NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Let me share with you my state of mind after finishing a careful reading of the full World Bank report on Latin American remittances, Close to Home: The Development Impact of Remittances in Latin America. On the one hand, it is a closely reasoned, and (as far as this non-economist can determine) a fair-minded analysis of the data. I would expect no less from the Bank, and I applaud the authors.

On the other hand, it leaves me unsatisfied, hungry for more. Why? The conclusions and recommendations are appropriate to the evidence examined, but as the quite extensive and prominent news and analysis coverage of this issue suggests, there is an appetite for more, and one wishes that the authors had not felt so constrained, but rather, had taken a more expansive view of the potential for the study. But, for whatever reason, that was not to be, and one can’t really criticize them for “staying within the lines.”That doesn’t mean we have to. So, this post is a call to our readers to make the sort of suggestions that the authors of the Bank report did not. Let’s design the “manna from heaven” which the Bank does not find today. I for one accept the essential Bank conclusions that countries should continue to encourage the deepening of financial services to recipients, to increase competition among remittance service providers in order to lower costs, and to improve the “doing business” environment. All these are good, but in your view, what are the additional big ideas that are appropriate to the need?

Let me give some examples of what pictures we might draw outside the pinched lines of this study:

1. How can remittance senders serve a more active and positive role in creating development impact? Nextbillion.net has had several posts on this topic, but what more is happening that we don’t know about? And what can we imagine?
2. How can the remittance flow itself be leveraged, given the size, consistency of flow, and likely persistence for many years? I would love to hear from PhD economists, for example, whether it is feasible to slow its velocity (i.e., creating a bigger/longer ’float’) just enough to create a real secondary market from the flow. How could that happen? And where along the flow? If the real remittances are north of $300 billion, just an overnight interest number is big. And what about securitization? Dilip Ratha has a good paper on this subject.
3. On the ground in the recipient countries, what kinds of incentives might be put in place to encourage the sort of investments that maximize growth? Can IFIs, national governments, private banks and even private sector companies play a new and creative role here – with guarantees, or other risk mitigation or credit enhancing tools? Would special home-building or health-insurance or skills-building funds (as but a few examples), tied to remittance use make sense, and be feasible? Is anything like that happening that we don’t know about?