5 decline in the share of people living in poverty

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international remittances will lead to a 4.5% decline in the share of people living in poverty.According to Adams (2006), based on a new data set of 115developing countries analysed the impact of remittances. The study foundthat workers’ remittances reduced level and depth of poverty.Similarly,Glytsos (1993) using data for Greece as a remittance receiving country,found that remittances were promoting economic growth, employmentand capital formation. Leon-Ledesma and Piracha (2004) analysing theefect of remittances on employment performance for East and CentralEuropean economies and its efect on investment found that remittanceshave a positive impact on employment and productivity both indirectlyand directly. Some scholars argue the contrary. Chami et al. (2005) using data for113 countries found that remittances are negatively correlated with GDPgrowth. They confirm that remittances are not intended to be a source forcapital development, but are just compensatory transfers. This is35
consistent with Adam’s (2009) findings in respect to the level of poverty inthe labor-sending country, does not have a positive impact on the level ofremittances received. These scholars have tested the impact of theworkers’ remittances on the receiving countries but they had notinvestigated the consequences’ of the worker’ remittances on the sendingcountries.Salisu (2005) studied African countries to evaluate the impact of theremittance on the home country.Indeed, Salisu (2005) has surveyed theempirical and theoretical literature on capital flight and remittances withrespect to Sub-Saharan African countries and investigated the linksbetween these and current account situations. He found that first, thepositive relationship between remittances and current account situationsuggests that remittances could play an vital role in mitigating currentaccount problems. Second, the negative link between current accountbalance and capital flight implies that capital flights tend to worsencurrent account difficulties. He also confirms that these results haveimportant implications for policy. Similarly, Osakwe and Verick (2007) analyses the determinants ofboth short and medium-term current account deficits in Africa and findsthat countries are more likely to have a deficit exceeding 10% if theeconomy is small, less open and diverse, and is experiencingmacroeconomic instability. Osakwe and Verick (2007) point to three majorreasons why there is a current account deficit. Firstly, workers’36
remittances and FDI are part of the balance of payments, are a moresustainable way of financing current account deficits than other forms ofcapital flows such as investment This indicates that the low size ofworkers’ remittances, as well as FDI, will boost the current accountarrears. Secondly, trade imbalance deficit percentage of GDP results fromthe trade component often indicating structural competitiveness problemsand therefore an indicator of sustainability. Thirdly; low domestic savingspercentage of GDP including the country debts and current account and

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