Development on the move: Colombian remittances in focus

The impact of migration on development has long been acknowledged. However, comprehensive evidence on how migration effects development in different countries has, up until now, been lacking. A new research project called Development on the Move aims to bring this issue into focus by gathering new qualitative and quantitative data from different countries around the world. This data is intended to inform policy and maximise the impact of migration on development.

Colombia has been identified as one of the focus countries for this research, and is an interesting case because it has only relatively recently become a major sender and recipient of international migrants. Migration and remittances are increasingly  important issues for policy makers here, with 8% of Colombians now living abroad (primarily in the US, Spain and Venezuela), and remittances generating 3% of the country’s GDP.

Research carried out by Mauricio Cardenas, Carlos Medina and Andres Trejos has confirmed the importance of remittances by showing how monthly per-capita income is increased by up to US$62 in households receiving them. There are clearly positive economic outcomes derived from migration, but they claim more could be done to ensure the system in place allows households to make the most of remittances.

Promoting the use of remittances for savings and investment is outlined as a key policy recommendation. There are two broad policy approaches relating to remittances outlined here. The first sets policies that forces migrants to share earnings or save a share of remittances. The second, and less prescriptive option, is to set policies designed to promote a more efficient use of remittances, through training recipients and senders on the use of financial services and related mechanisms. The first approach is criticised as having potentially negative consequences on the welfare of individuals and households and distort incentives in an unhelpful way. A balance must be struck to ensure migrants do not lose incentives to live and work abroad.

The institutional dimension has been highlighted as very important, and countries must have a financial sector that permits agents to make transactions efficiently. In Colombia formal channels which are fully regulated by the Central Bank have dominated. Competition between financial sector firms has kept fees low, and ensured lower exchange rate differentials. This has forced many, less formal, money exchanges to fold or become financial companies. Colombia has seen the efficient development of a financial infrastructure around remittances, and this has ensured that the pitfalls and expense associated with informal money exchanges have not created barriers for migrants. However, it is important that these positive steps are sustained, and improvements in the system are continuously sought to continue the advance of development.

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