Essays on remittance inflows and monetary policy in developing countries

Abstract

International remittances, the money that migrants send back to their home countries, are one of the key components of international capital flows. In 2017, officially recorded remittance flows to developing countries reached $466 billion and the amount is estimated to increase by about 4.1% to reach $485 billion in 2018. It has been observed that in many countries, remittances are larger and have exhibited more stability compared to foreign direct investments and, in certain scenarios, even larger than official development assistance. Most governments in developing countries have increasingly recognized the importance of remittance flows and are in the process of addressing constraints that hamper smooth flows in order to harness the benefits that remittances offer. This is occasioned by the fact that many developing countries are characterised by low domestic saving and high government expenditure. As a matter of fact, remittances which happen to constitute external source of finance play a critical role in local development and poverty reduction. There is a vast literature on remittances and their role with respect to developing countries. This dissertation identifies the gaps in existing literature and covers the additional pertinent issues of consideration that would be of concern to researchers and policy makers. We begin by viewing remittances in positive light by considering the potential stabilizing role of remittances. We then proceed to evaluate whether remittances could potentially pose a risk to monetary policy transmission process owing to their cyclical nature. Within this framework, we deem it necessary to critically investigate the cause of cyclicality in remittance flows owing to the fact that existing literature is inconclusive. Having set the concept on cyclicality of remittances clear, we finalize our discussion by evaluating whether remittances promote financial inclusion.