INTERNATIONAL money transfers from foreign workers to their families at home reduce poverty in developing economies, with stronger cash inflows linked to declines in poverty incidence, depth and severity, according to a Bangko Sentral ng Pilipinas (BSP) discussion paper.
“Remittances can contribute to economic development through foreign-exchange earnings, economic growth, macroeconomic stability, and poverty reduction,” it said.
Titled “Cross-Border Remittances and Poverty Reduction in Developing Countries,” the paper's authors examined data from 62 developing economies from 1990 to 2024 using a dynamic panel approach.
The analysis employed three poverty indicators — poverty headcount, poverty gap and poverty severity — across international poverty levels of $3.0, $4.20 and $8.30 per day.
Results showed that remittances significantly lower poverty across all measures.
“Our estimated elasticities remain consistent with established panel evidence, which indicate strong poverty-reducing effects of remittances,” the paper said, adding that these were consistent even when the sample was restricted to countries with remittances exceeding three percent and five percent of gross domestic product (GDP).
The study also found that education plays an important role in shaping the poverty-reducing effects of remittances. Higher educational attainment independently lowers poverty while the interaction between remittances and education suggests the marginal impact of remittances tends to be smaller in countries with higher levels of human capital.
It means that remittances may act as an alternative support mechanism in economies with lower education levels, while in more educated economies, both remittances and human capital contribute jointly to poverty reduction, the BSP paper said.
Meanwhile, income inequality was found to worsen poverty outcomes, with positive and significant Gini coefficients across the poverty indicators.
The Gini coefficient is a statistical measure of economic inequality that gauges how income or wealth is distributed across a population.
The results of the BSP study showed that greater remittance inflows, stronger education outcomes and lower inequality were each associated with meaningful reductions in poverty across developing economies.
Policies for easy remittance systems could strengthen their poverty-reducing impact. These include lowering fees and reducing administrative costs for migration documents, the study said.
It noted that the average cost of sending remittances was 6.4 percent in 2023, more than double the Sustainable Development Goal target of three percent. Mobile-to-mobile transfers averaged 3.5 percent, highlighting the benefits of digital solutions.
Migrant workers typically send $200 to $300 every one to two months, which often helps recipient families move from survival to greater financial stability.
High remittance costs are driven by limited competition among providers and weak cross-border interoperability, the study noted, adding that “lowering the costs of migration can make international migration accessible to poorer households and allow it to serve as their pathway out of poverty.”