Imagine for example people of country X working abroad ( in Europe as an example) and bring home every month 3000 euro which is equivalent to 9000000 of local currency for example.

How does this cash benefit the country? isn't just risking higher inflation just like over printing local currency??


Let me ask you another question: if that person stayed at home and made a widget instead, would exporting that widget benefit his home country?

There is no difference, economically, between the two situations. A foreign worker sending home remittances is no different from a local manufacturer exporting their products. Both are earning export dollars for themselves and their home countries.

Is this a good thing or a bad thing? Clearly, the answer is yes - this is a good thing or a bad thing but we cannot know which in isolation. However, in general, foreign worker remittances are overwhelmingly beneficial for the host (which gets work done that otherwise would not be done) and the source (which gets export income.

With reference to your particular question about local inflation, a rise in exports causes appreciation in the exchange rate i.e. local currency becomes more expensive with respect to (in this case) the Euro. Appreciation in the exchange rate actually puts downward pressure on inflation. However, the absence of our worker from the local economy puts upward pressure on local wages and and hence inflation. Both of these effects are small and other factors will dominate them.

  • It's also important to understand that things like this happen because of economic realities and pressure and they tend to improve the very things that caused them to happen. For example, a person is more likely to work overseas if his local labor market is weak and he makes it stronger by taking himself out of it. A person will prefer to work overseas somewhere where there is high demand for labor, and he will reduce that demand by entering that market. In most cases, a trade will benefit both sides. – David Schwartz Sep 19 '17 at 0:24
  • @DavidSchwartz In every case trade benefits both sides - otherwise its extortion, not trade. – Dale M Sep 19 '17 at 0:26
  • That is simply not true. There are some great historical examples where trade harmed one side. Portugal's textile industry, for example, was stifled due to trade with Spain. This significantly stunted Portugal's economy because textiles were the gateway to machinery and industrialization. (They are, of course, interesting because they are exceptions to the general rule.) – David Schwartz Sep 19 '17 at 0:51
  • @DavidSchwartz I was speaking specifically to the two parties to the trade- the trade may have externalities that harm other people (including whole industry sectors) - but to the participants in the trade they are seen to be beneficial (based on their knowledge at the time - purchasing cigarettes may be seen with hindsight to have been a bad deal for the smoker when they get lung cancer). – Dale M Sep 19 '17 at 1:32

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