Saturday, 16 February 2008

Are Remittances a Curse?

A new paper challenges the conventional view that remittances are generally a good thing. Apparently, remittances can lead to deterioration of institutional quality - specifically, it can lead to an increase in the share of funds diverted by the government for its own purposes. Using statistical techniques, the authors show that higher ratio of remittances relative to GDP is associated with higher levels of corruption.

At this stage, you may be wondering whether the money you send home is responsible for the very things you complain about (corruption, ineffective government, break down in rule of law, etc). According to the authors you should be concerned, but its worth bearing in mind that while the paper shows that remittances are associated with higher levels of corruption, it is difficult to say how much remittances contribute to weaking institutions relative to other factors (e.g. unconditional aid, copper / oil wealth, etc).

Does it this all matter? I think for Zambians we probably have other stronger causes of "curses" than remittances e.g. our copper has for years proven to be an infinite source of corruption in government, and will most likely get worse with the new tax regime. But if you are Zimbabwean, this should certainly worry you. It is often syggested that remittances are keeping Mugabe in power. I think this paper provides one way in which that might be possible.

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2 Comments:

  1. Interesting, but I think that paper is simply magnifying an otherwise small negative.

    There're countries such as Mexico that have benefited immensely from remittances and investment back home by their citizens in the diaspora.

    One significant 'curse' I see with remittances is that they tend to perpetuate dependency syndrome amongst recipients. This is true at family level, as well a government level where aid donations play a similar role.

    In addition, some of the people who send remittances home usually have to sacrifice to do so, and in the end, only end up funding other people's lives at the detriment of their own...
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  2. Zedian,

    Difficult to judge how small the "negative" is :)

    Your example of mexico is very interesting.

    It would be good for future papers to look more closely in this issue at the micro level. I mean it is possible that higher remittances can be extremely positive for countries with effective institutions (positively reinforcing) and extremely negative for countries with weak institutions (negatively reinforcing).

    Also it would be good to know which institutions would lead to the more positively reinforcing scenario.

    Your point on the "dependency syndrome" is quite interesting. But I guess that depends on how remittances are channelled back. If they go straight into education and other things, they would probably be more "empowering" in the long term.
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