Concept of Remittance

Different economic activities are carried out to generate income. Such income is to be transferred from one place to another through different means. The act of transferring such generated income as cash from one place to another place within a country or from abroad is called remittance. In other words, it refers to money sent by migrant workers from their destination country to their origin country. It is a huge dependent factor of developing country’s economy. In the context of such developing economies, migrant workers send most or saved part of their income to their family and friends living in their origin country. This money received by migrant workers’ dependents is used to support their basic needs of food, shelter, clothing, education and health. Such money received is used for the acquisition of assets, constructing houses, investment in the capital market etc. to improve the economic and social status of these dependents of migrant workers.

Remittance has an impact on different personal, communal, social and economic dimensions of a country. The person receiving remittance can use it to meet different personal and family needs. With such fulfillment, not just the personal but communal status of a specific community also grows. This brings advancement in society as social life becomes easy and prestigious. On the other hand, remittance influences the economic aspects of the country. An increase in remittance means an increase in spending. Such increases demand goods and services which means an increase in production. Such production increase has growth in employment as well as effective resource utilization. This ultimately contributes to the growth and expansion of the GDP of the country. In the context of Nepal, remittance has a significant contribution to the national economy. It is the most crucial source of foreign currency in the context of Nepal.  It has a significant contribution to poverty alleviation, financial development and the economic prosperity of the country.

Advantages of Remittance in Developing Countries

Remittance has several benefits or advantages for an individual, society and the nation as a whole. It helps in improving the financial status of an individual and his/her family. It is the key source of private consumption, investment, saving and capital expenditure. Moreover, the advantages of remittance have been outlined below:

1. Remittance improves the general financial status of recipient families and helps them get out of the poverty zone
2. Higher flow of remittance means higher liquidity in capital market contribution towards lower interest and creation of expanded credit
3. The benefit of remittance directly reaches its beneficiaries which is fast and better than foreign aids
4. Remittance is the key source of foreign saving and foreign currency for developing countries
5. Enhancement of real purchasing power of consumers which ultimately contributes towards growth and expansion of national GDP
6. National economic growth is boosted as most of the remittance is used for consumption which increases aggregate demand and has a positive multiplier effect
7. Remittance is the most crucial source of funds for business start-ups
8. Household decisions regarding expenditure, saving and investment depends on remittance income in most families of developing countries

Disadvantages of Remittance in Developing Countries

It cannot be denied that remittance has several positive impacts in a different dimension of a country. It is a crucial factor for poverty alleviation, economic equality, national saving and investment, private consumption etc. in a country. But this does not mean it has advantages only. Some major disadvantages of remittance have been presented below:

1. A large number of people have to go abroad for foreign employment causing a shortage of manpower, growth in wage rate and worsened competition in the home country
2. It cannot be a direct or perfect substitute to foreign aids and direct investment in infrastructures from foreign sources
3. Big remittance inflow means appreciation in foreign exchange rates causing a fall in competitiveness
4. Most of the remittance received goes for unproductive expenses such as the purchase of personal fixed assets, marriage, festivals and celebrations
5. The permanent outflow of the human capital of the home country to the destination country as destination country has better opportunities, economic security and secure job prospects 
6. Remittance driven favorable BOP (Balance of Payment) cannot be a favorable economic sign for long term