True value of foreign remittances
One of the major end products of massive migrations across the globe has been the flow of remittances of the expatriates working in a foreign land.
Many describe these remittances as merely a means of financial support to families by the workers and have a significant and direct impact on their living standards, consumption patterns and education. This view is also supported by a study conducted by Siddiqui and Kemal in 2006, which reveals that the amount of remittances received are more or less indirectly proportional to the rate of poverty. The amount of aggregate remittances received by Pakistan increased drastically from US$ 1075 million in 2000 to US$ 6000 million in 2007. An economic review of Pakistan during 20002007 proves that there was a significant decrease of 10% in the rate of poverty.
Still, many argue that although the amount of remittances received in 2011 was a massive $ 1.31 billion, yet there was no decrease in poverty. In fact the recent years have witnessed the worst possible conditions, rightly labelling Pakistan as one of the most impoverished countries in the world. There are various causes constituting these conditions. Apart from the everincreasing rate of inflation and unemployment, the depreciation of the Pakistani rupee and major floods, draining the economy of Pakistan, are factors which cannot be brushed aside as being inconsequential. The amount of remittances and poverty being relatively indirectly proportional to one another is not a characteristic specific to Pakistan alone. After assessing and evaluating the data of 71 developing countries, Adams and Page, in 2005, deduced that remittances do, in fact, play a major role globally in poverty alleviation.
Remittances have the potential to improve one’s lifestyle and hence add towards poverty reduction. It is relatively an easier concept, yet the macroeconomic long- term effects are still a debatable issue. As the nature of remittances, at least on the superficial level, appears somewhat similar to other private international capital flows and Foreign Direct Investment, this gives rise to the general perception of remittances benefitting the economy in similar ways. A document released in 2005, ‘ The US Approach to International Development: Building on the Monterrey Consensus’ referred to remittances as a ‘ development resource’, increasing its importance.
After analyzing the situation in 84 recipient countries during 1970- 2004, the results revealed that remittances have no impact on the growth of the economy. Due to this reason many strongly argue that remittances cannot be considered to be the same as Foreign Direct Investment ( FDI). In addition to this, many studies suggest that the excessive flow of remittances may motivate the recipients to become negligent towards their work. Some may even quit their jobs or, in the search for job opportunities, may become entirely dependent on the money received from the earning members of the family settled abroad. Thus remittances have an adverse impact upon the economy of the country, in the longer run.
Researchers like Giuliano and Ruiz- Arranz negate such theories which, according to them, misrepresent the true extent to which remittances boost the economy. They believe that due to the absence of financial development in most developing recipient countries, the functions of remittance branch out beyond a mere elevation of lifestyles of recipient families. According to them, such remittances are important as a source of insurance and investment. In fact, various studies reveal a positive impact on investment through reducing credit constraints.
If remittances are really not as beneficial for the economy of the recipient state as estimated by several optimistic policy- makers, they must determine ways to utilize the vast amounts of remittances productively and simultaneously encourage other means of boosting the economy. Despite the controversy attached to the role of remittances, the rules of chess suggest that at times, a well placed pawn can be more powerful than the King; therefore, one surely cannot deny the fact that these remittances can be utilized in a better way, ensuring greater prosperity for the host country.