Amount of remittances triples that of international development aid

Remittances from foreign nationals is an under-looked source of income for poor to middle income countries. The people who go abroad for work or school often send back some of the money they earn to their families. A new study from the World Bank finds that these remittances are triple the amount of international development aid from governments.

From the Guardian, writer Claire Provost unpacks the study for us.

According to the Factbook's estimates, documented remittance flows to developing countries in 2010 are expected to reach $325 billion (£203 billion), up from $307 billion (£191 billion) in 2009. The majority of this money (in absolute terms) flows to middle-income countries, though for some of the world's poorest countries these remittances account for up to 25 percent of their GDP and remittances to low-income countries grew by 8.2% in the last year alone.

Jenny Abura argued on the Guardian's Katine site in 2009, that "despite the significance, the contribution made by the diaspora is largely ignored in the formal debate about development. By the same token there are few mechanisms that allow senders and recipients of remittances to engage with development activities at a formal level."

In order to leverage the massive capital inflow represented by these remittances, the World Bank suggests including remittances in countries' credit rating analyses and linking them to financial services such as microfinance and targeted instruments such as the increasingly-popular diaspora bonds. It also argues for mechanisms and new technologies to reduce the variable but often weighty transaction costs associated with remittances: according to the remittance prices worldwide database, sending $200 from the UK can entail an average transaction cost ranging from $7.78 (if sending to Pakistan), to $30.72 (if sending to Rwanda).

However, despite the World Bank's recent excitement, there is little consensus over the relationship between remittances and development.

For example, as remittances are private cash flows, typically from a migrant abroad to a family at home, it is not obvious if and how these individual private cash transfers can aggregate to impact well-being beyond the households which receive them.

It is similarly unclear how much of these remittance flows is used by households to cover day-to-day survival costs, how much is consumed and how much is invested. Though remittances might improve the short-term welfare of a household, and might boost consumption and demand for imported goods, some worry that they can contribute more to dependency than to development.