True value of for­eign re­mit­tances

Enterprise - - World View -

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.

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