Remittances Do Not Solve the Problems of Poverty and Development (Essay Sample)

Remittances Do Not Solve the Problems of Poverty and Development
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Introduction
Several experts in economics and development posit that remittances can significantly contribute to the economic development in third world countries. Indeed, as noted by Jean-Paul and Gubert (2005), remittances assist millions of people to get out of poverty. Nonetheless, remittances cannot be used as a solution to issues of poverty and economic development. This is because remittances cannot simply be directed to economic growth and human development. More so, remittances have unintended outcomes that could limit economic development. Accordingly, this paper agrees with the statement by Chami and Fullenkamp (2009) that remittances do not represent the best solution to the problems of poverty and development.
Main discussion
Remittances from foreign countries are costly for those who receive them. In many third world countries, those who sent these remittances have to make a long and costly trip to foreign countries and stay there for months or years. This puts a lot of emotional and economic stress on the family members of the person who has travelled. In many cases, children of those who sent remittances normally grow up without closely relating to their parent/s that has travelled to foreign countries. Thus, such children may get involved in antisocial behaviors and thus cost the society much more.
As observed by Giuliano and Ruiz-Arranz (2005), the intention of remittances is to assist the family members back to buy basic needs such as food, clothing and shelter. Certainly, there is an attempt by those sending remittances to lift their families out of poverty; however, many studies done on this subject have always reached a conclusion that remittances are largely used on consumption and very little, if any, is invested (Giuliano and Ruiz-Arranz, 2005). Consequently, it cannot be expected that remittances will spur economic growth in a similar way as done by foreign direct investment.
Though there may be cases where the family saves the remittances sent. This normally implies that the family will use the money to buy properties such as land or homes. Thus, very little additional capital goes into the economy. Giuliano and Ruiz-Arranz (2005) asserts that remittances do not stimulate economic growth; instead it could result in a negative impact on the economy. Indeed, for many years, a large number of developing countries have received vast sums of remittances; however, hardly do any of these countries show a positive economic growth because of remittances.
Adams & Richard (1991) notes that remittances result in numerous unintentional consequences because they are gifts to families and not earned money. Those who receive remittances may misuse the money because they expect more remittances. Studies done by Jean-Paul and Gubert (2005) found out that remittance results in reduced labor participation by those who receive them. In addition, those who invest the money received from remittances, are likely to go for ...