Prague Economic Papers 2013, 22(4):487-503 | DOI: 10.18267/j.pep.464

The Role of Remittances as More Efficient Tool of Development Aid in Developing Countries

Robert Stojanov1, Wadim Strielkowski2
1 Department of Adaptation Research Strategies, Global Change Research Centre, Academy of Sciences of the Czech Republic, Bělidla 986/4a, 603 00 Brno, CZ; Department of Social Geography & Regional Development, Faculty of Science, Charles University in Prague, Albertov 6, 128 43 Prague, CZ (stojanov@centrum.cz).
2 Department of Adaptation Research Strategies, Global Change Research Centre, Academy of Sciences of the Czech Republic, Bělidla 986/4a, 603 00 Brno, CZ.

This paper examines the effectiveness of remittances and official development assistance (ODA) in developing countries. It compares the outcomes of aid poured into the economies of the Third World for decades without any visible effect and remittances transferred by emigrants to their countries of origin which proved to be quite effective. We find that remittances have a stronger net positive effect on the increase of GDP per capita in developing economies than development aid. In addition, remittances tend to be higher than ODA funds, they are absorbed by 80-90 per cent (in comparison with 50 per cent of aid budgets spent on administrative and other costs) and do not hinge on institutional quality. The paper advocates the importance of remittances over ODA and supports the wide usage of coherent development policies executed by the developed Western economies with an aim to enhance transparent and efficient remittance transfers as one of the best methods to promote development in less-developed countries (e.g. economies in Africa, Asia or Latin America).

Keywords: developing countries, international migration, official development aid, remittances
JEL classification: F22, F24, J61, O55, P45

Published: January 1, 2013  Show citation

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Stojanov, R., & Strielkowski, W. (2013). The Role of Remittances as More Efficient Tool of Development Aid in Developing Countries. Prague Economic Papers, 22(4), 487-503. doi: 10.18267/j.pep.464
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