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How Money Remittance Is Having An Economic Impact On Developing Countries?

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Remittances form an important part of the economy of the rich countries and the developing countries equally. Moreover, practically they have a crucial role to play in deciding the standard of living of the people of the developing nations such as India. Only recently these payments from the overseas citizens have started receiving the attention of the governments the world over because before this their proportion wasn’t much large to be considered. But now the governments cannot ignore the contribution of these money transfers because of their large amount and significant contribution to the developing economies. The amount of the remittances estimated by the World Bank and the other agencies always falls short of the numbers because of the insufficient data on the side of the banks and the governments. The reason behind this is that generally people resort to money transfer companies or informal and unregulated channels of money transfer which go unaccounted. Today in this article, we will discuss about the economic impact of these money remittances on the economy of the developing countries.

India, China, and Mexico receive almost one-third of the remittances that flows to the developing countries. For example whenever people wire money to India from Hong Kong it helps in boosting the economic growth of these countries. Other developing countries also rely on the remittances for their economic growth. If we look at the GDPs of the developing nations across the world we will observe that these remittances account for a greater percentage of their total GDP.

In most of the developing countries the remittances come just next to the contribution by the foreign direct investments.

Remittances can also finance the investments in the developing countries thus increasing the growth and productivity. Remittances are also one of the major sources of income and livelihood for the poor sections of the developing countries. Most of the time it is the low-income group people who migrate to other nations in search of work and send money to their dependents back home. With more money in hand, remittances increase the purchasing power of the people of the developing nations and thus having a positive impact on the consumption and demand in the developing economies.

Also, remittances have a direct impact on the growth of the economy as they reach directly to the people without any leakages or getting into the hands of the middlemen. Even the governments have no role to play in the inflow of the remittances into the economy.

It is also said that remittances are more stable form of income than the foreign direct investment or foreign portfolio investment. So remittances provide stability to the economic growth in the developing countries.

If we see on the front of the skills of the labour, we will observe that the migration of the unskilled labour from the emigrant country doesn’t cause much harm to the economy. Rather it is beneficial in two other aspects. The country of emigration is unloaded of the unskilled labour and when the labour returns back to the country later he/she is more skilled than before and thus is now an asset to the nation which is a developing country. This asset can contribute a great deal towards the growth of the economy. Human resource is the most significant contribution this migration from the developing countries can result into.

So overall the developing countries benefit from the remittances coming its way from the rich nations of the world.