Will Remittances Outstrip FDI to LDCs?

♠ Posted by Emmanuel in at 12/04/2012 07:50:00 AM
In an older post, I reiterated the argument that if rich countries were truly interested in promoting world development, then they would allow more persons from poor countries to work there. As we all know, however, significantly increased liberalization of migration is not likely because of the politics in rich countries. Labour protectionism, unvarnished racism, and misplaced fears of terror all work against making globalization live up to the name instead of the half-baked sort we have today which favours rich countries. That is, the free movement of capital, goods and services benefits those who have plenty of those--rich countries--more than it does those who have mostly labour--poor countries--to offer in the bargain.

Reading through the World Bank's most recent Migration and Remittances Brief, I was thus rather encouraged by migrant workers' international remittances slowly but surely gaining ground on FDI as the poor countries' largest source of capital inflows. What is more, projections are that they will keep that trajectory, while more volatile FDI which tends to vary with global economic conditions may again suffer a large dip alike during the global financial crisis:

Rich countries are understandably stingy with official development aid (ODA) nowadays since they really don't have cash to burn, especially with their assorted crises. Still, FDI is arguably better in the sense that its benefits are longer lasting. Then again, remittances are better yet insofar as they do not have the same sort of boom and bust cycles even during the teeth of financial crises. I suspect that this hypothesis may unfortunately be tested by another major crisis coming out of the developed world--that is, remittances will again outstrip FDI for the first time since the early Nineties.