and the home countries, the wage rate, inflation, interest rate differentials, or the efficiency of the banking system (El-Sakka and McNabb 1999; Russell 1986). Wahba (1991) suggests that political stability and consistency in government policies and financial intermediation significantly affect the flow of remittances. In a sample of five Mediterranean countries, Faini (1994) finds evidence that the real exchange rate is also a significant determinant of remittances. Real earnings of workers and total number of migrants in the host country were consistently found to have a significant and positive effect on the flow of remittances (Swamy 1981; Straubhaar 1986; Elbadawi and Rocha 1992; El-Sakka and Mcnabb 1999; Chami, Fullenkamp and Jahjah 2005). In addition, demographic factors like the share of female employment or a high age-dependency ratio in the host country reduce remittances,...