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How Sending More Money from Abroad Can Lift Up Economic Strength in Developing Countries?

How Sending More Money from Abroad Can Lift Up Economic Strength in Developing Countries?

18 Aug 2022


Remittances have risen exponentially, grabbing the interest of experts and policymakers while sparking discussion over their benefits and drawbacks. Recent stats show that remittances to low-to-middle income countries have already reached $597 billion and are expected to go beyond $630 billion before the end of 2022. Pakistan stands 5th largest remittance recipient in the world, with $19.3 billion received from overseas Pakistanis. More than 9 million Pakistani diasporas live and work in foreign lands that send money to Pakistan and help their families financially.  Their remittances not only improve the living standards in the country for their loved ones but also help boost the country’s economic sector by creating tremendous opportunities to reduce unemployment.

A greater understanding of their effects is required to establish initiatives allowing emerging countries to benefit the most from these monetary inflows. That is why ACE Money Transfer brings you all the information needed to understand the depths of the remittance industry.

What Exactly Are Remittances?

Workers' or migrant remittances occur when migrants transfer home a portion of their earnings in cash or products to assist their families. Remittances, or the returned incomes of emigrant workers, have expanded dramatically in recent decades, proving far less volatile and more dependable than other forms of foreign cash, such as foreign direct investment and government development aid. They can significantly enhance recipient households' livelihoods by stabilising consumption and enabling investments in human and other resources.

The economic significance of these monetary inflows may be seen in the rise of a country's economy. Economic growth is the most significant factor that makes remittance crucial for a country.

What is the Link Between Remittance and the Economic Growth of a Country?

Remittances are a powerful way for people in low-to-middle income countries to uplift their living standards. They can also foster a dependent culture in the recipient nation, limiting labour force participation, encouraging conspicuous expenditure, and impeding economic progress. Beneficiaries in a developing country such as Pakistan can benefit from remittances in various ways. Let’s learn the aspects in which remittance can help a country grow.

  1. Remittances can improve receiving households' well-being by smoothing spending and improving living conditions.
  2. More investment opportunities are created with the help of foreign remittances.
  3. With more investment and business opportunities, more employment opportunities are available that help decrease unemployment in the country.
  4. Remittances can aid in building human capital by enabling better sanitary conditions, healthier lifestyles, adequate healthcare, and higher educational achievement.
  5. Remittances can help unbanked households in disadvantaged rural regions access credit, allow asset accumulation and business ventures, increase financial literacy, and alleviate poverty.

When a Pakistani diaspora makes a money transfer to Pakistan from abroad, it helps the beneficiary family directly while stimulating the country’s economic growth indirectly.

With all the positive aspects of remittances, there is always another side of the picture one paints for others. There are deficits in remittances as well.

  1. Remittances can boost non-tradable items' consumption, raise costs, strengthen the real exchange rate, and reduce exports, reducing the recipient country's competitiveness in global markets.
  2. Remittances have the potential to restrict labour supply and foster a culture of reliance that stifles economic progress.
  3. Remittances, like migration flows, can be reduced by increasing anti-immigrant sentiment and tighter enforcement procedures in host nations such as the United Kingdom and several in Europe and the Gulf area.

However, greater countries that are well developed have changed the cons of remittance into some positive aspects to lift their country’s economic status.

Remittances' Macroeconomic Impact

Two effects have been intensively researched at the country level: the contribution of remittances to economic stability and a country's creditworthiness. Remittance flows are notable for their persistence and countercyclical nature, enhancing financial stability. 

Remittances have been found to prevent rapid current account reversals during periods of economic instability, strengthen a country's credit rating, and allow the influx of new investments to the degree that they provide a prominent and consistent supply of foreign money.

Recognising this potential, several nations have created active emigration policies and the institutional structure required to educate and steer potential migrants before departure to increase remittance inflows and investment in the home country.

The question that arises regarding remittance 

Are remittances beneficial or detrimental for a country?

It is an arduous process to know the accurate results of remittances. Receiving remittances is not a chance occurrence. Households who receive remittances are more likely to have particular traits, such as family members living abroad or unique demands due to their composition (perhaps they have more dependent children or elderly members). As a result, distinguishing the influence of remittances from emigration or other household characteristics that may be a byproduct of remittance flows becomes difficult. 

Researchers have attempted to address this difficulty in various ways, including using instrumental variable approaches. These methodologies have disadvantages, such as difficulty identifying appropriate instruments, the high expense of larger-scale randomised studies, and the findings' limited application to other migrant groups or nations. The conclusions on the benefits and drawbacks of remittance flows vary significantly due to the different methodology utilised and the disparities in geographic and temporal settings in which the research is conducted. 

When sending remittances, a country’s benefit is only measured through the benefit of the migrant individual. This is where remittance companies play an essential role for the receiver and the sender as well.

Best Way to Send Money to Your Loved Ones

ACE Money Transfer has supplied its customers with various incentives that may put their minds at ease concerning their financial concerns. If you and your recipient both have ACE accounts, you may usually transfer money online instantly. ACE is a leader in the remittance industry, offering the lowest prices for any online money transfer to Pakistan.

If you really want a quick and straightforward international transfer from anywhere globally, it is well worth the expense. In terms of privacy, internet-based remittance service providers in the United Kingdom and Europe are regulated and licensed as Electronic Money Institutions by the UK's Financial Conduct Authority (FCA). ACE Money Transfer meets all of the criteria for a successful, safe, and secure way to send money to Pakistan.

If you want to send money online or wish to know more about ACE Money Transfer’s services, please visit the company’s website.


 


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