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The synergy between remittances and globalisation

An appropriate time to talk about remittances and their effect on globalisation is right now. According to industry reports remittances have almost overtaken Foreign Direct Investment (FDI) as the largest source of foreign capital inflow in low and middle-income countries.

As the number of people living outside their country of birth increased from 153 million in 1990 to 270 million in 2018, global remittances rose from USD 64 billion to USD 689 billion. Meanwhile, the share of remittances received by low- and middle-income countries as a percentage of global remittances rose from 49% in 1990 to 77% last year – a staggering increase of USD 536 billion. For some low- and middle-income countries, remittances form a significant part of their GDP while for others, remittances tend to be a reliable source of foreign exchange. The contribution of remittances are often closely linked to the simultaneous surge in globalisation over the last quarter-century.

Indeed, there are parallels between remittances and globalisation. Just as remittances continued to rise since the 1990s, globalisation also experienced a full bloom during this period. The consistency with which remittances to developing countries have increased is commendable, despite the world economy experiencing bubble bursts and downturns during the last few decades. Usually, when the chips are down for the economy, FDI tends to shrink, and government aid may take a beating, but remittance inflows are known to thrive.

During challenging times, remittances act as a respite not only for families but also for the economy. Macroeconomically, regular remittance inflow helps improve the balance of payment and keeps borrowing costs low. At a microeconomic level, remittances enable families to maintain their lifestyle and channelise funds towards education and investment opportunities. In other words, remittances have enabled families in developing countries to maintain or even improve their purchasing power. The presence of an additional channel of income, in the form of remittances, could be attributed as the premise for globalisation in developing economies.

The prominence of remittances and their role in globalisation have steadily increased as the number of migrants nearly doubled in the three decades starting 1990. Thriving economies tend to attract expats, as a stronger currency promises better standards of living and opportunities for their loved ones. When expats send money home, they are mostly passing on economic vibrancy to their home country. Remittances are utilised by their families in the health and education sectors and also streamlined towards investments. Thereby, remittances become a crucial factor in driving global capital circulation.

In the foreseeable future, remittances may remain dominant in the global economy and continue to be an impetus to globalisation. The World Bank estimates that 550 million people will join the workforce in low- and middle-income countries by the end of 2030. Income disparity is, however, expected to remain even during this period. Hence there is a strong possibility for upward trends in migration which will consequently boost the volume of global remittances.


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