When Money Replaces Home: Remittances as the Backbone of Development

The Silent Engine of the Global South: Migrant remittances have long surpassed development aid and foreign investments in importance. They sustain families and support entire nations.

When thinking of major financial flows from the Global North to low- and middle-income countries, most people imagine government development aid or international investors taking advantage of cheap labor for basic production tasks. Yet remittances from migrants to their home countries have long become the most important source of funding for many countries in the Global South.

In 2023, these remittances totaled $656 billion—more than development aid ($256 billion) and foreign direct investment ($382 billion) combined. By 2025, this figure could rise to around $690 billion. Every year, one billion people are involved in these flows—either as senders or recipients.

Figure 1 Historical development of remittances compared to foreign direct investment and development aid.

Globalization and the associated ease of migration have made remittances one of the most crucial financial resources for numerous countries. While development aid increases slowly and foreign investments were once the main driver of prosperity in developing nations—peaking after 2008 due to low interest rates—they have been steadily declining since 2013. In contrast, remittances from the diasporas of the Global South have moved to the forefront of many countries' capital balances.

India, Mexico, Tonga: Where Remittances Support Society

India tops the list with $120 billion in remittances, followed by Mexico with $66 billion, China with $50 billion, and the Philippines with $39 billion. Even war-torn Ukraine receives $15 billion this way.

Tonga is the most dependent country: remittances account for 41% of its GDP. Tajikistan, Lebanon, and Samoa follow with shares between 28% and 39%.

This may just be the tip of the iceberg. In Nigeria, for example, about 50% of all remittances are sent through informal channels like the Hawala system, which is faster, cheaper, and less bureaucratic—and offers better exchange rates. A report by the European Commission estimates that 35–75% of the total sums are not officially recorded due to informal transfers.  [1]

Blockchain technology may further reinforce this trend by enabling secure, anonymous, cross-border informal payments.

Remittances: A Stability Anchor in Turbulent Times

In normal times, remittances ensure the livelihood of many families. The money goes toward food and healthcare, and is also invested in real estate and children's education. Around 40% of remittances flow into rural areas, where government services are often weak or non-existent. In these places, remittances often make the difference between poverty and a dignified life.

In times of crisis—droughts, crop failures, or economic shocks—remittances are often the first and most important form of aid. This was especially true when the COVID-19 pandemic brought the global economy to a halt.

When Money Becomes Dependency

These money flows also have their downsides. Some families become too accustomed to the regular income from abroad and lose the motivation to be productive or work themselves.

Often, the money is used for consumption rather than for investing in the future. If remittances stop—due to job loss or misfortune abroad—the entire family’s livelihood is at risk.

Transfer costs are also high: sending $200 incurs an average fee of over 6%—twice the amount recommended by the UN.

Migration: Opportunities, Risks, and Motives

The motives for migration are as diverse as the migrants themselves. Some seek higher wages, others flee political or economic instability.

From countries like China, India, and the Philippines, there is an increasing number of highly skilled workers: IT professionals, engineers, and healthcare workers. Yet most migrants work in low-skill jobs—on construction sites, in agriculture, or as domestic helpers.

Many governments actively promote migration to reduce high unemployment—especially among youth. But the cost is high: migrants often live in precarious conditions, face discrimination, and lack legal access to social services.

Remittances as Stabilizers of Entire Countries

What holds true for individual families also applies to whole countries when large segments of the population work abroad. In many nations, remittances support entire economies—they reduce distribution conflicts and prevent social unrest in often fragile states.

They also improve the balance of payments, bring foreign currency into the country, and protect against currency crises. It’s no surprise that many states are reluctant when wealthy countries attempt to "send back" their migrants.

However, on a broader scale, there’s a risk of taking these “convenient” money flows for granted. Governments postpone reforms, relying on remittances to cover short-term issues. Some countries also suffer from a brain drain: when many well-educated citizens leave to seek their fortune abroad, they are missed as specialists and innovators at home—delaying development or trapping the country in poverty.

Figure 2 Migrants in Saudi Arabia

Migrants waiting at a money transfer service to send money home. Riyadh, Saudi Arabia. (Source: Crystal Eye Media/shutterstock, 2018)

COVID as a Stress Test for Global Remittances

At the start of the COVID-19 pandemic, many experts feared a major drop in remittances, as millions of migrants lost their jobs—especially in the hardest-hit sectors.

Indeed, there was a slump in 2020. But after an initial shock, the financial flows proved surprisingly resilient. By 2021, remittances had already grown by 8.3%. This was due to government aid packages in industrialized countries—and strong solidarity within migrant families.

The U.S. labor market in particular remained robust, which supported remittance flows to Latin America and South Asia. However, growth slowed again in 2022—though it remained positive. High energy and food prices following Russia's invasion of Ukraine strained the situation.

Migrants—often in low-wage jobs—suffered from rising costs and lost purchasing power due to real wage losses in countries like Germany, France, or the UK. Inflation also reduced the purchasing power of recipients. Suddenly, the money was no longer enough for essentials like fuel, heating, and food.

In Egypt, a major recipient country with a large diaspora, currency crises further reduced remittance value. Central Asian countries with many migrants in Russia felt the ruble’s collapse: transfers to Kyrgyzstan lost a third of their value, and those to Tajikistan fell by a fifth.

Migration Continues

According to the World Bank, around 252 million economic migrants currently live in a country other than their birthplace. There are also about 38 million refugees and asylum seekers—mostly from Syria, Venezuela, Ukraine, and Afghanistan. An additional 760 million people migrate within their own countries—mostly to urban centers in search of better-paying jobs (based on estimates from 2009).

There are 53 million migrants in the U.S., followed by Germany with 18 million, and Saudi Arabia and Russia with about 13 million each. The top countries of origin include India with 18.7 million emigrants, Ukraine with nearly 12 million, and China, Mexico, and Venezuela with over 9 million each.

Remittances Remain a Pillar of the Global Economy

With continued immigration into industrialized countries, remittances remain a central factor in the prosperity of many Global South nations. They secure investments, consumption, education, and social stability—but also carry the risk of growing social tensions.

These tensions can emerge in destination countries due to fears of "foreign infiltration," but also in countries of origin: those unable to send family members abroad are left behind, and domestic inequality grows.

The COVID-19 pandemic showed how strong and resilient these financial flows are. At the same time, technological developments—like cheaper digital remittance services—are opening new opportunities.

However, stricter migration laws in industrialized nations could create new barriers.

Ultimately, it is up to the countries of origin to use these funds wisely and sustainably—so that their citizens can eventually overcome crises on their own, without being permanently dependent on money from abroad.