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October 8, 2013

A New Agenda on Remittances, Payments, and Development: 12 Better Research Questions

By Michael Clemens

Migrants send a lot of money to developing countries—several times more than foreign aid. Researchers and policymakers have seized on these very large flows and built an agenda to understand how these remittances can foster development. Indeed, you most often hear remittance flows compared to aid flows.

Something fundamental is wrong with this agenda however. Researchers tend to study remittances as if they were windfall income, like aid or oil revenue, that arrives like manna from heaven. This leads researchers toward the kind of questions you might ask about windfall income: Are remittances spent on ‘good’ things like investment and education? Do families and countries become ‘dependent’ on remittances?

But remittances are not a windfall like lottery winnings. For many low-income families, they are a return on investment. Migration is one of many financial tools they juggle to smooth income and consumption. Migration often involves a family member moving to access a different labor market, and that household is investing in an asset, bearing up-front costs for uncertain future benefits. Remittances therefore are part of the family’s return on investment simiilar to the return on investment for investing in education of a family member. An agenda that misses these dynamics misses what’s most important in the causes and effects of remittances.

A better theory leads to better questions about the role they play in household financial management, and ultimately to better understanding of how remittances and payments systems shape development. In a new FAI Framing Note, Tim Ogden and I discuss 12 research questions on the role of migration and remittances in household financial management. We speculate about why these questions have been largely overlooked, and highlight a handful of papers that are leading the way toward a more fruitful agenda.

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