For many developing economies, remittances constitute the single largest source of foreign exchange, exceeding export revenues, foreign direct investment and other private capital inflows. Total remittance inflows grew five-fold since 1980 and reached worldwide in 04 $91bn

Origin
Developing Asia in particular has experienced a major increase in remittance inflows, and accounts for the bulk of total remittances. India belongs to the five single largest recipients of remittances The main sources of remittances stem from US, Saudi Arabia, Switzerland, Germany, and France. While the total level of remittances is still underestimated, their growth rate may be overestimated.

What are the advantages of remittances

They are a stabilizing factor. They proved resilient in the face of economic downturns and crises and are increasingly becoming an attractive source of finance for developing countries, At a very broad level they increase the buying power of their recipients and allow them to increase their consumption. But remittances also help to form human capital through better education and health care for the receivers and allow investments in residential real estate or in the starting up of small businesses.
As the poorer sections of society depend on remittances for their basic consumption needs, remittances help to reduce poverty and to some extend inequality. On the other side it should also be clear that poorer and lower-skilled households benefit relatively little from remittances because they are less able to meet the costs associated with emigrating and because immigration policy in advanced economies often favors skilled workers
What is very important, they do not create future debt servicing obligations.
Another factor is that remittance inflows help to stabilize economic activity in the receiving countries.
As remittances accrue to private recipients instead to governments, they do not carry the same potential for corruption or wasteful spending, as foreign aid
The costs of remittances
Remittance needs emigration and this is in general higher among workers with more schooling and that means the costs of skilled worker emigration are significant. Changes in domestic labor supply and wages stemming from highskill emigration lead to welfare losses for the country of origin.
Another costs stem from the decline in productivity of those who stay behind, even though for the migrants themselves experience large welfare increases.
How to reduce the costs of migration?
Two approaches are possible which a government could take. First is the introduction of growth enhancing reforms at home thus improving the investment climate creating incentives that retain the highly skilled.

Second is to adopt a “Diaspora approach.” This approach uses the Diaspora to build networks for trade, tourism, and investment promotion; harnesses its knowledge, skills, and assets; and attracts increasingly efficient forms of remittances.
Highly skilled workers might be less likely to emigrate if the higher education system were oriented toward skills demanded within the country. Such reorientation could include the creation of vocational centers designed to meet the needs of the local industry. Given the subsidies to tertiary education, governments also need to design policies to ensure that migrants internalize the costs of their education.
Use remittances to develop the own country
Using remittances to finance development presents an opportunity and a challenge. Remittances are large and increasing, whereas aid and FDI are declining. This suggests that the importance of remittances as a source of investment financing can only increase. Remittances bring a larger share of the population into contact with the formal financial system, expanding the availability of products such as education loans, mortgages and savings accounts
This financial development has in itself normally a positive effect on growth and development, both directly and by encouraging a more effective utilization of remittances.
Banks involved in channeling remittance payments in other countries are increasingly finding that the remittances and the fees they generate can be effectively securitized, like other future-flow receivables
While we haven’t seen anything up to now in Nepal their have been since 1994 40 issues of remittance-backed bonds in Latin America representing an amount of $5bn. Such securitization has been an attractive way for banks in developing countries to improve their credit rating becoming able to borrow from abroad.
Given the broadly positive impact of workers’ remittances on the economy, it is important to identify what factors may encourage remittances.
Migrant workers allocate their savings between home country and host country driven by an investment motive. Greater returns on host country assets as opposed to home country assets may encourage migrants to invest their savings in the host country, rather than sending them back as remittances.
Thus to receive more remittances it is needed to create an investment friendly environment.
In addition efforts must be undertaken to reduce the cost of sending remittances, including by removing barriers to entry and competition in the remittance market. For instance, authorities could publicize information about available options for money transfers and the associated costs.

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