There appears to be substantial scope for policy intervention on the part of Pacific island governments to increase the flows of remittances into their economies. The relationship between remittances and savings is examined for Tonga and Western Samoa using an econometric modelling approach. Savings deposits of various types held in banks in these countries are modelled and evidence is discovered of a strong relationship with the income level of migrants. Remittances are also found to be interest sensitive. The extent and use of remittances in four quite different Tongan villages is examined.
Remittances play a crucial role in raising consumption and welfare levels.
Remittances are primarily sent for religious donations, food purchases and housing amenities, including investment in housing, but a proportion is also invested in the small business sector. Church expenditure also supports village development and remittances directly support village projects. This article discusses why it is not surprising that empirical studies of the effect of remittances on the distribution of income sometimes find that remittances increase inequality and sometimes find that they decrease it. These factors differ across locations over time. This article brings together the main policy recommendations from the studies reported in this issue.