Remittances as returns on investment - Photo - Rob O'Brien (Flickr)
A migrant worker walks next to an advertising board at a construction site by Dhoby Ghaut in Singapore. (Rob O’Brien)

Due to the increasingly large amounts sent each year by migrants to their families living in developing economies, the role played by remittances in the development of those countries has since a decade been at the center of a growing interest of development scholars and International Organizations.

While numerous studies and reports detail the positive impacts of remittances on developing countries both at the household level and at a macro level, some question the fact that remittances foster investment or financial development and other fear that households may become dependent on remittances inflows. But most of those research questions are biased by the fact that they tend to consider remittances as windfall incomes for recipient’s households, whereas it would be more accurate to describe them as a return on investment.

Migration is also the most profitable investment, by far, available to many of the world’s poor […]. No investment besides migration available to many of the world’s poor can offer anything close to reliable returns in the hundreds of percent.

(M. Clemens and T. Ogden, 2013)

In a research paper published last year by the Financial Access Initiative, Michael Clemens and Timothy Ogden argue that to think of migration as one of the best investment opportunity available to many of the poors of the world, and of remittances as returns on this investment, can help us shape a more fruitfull research and political agenda.

This new mindest leads to new – and probably more pertinent – questions. For example, rather than asking what can be done so families need remittances less, the authors propose to ask what limits the amount migrants remit to their families, rather than asking if remittances cause financial development, they argue we should ask how financial development can facilitate remittances. The eleven questions of the new research agenda can be found in the Financial Access Initiative’s original paper.

The unfair tax on migrants’ workers

What I think is the most interesting point in considering migration as an investment, is the fact that allowing migrants to send more money simply becomes a way to help them maximize their returns on this costly investement. In this perspective, the high fees paid my migrants on their money transfers is nothing else than an unfair tax on their investment returns, and lowering this tax should be a priority.

As a matter of fact, although a lot of research is needed to better understand which factors push migrants to send more money, the evidence already suggest that lowering the transfer fees leads to large increases in remittances. Whith today’s technology with internet or mobile payment solution allow for very cost-efficient solution to send money around the globe, there is no reason for the average cost of remittances to stay at such incredibly high level (7.9% according to the last estimations of the World Bank) . What is lacking is a more transparent and thus competitive market and more important the possibility for migrants to find and compare all the available options for their transfers.