Remittances and Their Impact on Rural Development

Literature Review

The growing number of people engaged in working abroad creates significant effects in both the status of living and economic growth of the country. Many studies show the evidence of rural development through the use of remittances. Apparently the developmental strategies among the countries are proposed to focus in building the capacities in rural areas. The impact of remittances on rural development links to the approach of development theory and new economics of labor migration (Barker, 2005).

The decision of an individual to move on other country or place to find jobs is gradually considered as a significant factor to increase the pace of economic growth. In addition, the country’s problem on high unemployment rate can be temporarily solved. Because of the limited domestic opportunities available, the country’s ability to produce the economic growth might sound impossible. The technologies and the systemized advancement in most of the areas in the industry is also not enough to boost the economy. But with the availability of the opportunities abroad, the country might experience the significant effects in the migrant capital and remittances. This is because of the close interrelationship of the financial services by remittances received by households represents the intersection between the role of micro-finance institutions and rural sector development. This very same idea is the current impact of remittances in the country in most of the countries such as Philippines, Latin America, Mexico, in Regions of Africa, and other countries that prioritizes the human capital (Orozco, 2005; Gupta, Pattillo, & Wagh, 2007; Shroff, 2009).

Through the use of remittances, the economic approach on savings and investment is emphasized and mobilized. The family remittances can create a positive outcome in the country but it usually depends on the exchange rate of the country and varies in the specified condition of the countries. It is obvious that most of the males, young and professional, are the migrating people because of the skills and abilities they can contribute. However, because of the continuous rise in migrating people and working professionals in abroad, there are issues in the domestic countries unresolved. First, because of the growing importance of remittances in third world counties, there is a decrease in domestic workforce that can support the countries industrial and agricultural sectors (Ratha & Mohapatra, 2007). And second, due to the faith of people in working abroad and the positive outcome of remittances, the people are aiming to follow the step of other and neglecting the responsibilities to improve their countries own economy. The increasing trend depresses the local labor market and weakened the labor force (Orozco, 2005).

The methods of remittances also changes. The government recognized that the remittances are also source of external finances for developing countries, in which means that if there are large remittances, therefore, there is a rapid generation of development assistance, foreign direct investment, and portfolio flows. With the interests that the government subjected to the remittances, the workers find a better way in limiting the government access by using their personal flows: from migrants to their friends to their families. In this way, the government can be prevented to tax the remittances and this is more convenient to the household or family receiving the remittances (IADB, 2007; Ratha & Mohapatra, 2007). But clearly, this action is against the gains of the government to provide the rural development.

Methodology

The study will use the combination of the qualitative and quantitative methods to demonstrate the impact of remittances in the rural development. With the use of the survey and interview and secondary information, the study can identify the strong points of the remittances in the rural development. There is also a possibility to discover the literature gaps. The survey will be conducted among the 100 participants, who are households that monthly received the remittances. Using the questionnaires steered by the Likert Scale, the study can describe the perceptions of the household regarding the remittances they receive as well as their expectations and recognized challenges. In addition, the changing realities of rural households and communities can be determined based in the interviews conducted among the five rural communities and with five government organizations or institutions that handles and monitors the remittances. In the analysis of the study, the secondary information coming from the reports and case studies that focuses in the same theme on remittances and rural development can be generated by addressing the existing development and remittances in the community. Moreover, the theories can be emphasized with the method used to identify the contemporary socio-economic effects.

References:

Barker, C., (2005) Migration & Rural Development: An Assessment of the Impact of Migration on Rural Communities in Huancavelica, Peru [Online] Available at: http://lanic.utexas.edu/project/etext/llilas/claspo/fieldreports/barker05.pdf [Accessed 30 July 2010].

Gupta, S., Pattillo, C., & Wagh, S., (2007) Impact of Remittances on Poverty and Financial Development in Sub-Saharan Africa, IMF [Online] Available at: http://www.imf.org/external/pubs/ft/wp/2007/wp0738.pdf [Accessed 30 July 2010]

IADB, (2007) Sending Money Home: Leveraging the Development Impact of Remittances, Inter-American Development Bank [Online] Available at: http://www.iadb.org/news/docs/remittances_EN.pdf [Accessed 30 July 2010].

Orozco, M., (2005) Rural Finance Innovation Case Study: Remittances, the Rural Sector, and Policy options in Latin America, Paving the Way Forward for Rural Finance - An International Conference on Best Practices [Online] Available at: www.basis.wisc.edu/live/rfc/cs_15a.pdf [Accessed 30 July 2010].

Ratha, D., & Mohapatra, S., (2007) Increasing the Macroeconomic Impact of Remittances on Development [Online] Available at: http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1110315015165/Increasing_the_Macro_Impact_of_Remittances_on_Development.pdf [Accessed 30 July 2010]

Shroff, K., (2009) Impact of Remittances on Poverty in Mexico, Global Citizenship Conference [Online] Available at: http://www.econ.yale.edu/~granis/web/PovertyWpaper.pdf [Accessed 30 July 2010].