It’s Time to Learn More about How Poor Families Use Migration

Tim Ogden and I want a new research agenda for migration and remittances.

Development policymakers have gotten excited about remittances, the cash that migrants send to developing countries. In large part this is because remittances are huge—about triple the size of foreign aid flows. That’s a big opportunity for development.

But much of the research on remittances focuses on why they are primarily spent on consumption, and how governments and NGOs can get people to invest remittances. Here’s my skepticism about that agenda, in one minute:

I blogged about this over at the NYU Financial Access Initiative:

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 similar 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.

Tim and I identify 12 of those ‘better questions’ in our full paper, ‘Migration as a strategy for household finance’. We map out the newest literature and give pointers to some of the innovative researchers who are starting to steer research toward more fruitful questions about remittances. It’s a fresh and exciting area.