Dear Editor,
Further to my SN letter of September 21(‘Remittances are responsible for about 17% of GDP’), I would like to conclude the discussion of remittances by looking at two issues: why do migrants send remittances back home, and how do recipients use the remittances they receive?
The general assumption is that migrants send remittances back home with the sole intention of improving the living conditions of family members left behind. In economic parlance, this is known as altruism, meaning that a migrant’s utility, or subjective feelings of well-being, depend upon the well-being of the recipient of the remittance. The sender is motivated by the satisfaction s/he derives by helping the recipient and expects nothing in return. An alternative view ‒ the “self-serving” perspective ‒ of remittances holds that individuals send money home as a ‘payment’ for some service. Lucas and Stark (1985) argue that the motive for sending remittances is often to ensure that family members back home perform various care-taking services. In such cases, periodic payments are made to secure the migrant’s place in the family back home, and to ensure that possessions (farm and farm implements, capital stock, housing, land, a future inheritance) will be cared for in case the migrant returns.
The idea that migrants are ‘self-serving’ suggests that there is likely a direct relationship between home economic conditions and the decision to send remittances. Improving economic conditions at home helps increase the value of assets left behind, and all other things being equal, increase the likelihood of the migrant’s eventual return home. This, in turn, increases the incentive for migrants to firm up claims on assets left behind. Incentives take the form of remittances, which are used for investments in assets or function as payments to relatives for goodwill or as a form of family-provided insurance. In essence, this view suggests that improved economic conditions at home motivate the remitter to increase his or her ‘insurance coverage’ by sending a larger sum to secure a claim on appreciating assets and to ‘pay’ for the increased probability of returning home.
Researchers have tested both the altruistic and self-interested motives of remitters. These tests are carried out by correlating home economic conditions to the level of remittances. Are remittances rising during good times in the remittance-receiving economy? Or do migrants send more home when economic conditions are unfavourable for their families? The presumption is that if remitters are altruistic, then home economic conditions and remittances should be negatively correlated. That is, deteriorating economic conditions at home should increase the level of remittances sent by families residing abroad, particularly when the immigrant himself is doing well in the host country. Conversely, if improvements in home economic conditions are followed by increases in remittances, it could be said that the immigrant’s behaviour supports the self-interest model.
Examining the relationship between home conditions and the migrant’s volume of remittances, Schreider and Knerr (2000) find that sizable inheritances are necessary to ensure that the migrant continues to remit money home in Cameroon. This supports the self-interested model. On the other hand, Agarwal and Horowitz (2002) present evidence suggesting that migrants from Guyana are motivated by altruism. Faini (1994) also finds evidence supporting the view that migrants behave altruistically; that is, remittances and home economic conditions are negatively associated. However, Faini cautions that other macroeconomic variables are important when examining the determinants of remittance flows from sending to receiving countries.
Taking the evidence into consideration, it is perhaps fair to say that the results are inconclusive. So the altruism versus self-interest dichotomy is unresolved. But it is not necessary to attribute a single motive to remitters. Individuals can be altruistic while also acting in their own self-interest. Migrants can take care of their families back home while at the same time advancing their own material self-interest, including watching over their ‘portfolio of investments’ and making strategic payments to family members to secure an anticipated inheritance.
Remittances are used for a variety of purposes. To the best of my knowledge, the only study of this issue in Guyana is that by Debra Roberts, which was published in 2009 by Social and Economic Studies. She finds – her study was based on a survey ‒ that 26 per cent of remittances were used to buy food and 14 per cent clothing. Another 15 per cent was used to pay for education – to purchase school supplies, pay transportation costs, and fees at private schools and at the University of Guyana. Recipients spent 12 per cent of their remittances on health care, most likely at a private facility, and 9 per cent was deposited in formal financial institutions. Real estate accounted for 6 per cent of gross remittances, while 7 per cent was invested in a business. Payment for water, telephone and electricity, rent and hire-purchases consumed another 11 per cent of remittances (Roberts 2009:220).
Based on the use of remittances in Guy-ana, it is plausible that most of the inflow goes to the poor (who comprise a large proportion of the population). This implies that the effect of remittance on poverty is likely significant, but its exact magnitude is unknown. Adams and Page (2003), for example, found that a 10 per cent rise in remittance-to-GDP led to a reduction of poverty by 2 per cent in deve-loping countries.
Manuel Orozco (2002) looked at the other side of the ‘remittance coin’; that is, “the extent to which the Guyanese diaspora is connected with its home country and the level of remittances and contributions made to its country’s economy.” For our purpose, three of his findings are pertinent. First, the “Guyanese society [diaspora] is significantly in contact with its home country and communities,” and that contact “exceeds the money transfer transaction.’’ Second, remittance sent back home is high, but “officially underestimated at fifty million.” He further observes that the statistics collected by the Bank of Guyana are inconsistent with information from private companies regarding remittances. Indeed, the information provided by respondents he surveys suggests that remittances are “far higher than that officially reported” (pages 1,12). Third, Orozco finds that 48 per cent of the Guyanese living in New York said that they had bank accounts in Guyana, and 18 per cent disclosed that they held an active mortgage at a financial intuition in Guy-ana. However, bank transfer of remittances is not significant, but this is probably changing slowly. Reasons for this include the cost of transfers, length of time and inconvenience for the recipient.
Yours faithfully,
Ramesh Gampat