- Posted by Jason on January 22, 2015 in Global Economies
You may think that only your loved ones benefit when you send money overseas. In reality, there are some huge added bonuses for the wider community in your home country when you send money back. Foreign remittance has a wider effect and provides economic fuel to the whole receiving country. Let’s take a look at how simply sending money to a country can drive its future development.
Why Spending and Sending is Good
Every dollar you spend, someone else earns.
Every dollar you earn, someone else has spent on your services.
Think about it:
If a hairdresser buys food from a supermarket, the supermarket owner, employees, and suppliers earn money. They may spend this income on clothes, allowing a tailor to earn money to spend at the hairdresser. The hairdresser can then afford to buy more from the supermarket, and everyone earns a higher income as a result. In an economy, everyone is connected in a cycle; like a money-go-round.
Spending drives earning, which allows more spending.
When you send foreign remittance overseas, your loved ones spend it in your home country. This injects money into their local economy, so people are able to earn and spend more. Injecting money from outside stimulates and grows the whole economy, and this plays a central role in encouraging economic development in India, the Philippines and elsewhere. This increase in spending drives growth and expansion of businesses and markets – resulting in future economic development in recipient countries.
Further Benefits of Foreign Remittances
Sending money to India increases the demand for rupees. This means that the price of the rupee appreciates in value against other currencies. The rupee becomes worth more, making imported goods cheaper for India while prices rise and inflation is kept at bay.
Dangers of Over-Dependence on Remittances for Development
India and the Philippines both receive a high amount of remittance income, however unlike a country such as Nepal, they are not entirely dependent on this. Foreign remittance is so central to the Nepalese economy that it has a distorting effect – many workers flock overseas to earn, later sending money, and this saturates the demand for local goods.
Unfortunately, this means a large proportion of goods must be imported (manufactured outside Nepal) and therefore remittance money spent in Nepal gives minimal growth to the internal economy. Because little is produced compared to demand, Nepal will be dependent on remittance until this cycle can be broken. If anything were to happen to these remittances, the economy would collapse; it simply isn’t sustainable. This is similar to aid dependency in some African nations – without the money flowing in, poverty would be even more rampant, but at the same time this dependency can make it more difficult to develop real sustainable growth.
Ideally, remittances should be supplementary – as they are in Indian development, and the Philippines, rather than a huge proportion of a nation’s income. This provides help, while eliminating dependence. Countries without this additional income miss out on the economic stimulation remittance gives. Remittances help fuel already-growing economies, but they can’t single-handedly generate growth where there isn’t any already.
Think of it like giving money to a son or daughter who is living away from home. While giving some money each week can help them pay the bills, relying on too much means they are unable to stand on their own two feet when it comes time.
What Can Lessen the Impact of Remittance?
Sending money to India or the Philippines is like giving fuel to a developing economy. If you are paying high costs to send this money, fuel is leaking away – being siphoned off into rich Western corporations who charge exorbitant fees for transfers. OrbitRemit offers lower fees to ensure the greatest benefit to developing economies. We’ll tell you exactly how much it will cost upfront and how much will be arriving at its destination. The money transfer calculator on the right hand side of the screen is the place to start if you want to to work out how much money your remittance will equate to with OrbitRemit!
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