Remittances Play Dual Role in Developing Economies Even Kuross - Fair Observer
go to original April 5, 2015

Western Union global money transfer services are available at more than 1,100 Farmacias Guadalajara locations in Mexico (Reuters)

Remittances play a vital role in spurring economic development and providing financial assistance to those in need.

Western Union’s distinct yellow and black signs litter small towns across America. One of their largest customer bases are migrants who regularly visit their local Western Union office to wire money to family members back in their home country. One of every $5 that a person sends using a money transfer service is handled by Western Union.

Western Union and other agencies like it do not transfer money out of charitable goodness. They receive a percentage fee based on where the money is going and from where the money is sent. For example, a transfer from New York will have a higher fee than one from a small Midwestern town. It is estimated that the average cost on remittances was 9% in 2012, and this is before fees are imposed upon reception of the transfer. Today, Western Union has an impressive half a million agent locations worldwide.

Remittances have become a big business over the last few decades. With over 215 million people living outside their country of origin, the World Bank estimates that $414 billion was sent home by migrants in 2013 — $79 billion of it via Western Union. For instance, over a third of the $61 billion in remittances that went to Latin America in 2013 headed to Mexico. The World Bank estimates that three-quarters of this comes from the United States, where the majority of Latin migrants live. Unsurprisingly, transfers from the US to Mexico form the largest remittance corridor in the world.

As migration grows and transferring money becomes easier, that total is expected to rise to $540 billion by 2016. By developing country standards, these are huge sums of money. More often than not, remittances are significantly larger than external development assistance and traditional foreign direct investment (FDI) to developing countries.

This capital is a vital source of funding for developing countries for their economic advancement. However, continued reliance on remittances can produce a dangerous dependency that may inhibit long-term productive economic growth and inculcate a culture of reliance on income transfers.

Read the rest at Fair Observer

Related: Remittances to Mexico Fall .7 Percent in January (EFE)

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