2 Adams and Page (2005) and Acosta, et al., (2008) show that remit- tances are associated with lower poverty and inequality. Aggarwal, Demirgüç-Kunt, and Peria (2011) report that remittances help enhance financial development by increasing deposits and credit intermediated by local banks. Giuliano and Ruiz-Arranz (2009) find that remittances can substitute for a lack of financial development. The empirical literature on the impact of remittances on growth, however, remains inconclusive (Chami et al, 2008; Clemens and McKenzie, 2014). Drawbacks associat- ed with migration may include the risk of “brain drain,” which may dampen productivity of the migrant-sending countries and affect their tax base. On the positive side, however, migrants may find better oppor- tunities to enhance earnings and skills in host countries than in their home countries, and can facilitate stronger international trade and com- mercial links over the long run. Can Remittances Help Promote Consumption Stability? 1 Remittances to developing countries have risen steadily over time and are now larger than FDI and ODA for developing and high remittance countries, and signifi- cant relative to exports, imports and reserves. Sources: World Development Indicators, IMF Balance of Payments data, and World Bank estimates. 1. Remittances are based on IMF Balance of Payments Accounts; FDI is foreign direct investment, net inflows; Portfolio Investment is private debt and portfolio equity; ODA is net official development assistance and official aid received. 2. Values represent total flows as percentage of total GDP of low-income and middle- income countries in World Development Indicators. 3. All Countries includes all countries in the sample. High Remittance refers to a set of countries for which remittances have been above 1% during the period under consid- eration. RCI refers to a set of countries for which remittances have been above 1% and either FDI or equity flows have been above 3.5% and 1%, respectively, during the 2003-2012 time period. FDI measures foreign direct investment and ODA covers official development assistance and aid. Magnitude of remittances and other flows FIGURE 4.15 A. Inflows to developing countries 1 B. Inflows to developing countries 2 C. Inflows across country groups, 2003 - 2012 3 D. Remittances relative to exports, imports, and reserves, 2012 3 0 200 400 600 800 1990 92 94 96 98 2000 02 04 06 08 10 12 Remittances FDI ODA Portfolio investment Current billions, US$ 0 0.5 1 1.5 2 2.5 3 3.5 Remittances FDI Portfolio Investment ODA 1990 2000 2010 Percent of GDP 0 1 2 3 4 5 All Countries Emerging Markets Other Developing High Remittance RCI Countries Remittances FDI ODA Percent of GDP 0 20 40 60 80 All Countries Emerging Markets Other Developing High Remittance RCI Countries Remittance to Exports Remittance to Imports Remittance to Reserves Percent 3 Some of these studies report mixed results about the cyclical fea- tures of remittances partly because they employ different samples and methodologies. Chami et al, (2008), Constantinescu and Schiff (2014) and Frankel (2011) find that remittances are countercyclical and less
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