Remittances and development

This chapter highlights the importance of remittances for development, by sketching the magnitude of current and past remittance flows to developing countries and outlines some of the key characteristics of remittances. It discusses the impact of remittances on economic growth and focuses on the relationship between remittances and financial development in the recipient economy. In the context of voluntary labor migration, remittances result from an active migration decision of one or more members of a household aiming to increase the household’s overall income with earnings that are higher than what they would have earned at home. The most important difference between remittances and other sources of external funding of developing countries is that remittances are person-to-person transfers. Using a mutual altruism framework H. Rapoport and F. Docquier show analytically how the volume of the altruistic remittance transfer depends on the altruistic preferences of migrant and recipient as well as on their respective incomes.