Should the Aid Industry feel threatened by the increase in remittances?
By Lykke E. Andersen*, La Paz, 14 May 2007.

“The Aid Industry is completely out of control.”
Simon Maxwell

The last decade has seen a tremendous increase in remittances from migrant workers in developed countries to left-behind relatives in developing countries. So much so that global remittances are now at least the double of official development aid (1).

This has made the global Aid Industry a bit nervous, as remittances are potentially much better at helping the poor. Not only do the migrants have much more knowledge about the specific needs of their poorer relatives, but the transaction costs are also much smaller. For example, recipients don’t have to write endless reports to qualify for help, and they don’t get a toilet or an injection if what they really needed were school books or money for grandma’s funeral.

I recently came back from a conference in Copenhagen (“Financing Development”), where we were discussing whether remittances compete with or complement official aid. I think Peter Adebayo from Nigeria hit the nail when he bluntly said that there was nothing to worry about: Governments much prefer official aid due to the possibilities for corruption, whereas they have no control over remittances.

So, don’t worry. Not even $200 billion in remittances are likely to threaten the out-of-control Aid Industry.

Related articles:

- Andersen, Lykke E., Bent Jesper Christensen & Oscar Molina (2005) “The Impact of Aid on Recipient Behavior: A Micro-Level Dynamic Analysis of Remittances, Schooling, Work, Consumption, Investment and Social Mobility in Nicaragua” Development Research Working Paper Series No. 02/2005, Institute for Advanced Development Studies, La Paz, Bolivia, December.

(*) Director, Institute for Advanced Development Studies, La Paz, Bolivia. The author happily receives comments at the following e-mail: landersen@inesad.edu.bo.
(1) World Bank (2005) “Global Economic Outlook 2006”.

Ó Institute for Advanced Development Studies 2007. The opinions expressed in this newsletter are those of the author and do not necessarily coincide with those of the Institute.

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