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Cross-country research has shown that while remittances reduce poverty in migrant labour source countries through increased consumption and spending on housing and education, there is little contribution to investment and no—even negative—contribution to economic growth. A recent IMF paper argues that the lack of contribution to growth reflects the Dutch Disease effects of remittance inflows, and that the poverty-reducing impacts reduce the pressure on governments to improve economic governance.
While some small-island Pacific states depend highly upon remittances, others have little to no such dependence. Is this ‘remittance trap’ effect present in the Pacific island countries and, if so, should we be encouraging Pacific island countries (PICs) to take advantage of overseas work—such as through the seasonal worker schemes in Australia and New Zealand? Relatedly, given Dutch Disease effects, should we be promoting remittances in PICs while attempting to promote exports through, for example, PACER Plus?