Comments: Remittances as a Driver

for Economic Growth and Poverty

Reduction
Peter J. Morgan
Senior Consultant for Research
Asian Development Bank Institute
ADB International Forum on
Promoting Remittance for Development Finance
ADB HQ, Manila, 18-19 March 2015

Outline
1. Economic importance of remittances
2. Empirical evidence on impacts of remittances
on growth and poverty reduction
3. Ways to increase effective use of remittances
4. Ways to promote investment
5. Conclusions

1. Economic importance of remittances

Size
9 Asia-Pacific economies have remittances of over 10% of
GDP
Another 14 A-P economies have remittances of 1%-10% of
GDP
High remittance share countries concentrated in Central
Asia and Pacific, followed by Bangladesh, Philippines and
Sri Lanka

Very important relative to other fund inflows

Larger than private debt and equity portfolio
Much larger than ODA
Relatively stable in turbulent world!

2. Empirical evidence on impacts of

remittances on growth and poverty reduction
Positive impacts
Consumption: remittances help to stabilize
Support macroeconomic stability via stabilizing current account
Poverty reduction

Impacts less clear

Investment: mainly education (human capital) and housing
Growth impacts

Some find positive effect, others not

Problem of simultaneity
Dutch disease
Reduced domestic labor force participation

Inequalitymay mainly benefit higher-income families

3. Ways to increase effective use of

remittances
Remittance costs in general still high
Especially Pacific and S.E. Asia
Need to promote measures to reduce costs

Promote use of formal channels to foster flow of

funds into domestic financial system
Potential for innovative technologies
Relation to financial inclusion
Promote access to remittance transfers in rural areas
Strengthen regulatory and supervisory environment
Mobile banking, etc.
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4. Ways to promote investment

Directly tap savings of overseas migrants
Infrastructure bonds, etc.

Promote domestic savings via financial inclusion

Increased access to savings products at financial institutions
Bank deposits, hometown investment trust funds, etc.
Mobile banking, other innovative technologies

Promote financial literacy and financial capability

Strengthen regulatory and supervisory frameworks and consumer
protection

Promote domestic investment

Increased access of SMEs and startups to finance
Develop and expand credit databases
Review rules for collateral, etc.
Government guarantee programs

5. Conclusions
Remittances very important for a number of Asia-Pacific
economies
Evidence on economic impacts is mixed
Generally positive impact on income, consumption, poverty reduction
and current account stability
Impacts on investment and growth more difficult to detect
Income inequality: Mixed results
Some reduction in labor force participation in home country

A comprehensive policy approach toward financial inclusion

(demand and supply side) could be adopted to increase the
potential impact of remittances on investment and growth
More efforts needed to reduce transfer costs, including
innovative technologies
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Thank you
Asian Development Bank Institute
www.adbi.org