Remittances provide a significant portion of income in developing countries, especially in Africa where underdeveloped financial markets, mostly limited to urban populations, make migrant income an important source of capital investment. Yet remittances alone do not necessarily generate growth, and are often not used in the way the migrants intended. Recent research by Ashraf, Aycinena, Martinez, and Yang indicates that migrants and remittance recipients have different preferences regarding the budgetary allocations of remittance flows; compared to migrants, recipients prefer to allocate a larger portion toward consumption and a smaller portion toward savings.
An important policy question to address is how migrants control remittance use, and how decisions regarding the use of remittances can boost economic growth. For instance, migrants may prefer that remittances be saved rather than consumed, with positive implications for investment and growth. They may also wish for remittances to be spent on schooling and health, small enterprises, or other expenditures that provide long-run benefits to families.
Our project aims to identify ways of raising the development impact of remittance flows to Africa by granting migrants greater control over how their remittances are used. In Kenya, we will provide Kenyan migrants with a means to directly control the budgetary allocations of remittances they send home, and to extrapolate wider development implications of this autonomy. In partnership with an established online retailer in Kenya, we aim to offer direct payment facilities to a randomly selected group of migrants and examine impacts on recipient household consumption and investment expenditures. Of particular interest to us are direct payment facilities for expenditures likely to have substantial development impacts; education (school fees), health (health insurance plans), and agricultural inputs (such as vouchers for fertiliser). By documenting the benefits that result when migrants are given more control over how remittances are used, our project could herald a new approach to maximizing the development impact of remittances. Given the magnitude of remittance flows worldwide, a proven approach to enhancing their development benefits could lead to imitation and follow-on innovation by private firms as well as development institutions.