View/save PDF version of this document - La Strada International

emittance recipients have a higher propensity to consume, but in fact theopposite is true; remittance recipients save and invest more, and are morelikely to have more bank accounts than non-recipients.In practical terms, the social and productive base of an economy significantlydefines the ways in which remittances will effectively function in thateconomy. Remittances need to be understood exactly as what they are:foreign savings. And as any other source of foreign savings, like aid, trade,or investment, remittances interact with the structure of the local economy.The extent to which that structure absorbs those savings is the first-orderquestion for development practitioners. This means we need to analyze alocal economy with regard to its productivity forces, what its efficiencylevel is, how modern it is, what level of diversification/concentration ofproduction exists within various sectors, how entrepreneurship operatesand is enabled, what technology tools exist or are missing, and to whatextent the government provides an enabling environment to motivate aninteraction between investment and production.Performing such analysis will give cues about the extent to which a localeconomy provides substantive opportunities for the productive deploymentof remittances. If an economy is unable to produce in a competitive context,its labor force will be depressed and eventually a portion will migrate totake care of their families. But even once they are away and send money,the families may only be able to do so much with that money insofar asthe local economy provides an effective supply to the demand of servicesand products.Consumers demand a range of commodities and services (economic andfinancial), and what they can obtain depends on the efficiency of marketinformation and the responsiveness of businesses to their interests. Someof these interests involve savings, credit, and other financial services,but there are other interests such as basic consumption and investment ineducation and health. If the productive base of the local economy cannotprovide for that demand, imports of goods will then ensue. None of this isa situation created by remittances, but rather by the structure of the localeconomy and its connection to the global context.The development challenge for practitioners consists in enabling anenvironment in which remittances can have a transformative role in alocal economy. How can policies leverage remittances to effectively andpositively impact their absorption in the local economy and thus promotedevelopment? Once practitioners know how the productive base operates,policy intervention comes to play to alleviate failures or weaknesses of thelocal economy.333